The Rise of State Capitalism

When Ian Bremmer predicts “the end of the free market,” he really only has China in mind as an alternative.

Ian Bremmer, author of The End of the Free Market: Who Wins the War between States and Corporations (2010) appeared on Comedy Central’s The Daily Show on Thursday to talk about the rise of state capitalism. According to Bremmer, what we experienced two years ago wasn’t really a global financial crisis. “I saw a financial crisis in the West,” he said.

In Bremmer’s analysis, China could come out of the turmoil in relatively sound condition because “it didn’t have the banks.”

All financial institutions in China are either owned by the state or controlled by the state and that supposedly prevented a meltdown.

The market didn’t fail, though, he said. The reason Wall Street could drag much of the economy down with it was a lack of oversight on the part of the American government. And an unregulated market, according to Bremmer, is “not a free-market system.”

Actually, it is.

“It’s not politically defensible today to go out and support free markets,” argued Bremmer, which is true. But his notion of a “regulated free market” is a contradiction in terms that doesn’t help to rehabilitate capitalism at all.

It’s really about China

When Bremmer talks about “state capitalism,” it is really just China that he is referring to. As he said, “we’re looking at an environment where the world’s second largest economy, and the fastest growing out of the recession, is one where the state controls the economy. It’s the largest player,” said Bremmer, “there’s no rule of law.”

True, in Russia and some of the Arab oligarchies, “political elites use state-owned and politically loyal, privately-owned companies to dominate entire economic sectors” as well but the Chinese model hasn’t suddenly become attractive to Europe, Japan and the United States, whatever their financial trouble. Considering China’s emergence as a global player to be reckoned with, it doesn’t necessarily follow that its economic choices are the envy of the world.

If we disregard China, though, as Thomas Barnett has suggested, the globalization counternarrative “boils down to the rise and fall of the world’s resource-rich petrocracies, whose fortunes track with the global economy. Nobody can seriously swallow the notion,” he believed, “that the rulers of Venezuela, Iran, Saudi Arabia and Russia somehow represent an improvement on free-market systems — much less the future of global leadership.”

And even China doesn’t look so peachy

Reviewing Bremmer’s book at World Politics Review, Barnett added that the weaknesses that characterize his list of so-called threats posed by state capitalism should only service to energize America’s free marketers.

China drives up global commodity prices by paying above-market prices; Beijing’s desperate race to lock down resources around the planet forces it into patron-client relationships with the world’s most unstable, corrupt and needy regimes; China’s amoral approach to trade and investment helps insulate these bad regimes from Western criticism; and, in its gross inefficiencies, China’s state capitalism might prevent the global economy from reaching its productive potential just as the emerging global middle class needs it most.

And that’s not all.

China’s state capitalism risks ghettoizing its economy and beggaring both itself and those regimes it manages to suck into its mercantilist orbit, while making the rest of the world a little bit poorer in the process.

Bremmer admits that free-market economics haven’t gone with the wind. But things are going to get worse before they get better, he believes. “I’d bet confidently on strong state-led Chinese growth over the next decade.”

State capitalism isn’t an ideology. It’s more a set of management principles. It can never match the hold that communism once had on the popular imagination, because it wasn’t born as a response to injustice.

China’s freak capitalism isn’t likely to be copied by rising powers of lesser potential. But it may well drive smaller Asian countries in China’s shadow along with some of the export economies of Africa and Latin America that could use China’s patronage. “The developed states don’t have much to offer them at the moment that looks attractive for their economic stability.”

It’s not the end of the free market nor globalization as such. But capitalism is under threat in both the developing and in the developed world. In this sense, the battle between “states” and “corporations” is real — and relevant.