State Capitalism versus Free Markets
Byline: Doug Bandow, SPECIAL TO THE WASHINGTON TIMES
How quickly the world can change. In 1989, communism collapsed across Eastern Europe. The Berlin Wall, the most visible symbol of communist totalitarianism, fell without a shot being fired.
People spoke of the end of history. The entire world would be democratic and capitalist. Even China seemed destined to join the Western camp.
In the fall of 2008, it was capitalism that appeared to stagger if not quite collapse. Much of the world moved away from free markets toward state capitalism if not socialism. Today, China offers that model as an alternative to capitalist America.
In The End of the Free Market, Ian Bremmer offers a realistic yet optimistic discussion of today's competition between free markets and state capitalism. Although the total victory once envisioned for democratic capitalism looks far away, free markets will prove to be more flexible and resilient over the long term.
The collapse of communism was a moment of enormous human liberation. All of the formerly socialist societies looked west for answers.
However, liberty is good for individuals, not ruling regimes. Notes Mr. Bremmer: Authoritarian governments everywhere have learned to compete internationally by embracing market-driven capitalism. But if they leave it entirely to market forces to decide winners and losers from economic growth, they risk enabling those who might use that wealth to challenge their political power. This is one reason China consciously sought to avoid the Russian experience by maintaining political control even while liberalizing economically.
Democracy has made progress, but there is more to liberal society than occasional elections. As Mr. Bremmer explains, there is plenty of gray area between Norway and North Korea. Freedom House counts 121 democracies but a quarter of them are not free. The Economist Intelligence Unit cites 30 full democracies, 50 flawed democracies, and 87 hybrid democracies or authoritarian states.
Similarly, capitalism has advanced, though not as victoriously as once expected. The meme no longer is globalization sweeping all before it, effectively flattening the world's once diverse landscape. Mr. Bremmer writes: The power of the state is back. Over the past decade, a new class of companies has pushed its way onto the international stage: enterprises that are owned or closely aligned with their home governments.
Of course, there is nothing new about either authoritarian government or state economic meddling. Mercantilism once dominated European politics. Although that philosophy has been discredited, Governments are again intervening in their economies to promote declared national interests, and they have found subtler and more effective ways to practice protectionism, notes Mr. Bremmer.
The tools of state capitalism are many. National energy companies are a favorite; nominally private concerns acting as national champions are another. Sovereign wealth funds have become a common means for states to invest wealth garnered from natural resource sales.
China and Russia are premier practitioners of state capitalism. Other examples include the United Arab Emirates, Ukraine, Algeria and Brazil. Even India, which has moved toward free markets while preserving democratic norms, remains poised between the state-dominated economic model of an earlier era and one driven by private enterprise, writes Mr. …