State Capitalism: How the Return of Statism Is Transforming the World

State Capitalism: How the Return of Statism Is Transforming the World

State Capitalism: How the Return of Statism Is Transforming the World

State Capitalism: How the Return of Statism Is Transforming the World

Synopsis

The end of the Cold War ushered in an age of American triumphalism best characterized by the "Washington Consensus:" the idea that free markets, democratic institutions, limitations on government involvement in the economy, and the rule of law were the foundations of prosperity and stability. The last fifteen years, starting with the Asian financial crisis, have seen the gradual erosion of that consensus. Many commentators have pointed to the emergence of a powerful new rival model: state capitalism. In state capitalist regimes, the government typically owns firms in strategic industries. Not beholden to private-sector shareholders, such firms are allowed to operate with razor-thin margins if the state deems them strategically important. China, soon to be the world's largest economy, is the best known state capitalist regime, but it is hardly the only one. In State Capitalism Joshua Kurlantzick ranges across the world - China, Thailand, Brazil, Russia, South Africa, Turkey, and more - and argues that the increase in state capitalism across the globe has, on balance, contributed to a decline in democracy. He isolates some of the reasons for state capitalism's resurgence: the fact that globalization favors economies of scale in the most critical industries, and the widespread rejection of the Washington Consensus in the face of the problems that have plagued the world economy in recent years. That said, a number of democratic nations have embraced state capitalism, and in those regimes, state-backed firms like Brazil's Embraer have enjoyed considerable success. Kurlantzick highlights the mixed record and the evolving nature of the model, yet he is more concerned about the negative effects of state capitalism. When states control firms, whether in democratic or authoritarian regimes, the government increases its advantage over the rest of society. The combination of new technologies, the perceived failures of liberal economics and democracy in many developing nations, the rise of modern kinds of authoritarians, and the success of some of the best-known state capitalists have created an era ripe for state intervention. State Capitalism offers the sharpest analysis yet of what state capitalism's emergence means for democratic politics around the world.

Excerpt

In late 2013, in a highly publicized address to the Communist Party’s plenum, new Chinese president Xi Jinping announced that the government would unleash the private sector, after decades of gradual economic reforms that left many of China’s biggest industries in the hands of state-owned giants. Market forces, rather than the state, would now play a “decisive role” in the Chinese economy, Xi declared, a line touted by Chinese and foreign media. Many investors in China also interpreted the declaration as a sign of Xi’s reformist plans. Some news stories compared Xi to sainted former leader Deng Xiaoping.

Xi, who had used his own political savvy to eliminate many rivals and make himself the most powerful Chinese leader within the Party since Deng Xiaoping, hardly shied away from comparisons to Deng, who oversaw the beginning of China’s era of economic reform. Indeed, Xi portrayed himself to the Chinese public and foreign investors as a once-in-a-generation economic reformer who could streamline the Chinese economy, slashing waste and unleashing the private sector.

Clearly trying to emulate Deng, in 2014 Xi made a surprise high-profile trip to a new free-trade zone in Shanghai, the country’s financial capital. The trip was designed to remind Chinese of Deng’s early 1990s tour of southern China. Deng had used his southern trip to kick-start economic reform after the Tiananmen massacre paralyzed Chinese politics and China’s economy as well.

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