Capital Accumulation: Market-Driven Monopoly vs Government-Enforced Competition

China and the other East Asian Development Model economies were able to achieve a benevolent cycle of high investment, high competition and the resulting rapid increasing in real wages. The structure of the financial system was key to making this work. A purely market allocation of capital will direct investment toward monopolies and will lead to sub-optimal levels of total investment, so the EADM countries’ banking systems were structured to solve this problem.