Opinion
A Problem 10 Times the Size of Greece – and That's Just the Stock Market
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Reforms, if the words can ever be applied to a system so dependent on government intervention, will have to wait until fears of the China bubble bursting are over.
By Roy C. Smith
There are big differences between the strategies employed in Athens and Beijing as they wrestle with their problems.
Greece is trying a “tyranny of the weak” strategy: if you won’t give us better terms, we will die on your doorstep. It is unlikely to work in the long run. Despite its referendum, Greece is broke and will have to restructure. In time, Greece will have to devalue its currency to survive, most likely by leaving the euro.
China, on the other hand is pursuing a “tyranny of the strong” approach: we are powerful enough to be able to make things the way we want them. It has no more likelihood of success, however, than the Greek strategy. Applying government resources to manage markets (sorry, that should be to “uphold market stability”) is hugely expensive, creates a lot of other problems and cannot be sustained for long periods.
Read full article as published in Financial News
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Roy C. Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a Professor of Management Practice.
Greece is trying a “tyranny of the weak” strategy: if you won’t give us better terms, we will die on your doorstep. It is unlikely to work in the long run. Despite its referendum, Greece is broke and will have to restructure. In time, Greece will have to devalue its currency to survive, most likely by leaving the euro.
China, on the other hand is pursuing a “tyranny of the strong” approach: we are powerful enough to be able to make things the way we want them. It has no more likelihood of success, however, than the Greek strategy. Applying government resources to manage markets (sorry, that should be to “uphold market stability”) is hugely expensive, creates a lot of other problems and cannot be sustained for long periods.
Read full article as published in Financial News
___
Roy C. Smith is the Kenneth G. Langone Professor of Entrepreneurship and Finance and a Professor of Management Practice.