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America's obsession with speculation
By Wan Lixin |
March 13, 2010, Saturday
|
Print Edition
Print Edition
ONE of the major changes in Chinese attitudes in the past 30 years is that speculation has been elevated from a criminal offense to a mass movement.
During our training in the US a few months ago, some journalists in our group were in the habit of staying up until after 2am.
That's the time China's stock markets close for the day.
Some years ago some disgruntled economists called the China stock markets casinos. That's probably still true. For many wage-earners, stocks retain the fascination that Las Vegas holds for some of the more privileged Chinese.
As befitting a casino, the majority of the stock buyers are losers.
But they are buoyed up by success stories, like that of Li Jian, former deputy mayor of Shaoguan, in Guangdong Province.
In just 11 trading days last July he made 170,000 yuan (US$25,000).
Li was admired as a genius, but Li himself insists he was just an ordinary investor, with a strong financial background.
Later Li was suspected of insider trading, for he bought stocks in a company he was soon to supervise as senior executive.
Speculation is incompatible with traditional Chinese values.
Lawrence E. Mitchell's "The Speculation Economy: How Finance Triumphed Over Industry," explores historic, social, academic, legal and regulatory forces that shaped American financial capitalism, especially in the late 1800s and the early 1900s.
The book describes America's obsession with speculation in stock markets, and federal efforts at regulation.
"Nowhere in American society is violent, competitive individualism more rampant than in the modern stock market," the book claims.
According to the author, the foundation of the American stock market was laid from 1897 to 1919, in three phases.
The first phase was marked by the entry of middle class as investors, when stock trading was no longer the preserve of the rich.
In the second phase, common stocks emerged as a tool for average Americans to leverage high returns on investments.
The third phase was marked by rapid development of the securities brokerage industry after World War I.
When the development of the stock market is surveyed from a historical perspective, it becomes easier to see how a sector that is designed to serve ended up becoming the master.
"The stock market started as a tool that helped to create new businesses. It ended by subjugating business to its power," the book reads.
At the beginning many Americans embraced the idea of laissez-faire competition as espoused by John Stuart Mill and David Ricardo.
Towards the end of the 19th century many had already realized the destructive nature of unrestrained competition.
Manipulation of stock prices is rampant, as represented by the selling of watered stock.
As the subsequent stock crash in 1929, and the recent US financial crisis, suggest, the financial sector has since then become more speculative.
"In a complete perversion of the 19th-century view of the corporation, the 20th century dawned with corporations that had no specific businesses of their own," the book observes.
This reminds me of recent reports of Western companies' attempt to control Chinese companies that supply grains, edible oils, or meat.
Not long ago there was much buzz about Goldman Sachs' intention to get involved in raising pigs in China.
As some analysts later revealed, the real intention of these companies is not in the business itself, but in control of China's food supply chain through capital control.
It is no longer a myth that the price of edible oil in a village grocery in China may be decided by Wall Street.
A perception of the real intention of modern capitalists would, hopefully, alert policy makers to Western conglomerate's surging enthusiasm at mergers and acquisitions.
During our training in the US a few months ago, some journalists in our group were in the habit of staying up until after 2am.
That's the time China's stock markets close for the day.
Some years ago some disgruntled economists called the China stock markets casinos. That's probably still true. For many wage-earners, stocks retain the fascination that Las Vegas holds for some of the more privileged Chinese.
As befitting a casino, the majority of the stock buyers are losers.
But they are buoyed up by success stories, like that of Li Jian, former deputy mayor of Shaoguan, in Guangdong Province.
In just 11 trading days last July he made 170,000 yuan (US$25,000).
Li was admired as a genius, but Li himself insists he was just an ordinary investor, with a strong financial background.
Later Li was suspected of insider trading, for he bought stocks in a company he was soon to supervise as senior executive.
Speculation is incompatible with traditional Chinese values.
Lawrence E. Mitchell's "The Speculation Economy: How Finance Triumphed Over Industry," explores historic, social, academic, legal and regulatory forces that shaped American financial capitalism, especially in the late 1800s and the early 1900s.
The book describes America's obsession with speculation in stock markets, and federal efforts at regulation.
"Nowhere in American society is violent, competitive individualism more rampant than in the modern stock market," the book claims.
According to the author, the foundation of the American stock market was laid from 1897 to 1919, in three phases.
The first phase was marked by the entry of middle class as investors, when stock trading was no longer the preserve of the rich.
In the second phase, common stocks emerged as a tool for average Americans to leverage high returns on investments.
The third phase was marked by rapid development of the securities brokerage industry after World War I.
When the development of the stock market is surveyed from a historical perspective, it becomes easier to see how a sector that is designed to serve ended up becoming the master.
"The stock market started as a tool that helped to create new businesses. It ended by subjugating business to its power," the book reads.
At the beginning many Americans embraced the idea of laissez-faire competition as espoused by John Stuart Mill and David Ricardo.
Towards the end of the 19th century many had already realized the destructive nature of unrestrained competition.
Manipulation of stock prices is rampant, as represented by the selling of watered stock.
As the subsequent stock crash in 1929, and the recent US financial crisis, suggest, the financial sector has since then become more speculative.
"In a complete perversion of the 19th-century view of the corporation, the 20th century dawned with corporations that had no specific businesses of their own," the book observes.
This reminds me of recent reports of Western companies' attempt to control Chinese companies that supply grains, edible oils, or meat.
Not long ago there was much buzz about Goldman Sachs' intention to get involved in raising pigs in China.
As some analysts later revealed, the real intention of these companies is not in the business itself, but in control of China's food supply chain through capital control.
It is no longer a myth that the price of edible oil in a village grocery in China may be decided by Wall Street.
A perception of the real intention of modern capitalists would, hopefully, alert policy makers to Western conglomerate's surging enthusiasm at mergers and acquisitions.
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