Thomas P.M. Barnett

■"Dispute Leaves U.S. Executives In Chinese Legal Netherworld," by Joseph Kahn, New York Times, 1 November 2005, p. A1.

Fascinating story about how a state-owned Chinese firm uses the police and courts to try and shake down a rival U.S.-based firm for money it says it's owed.

Most people will look at this and say, "My God, that's the state running a company! How unfair!"

The scarier reality is this: a company is running the local government. There is irony beyond belief in this outcome for Mao's China, because it describes the sort of high-end capitalism that Marx feared: when companies became so important to the state that the state lets itself be used by them.

This will taper off with time as the global investment community (supplier of that $50B a year that keeps China's economy humming) begins demanding more transparent rule sets, as is, there are easier ways to collect disputed debts than getting the government to imprison your rival's senior executives.

Here's the key para from the piece:

Difficulty enforcing contracts, rampant violations of copyrights and trademarks and protection of domestic industry champions have heightened trade tensions at a time when China is struggling to convince the outside world that its growing economic might poses no threat. Beijing is under heavy pressure to embrace global legal norms with the same fervor it has pursued foreign trade.

As I say in BFA, if you want to understand capitalism in China today, watch HBO's "Deadwood," where Al Swearengen, the evil boss of the frontier town basically has all the local authorities on his payroll. In short, the company owns the town and the government to boot. There is a lot of this in China today, masquerading as state-own enterprises (known as "wearing the red hat") when, in reality, it's more often the other way around--namely, the company owns the local government.

And before you get too jacked. Remember that this is different in degree but not in kind from the way cozy government-corporate relationships that marked the rise of Japan, South Korea, Singapore and others in the region.

Yes, yes, autocrats build nations, but democracies are better are running them and processing all the competing social demands. Monopolies build nets, but markets are better at running them.

In Asia, the governments build companies, then the companies outgrow the government, and as the transaction rate in the private sector skyrockets thanks to foreign trade and investment, that better market begins to demand better government. Markets make democracies, not the other way around.