A number of authoritarian governments, drawn to the economic power of capitalism but wary of uncontrolled free markets, have invented something new: state capitalism. In this system, governments use markets to create wealth that can be directed as political officials see fit. As an expert on the intersection between economics and politics, Ian Bremmer is uniquely qualified to illustrate the rise of state capitalism and its long-term threat to the global economy. The main characters in this story are the men who rule China, Russia, and the Arab monarchies of the Persian Gulf, but their successes are attracting imitators across much of the developing world. This guide to the next big trend includes useful insights for investors, business leaders, policymakers, and anyone else who wants to understand major emerging changes in international politics and the global economy.
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Portfolio, May Bremmer argues that state capitalism differs from free-market capitalism in that politics rather than profit is the main driver of decision-making. For this reason, it threatens to curtail free markets and the global economy. It is the latest chapter in the "rise of the rest," or the expansion of non-Western states in the international system. Capitalism takes many forms but all of them can be distinguished by their "use of wealth to create more wealth, a broad enough definition to capture both free-market and state capitalism," Bremmer notes.
In the free-market form of capitalism, the job of the state is to "enable" wealth generation by enforcing contracts and limiting the influence of moral bads such as greed—the latter can lead to market failures, which have occurred periodically since the Dutch tulip craze of Free-market governments attempt to ensure that the economic game is played fairly.
In contrast to free-market capitalism, the economy in state-capitalist regimes is dominated by the state agenda. Continuing the sports game analogy, state capitalists control the referees as well as the main players.
Bremmer admits that state capitalism isn't new. He traces the first reference to an speech by Wilhelm Liebknecht, a founder of the Social Democratic Party of Germany. But due to recent questions regarding the merits of free markets after the — financial crisis, the need for job growth and economic stability in less-than-democratic regimes, and the growth of the economies and influence of state-capitalist countries, this form of capitalism is catching on worldwide.
While there is "no single model of state capitalism," its leading practitioners, China and Russia, "share a well-developed sense of risk aversion," having recently abandoned communism as their guiding philosophies.
Another cluster of countries in this group, some of which have benefited from rising commodity prices, include emerging markets that have only tentatively committed to free-market principles, such as Brazil, Egypt, India, Indonesia, Mexico, South Africa, and Turkey.
Another way to identify a state-capitalist country is by looking at the use of four specific policy tools. NOCs like these own 75 percent of the world's crude-oil reserves. A second tool is the state-owned enterprise, such as China's First Automobile Works. A third tool is privately-owned companies—so-called national champions—that are supported by the state to develop a "commanding position" in an economy.
The Brazilian mining concern Vale, according to Bremmer, is a prominent example of a company that was coerced by its government to advance the state objective of stimulating the economy. Many types of governments have SWFs but they "tend to be as transparent—or as secretive—as their governments," Bremmer writes, noting that Norway's Government Pension Fund is exceedingly open and accountable.
Norway is an example of a country that has some state-capitalist trappings but is not in the state-capitalist camp. Similarly, the U. But countries that have all four of these institutions tend to be state capitalist," he writes.
How do these tools threaten the free market? While Bremmer is careful not to predict a new Cold War, he does worry about fissures in the international system and state-capitalist support for undemocratic regimes such as Guinea.
As the head of Eurasia Group, a political risk company, it is Bremmer's job to ask what if. He poses at least ten hypothetical scenarios in the book, including given the mutually assured economic destruction or interdependence between the United States and China, what happens if China closes the door?
While the phrase "The End of the Free Market" may capture public anxiety in America today, Bremmer should have called his book "The End of State Capitalism"—he bets that free markets will win the "war" with statists.
First, state capitalism just doesn't have the same appeal as an ideology that communism had, it is "more a set of governing principles than a coherent political ideology. It is a response to the risks countries face as they open up, which Bremmer detailed in his earlier book The J Curve.
Meanwhile, free markets hold several advantages over their statist cousins: Most importantly, these systems better facilitate innovation and long-term growth. Bremmer lays out several recommendations to ensure that free markets do indeed prevail. Most of these recommendations are just good common sense for America: keep markets open, invest in hard power, pick the right fights, and welcome world-class foreign workers.
Bremmer is saying subtly that for America to continue to lead it should be strong, smart, and principled. In other words, it should stay true to its values. Devin T. Global Engagement Past Programs. Live Stream Newsletter.
Book Review: "The End of the Free Market" by Ian Bremmer
The U. As a result, the coming decade will be vastly more unstable, according to Ian Bremmer. Bremmer is the president and founder of Eurasia Group, a leading global political risk research and consulting firm. Bremmer argued that these shifts should prompt us to consider the role of different governance models around the world. Bremmer cited three key reasons why China has been stepping into a global leadership role faster than he anticipated.
The End of the Free Market
To ensure uninterrupted reading, please contact Rachel Mines, sales director, at rachel. On Thursday, my new book makes its debut. To fuel the rising prosperity on which their long-term survival will depend, political leaders in China, Russia, the Arab monarchies of the Persian Gulf and other authoritarian states have accepted that they have to embrace market-based capitalism. Instead, they have embraced state capitalism.