The beginning of the Chinese New Year brings to mind a book by Ian Bremmer with the provocative title 'The End of the Free Market' *. Bremmer is president of a political risk research and consulting firm. His book is about the emergence, led by China, of ‘state capitalism’ as a major factor in today’s world economy and a potential threat to the very survival of the free market.
Bremmer defines state capitalism as a system ‘in which the state dominates markets primarily for political gain’. In it governments use
'state-owned companies to manage the exploitation of resources that they consider the state’s crown jewels and to create and maintain large numbers of jobs. They use select privately owned companies to dominate certain economic sectors. They use so-called sovereign wealth funds to invest their extra cash in ways that maximize the state’s profits’.He also writes that:
‘The ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival)’.In addition to China, Bremmer maintains that Russia, Brazil and Saudi Arabia are further examples of state capitalism, while elements of the system can be found in a large number of other developing countries.
I am not terribly impressed with Bremmer's characterisation of state capitalism. It strikes me as somewhat simplistic in its almost psychological approach, and I find it difficult to think of non-trivial features of an economic system that is supposed to simultaneously encompass China and Saudi Arabia. But the phenomenon he is concerned with is real and important enough. To use his words again, after apparently being relegated to oblivion by the neoliberal revolution, ‘in the first decade of this new century, public wealth, public investment, and public ownership have made a stunning comeback’.
According to a special report in The Economist**,
- state companies make up 80 % of the value of the stock market in China, 62% in Russia and 38% in Brazil;
- three Chinese state-owned companies rank among the world’s ten biggest companies by revenue, against only two European ones (Royal Dutch Shell and BP).
- The thirteen biggest oil firms, which control more than three-quarters of the world’s oil reserves, are state-backed, as is the world’s biggest natural-gas company, Russia’s Gazprom.
- the French government has set up a sovereign-wealth fund
- South African government is talking about nationalising companies and creating national champions.
* Bremmer, I. (2010) 'The End of the Free Market: Who Wins the War Between States and Corporations?' New York: Viking
** Wooldridge, A. (2011) "The Visible Hand", The Economist, 20 January 2011