The international economic infrastructure is in a state of recession and the free market economies of the world are among the hardest hit. Consequently, many have posed the question: is the free market a failed economic system?
In The End of the Free Market, Dr. Ian Bremmer brilliantly puts together the argument that ‘state capitalism,’ a term that he defines as “a system in which the state plays the role of leading economic actor and uses markets primarily for political gain,” [33] is the single most imminent threat to the existence of free market democracy.
The book begins with Bremmer detailing the history of state capitalism and how it rose from the ashes of mercantilism, which is the practice of economic nationalism for the purposes of establishing a wealthy and powerful state. He then explains how recent state capitalism came into existence from post-Communist authoritarian governments who experimented with the free market, not for the purposes of having a flourishing economy, but in order to have leverage over the citizenry of their respective states. Bremmer then elaborates on the different tools that modern state capitalist governments utilize to maintain power. The list includes direct influence over national oil and gas corporations (NOCs), various state owned enterprises (SOEs), privately owned national champions, and finally, sovereign wealth funds.
Next, Bremmer carries out in-depth case studies on countries that currently practice state capitalism. Among them are Saudi Arabia, whose royals survive by using the kingdom’s massive oil revenues to buy political allegiance; United Arab Emirates, where each Emirate has its own state-owned oil company; Algeria, with over one thousand state-owned companies; Ukraine, where the government owns all agricultural land and hold majority stakes in railroads, telecommunications, electricity, chemicals, heavy machinery, and civil aviation; Russia, which has applied restrictions in foreign investment to certain strategic sectors; India, which involves itself in politically sensitive products like food, fuel, fertilizer, electricity, and water; Mexico, whose government owns an oil company ranked 31st on the 2009 Forbes Global list of top companies by revenue; and China, which provides great financial assistance to companies who are interested in foreign investments in key economic sectors.
Throughout the book, Bremmer presents statistics that would make even the most confident banker on Wall Street sleep uneasy. These statistics include a report from the Forbes Global 2000 list of the world’s largest companies, 117 of which are state-owned from Brazil, Russia, India, and China (also known as the BRIC countries). Meanwhile, a total of 239 American, Japanese, British, and German companies—privately owned—dropped off the list.
Bremmer artistically uses a ‘market spectrum’ in order to describe the different economic systems currently used by different nations. On this ‘market spectrum,’ state capitalism leans further to the left, towards command economies and ultimately ‘Utopian Communism,’ while free market capitalism leans to the right, towards free market economies and ultimately ‘Utopian Libertarianism.’ Bremmer argues that since the economic pendulum took a swing too far to the right and the resulting lack of regulation led to the recession, the U.S. government will and has already recently indicated that they will aggressively push the pendulum to the left. This, Bremmer points out, is a critical mistake.
With the decline of U.S. influence on politics around the world already evident in the lack of support from nations to place sanctions on Iran, by shying away from the free market system and allowing major countries that practice state capitalism (i.e. China and Russia) to have an even larger influence over the international system, the presence of the United States will only further diminish. Bremmer explains that in order to alleviate this problem, American corporations must show less fear. Additionally, the U.S. government should resist intervening due to paranoia about national security when countries which practice state capitalism make certain purchases of American companies. One example of this is when in 2005 the China National Offshore Oil Corporation, an NOC, bid $18.5 billion dollars to purchase Unocal, a U.S.-owned oil company with interests in Central Asia. The Unocal board of directors essentially rejected the transaction because more than two-thirds of the funds were put up by the Chinese government and therefore defied a ‘free-market’ transaction.
Bremmer goes on to say that U.S. ‘soft power’ has begun to deteriorate because many other state capitalist countries now compete with the U.S. for screen time since its influence over other countries is on the decline. Essentially, he argues public diplomacy is something that should not be heavily relied on. However, the U.S. can challenge state capitalism by continuing to invest heavily in its ‘hard power.’ State capitalist countries are too busy spending and procuring domestic issues at home to be concerned too much with other countries in the world. If the U.S. continues to outspend China 10-to-1 and Russia 25-to-1 on their military, the U.S. will be able to maintain its political and economic presence in the international system.
Bremmer ends his discussion by cleverly drawing comparisons of current U.S. economic relations with China to previous U.S. political relations with the USSR. America currently relies on China to finance its debts, while the Chinese economy depends on American consumers. If the Chinese and the Americans break ties, they will have “mutually assured economic destruction,” similar to what many people believed would have happened during the 1980s had the U.S. and the USSR ceased relations with one another. In order for the global economy to ascend and the American free market to once again flourish, Bremmer writes, the U.S. must set aside their ‘paranoia’ of national security and continue to do business with China. Given that the international economy is still recovering from the recent recession, neither country has a viable option to cut economic ties with the other. The U.S., China, and nearly every other country in the world need as many flows of goods and capital that are available, and enabling free trade opens the door for these opportunities.