Ian Bremmer, head of the Eurasia Group consulting firm, has his finger on the pulse of a lot of countries that most Americans probably don’t think about very much – and yet we probably should. In The End of the Free Market, he argues that these countries in Asia, Africa, and Latin America will substantially affect our future well-being. They will do so, he says, not just because of the growth of their economies but also because of the economic systems they choose.
Bremmer’s book is a warning about the rise and consequences of state capitalism, which he defines as “using markets to create wealth that can be directed as political officials see fit.” It is the system used most notably by China and several other countries in the G-20, the group of big countries that has essentially replaced the G-7 in managing the global economy. It is also, Bremmer asserts, a system that is “fundamentally incompatible” with the free-market capitalism that exists to varying degrees in the United States, Europe, and other relatively wealthy and democratic countries.
The problem with state capitalism is twofold, Bremmer says. On one hand, state capitalism tilts the playing field in domestic and international politics by putting tremendous economic resources in the hands of politicians. They control these resources at home through state-run industries and abroad through sovereign wealth funds. But the greater threat, according to Bremmer, is that “opportunity can enable dependence.” In other words, companies from free-market countries that have worked profitably with state capitalist systems could face abrupt and serious repercussions if the states’ priorities change.
In Bremmer’s analysis, the combination of these factors could tilt the balance of power in the global economy away from countries that work together to bolster growth and toward countries that are only following their political imperatives. State capitalism also limits overall growth, he says, by stifling dynamic processes like creative destruction.
To fend off the challenge of state capitalism, Bremmer recommends a list of policies, some of which are familiar (such as avoiding protectionism and safeguarding intellectual property) and some of which are more novel (such as solidifying the “hard” power of the United States). But before we debate the solutions to the problem he identifies, we should probably consider his premise. To wit:
1. Are there no cases where state capitalism is an appropriate system for a developing country, for example, when the country is large and difficult to govern, or when the country is at an early stage of economic development?
2. Is there a viable alternative to state control of natural resources, which Bremmer identifies as a crucial component of many state-capitalist models, in most developing countries?
3. Where should countries like the United States be on the spectrum of market control? Though the financial crisis and BP oil spill have spurred calls for greater regulation, the Tea Party supporters want to move in the opposite direction. Are we too close to a command economy, or too close to a laissez-faire economy?
4. Can state capitalism abroad really distort the politics of countries like the United States and its European allies?
5. Is neocolonialism – often achieved by the foreign investments of sovereign wealth funds and state-run industries – an inevitable result of state capitalism?