海角大神

Financial repression and extractive institutions are two of the big memes in international economics today.

Financial repression occurs when governments intervene in financial markets to channel cheap funds to themselves.聽With sovereign debts skyrocketing, for example, governments may try to force their citizens, banks, and others to finance those debts at artificially low interest rates.

Extractive institutions are policies that attempt to redirect resources to politically-favored elites. Classic examples are the artificial monopolies often granted by governments in what would otherwise be structurally competitive markets. Daron Acemoglu and James Robinson have recently argued that such institutions are a key reason聽Why Nations Fail.聽Inclusive institutions, in contrast, promote widely-shared prosperity.

Over at Bronte Capital, John Hempton brings these two ideas together in an argument that Chinese elites are using financial repression to extract wealth from state-owned enterprises. In a nutshell, he believes Chinese authorities have artificially lowered the interest rates that regular Chinese citizens earn on their savings (that鈥檚 the repression), and have directed these cheap funds to finance 鈥渟taggeringly unprofitable鈥� state enterprises that nonetheless manage to spin out vast wealth for connected elites and their families.

I don鈥檛 have the requisite first-hand knowledge to judge his hypothesis myself. But both his original post and recent follow-up addressing feedback are worth a close read.