Finance in China course assignment 2014-2015;
State capitalism is an economic model which competes with the free-market model in which “the state functions as the leading economic actor and uses markets primarily for political gain” (Bremmer, 2009). China is the most often cited practitioner of state capitalism. In this assignment, you are asked to write an essay on how the Chinese financial system reflects China’s model of state capitalism. More specifically, you should at least cover the following elements: (1) a literature review on features of state capitalism in general, (2) some important features of the Chinese financial system (including the banking sector, the bond market, and the stock market), and (3) Why are these features the reflections of China’s model of state capitalism.
To help you start from somewhere, I have uploaded two relevant papers on the E-Board (under section week 6): (1) Bremmer, Ian (2009) State capitalism comes of age: the end of the free market? Foreign Affairs (May/June 2009), 1-11. (2) The Economist (2012) The visible hand, special report on state capitalism, January 21st 2012. You will obtain some ideas about which direction you need to go in order to further explore this topic.
The essay is expected to be about 3000 words. The essay will account for 30% of the total grade of the course.
The deadline for submitting the essay is Monday 23 March, 2015.
Return to Article: http://www.foreignaffairs.com/articles/64948/ian-bremmer/statecapitalism-
comes-of-age
Home > Essay > State Capitalism Comes of Age
ESSAY
State Capitalism Comes of Age
The End of the Free Market?
May/June 2009
Ian Bremmer
IAN BREMMER is President of Eurasia Group. He co-authored The Fat Tail: The Power of
Political Knowledge for Strategic Investing with Preston Keat.
Click here to listen to a podcast of this article. [1]
Across the United States, Europe, and much of the rest of the developed world, the
recent wave of state interventionism is meant to lessen the pain of the current global
recession and restore ailing economies to health. For the most part, the governments of
developed countries do not intend to manage these economies indefinitely. However, an
opposing intention lies behind similar interventions in the developing world: there the
state’s heavy hand in the economy is signaling a strategic rejection of free-market
doctrine.
Governments, not private shareholders, already own the world’s largest oil companies
and control three-quarters of the world’s energy reserves. Other companies owned by
or aligned with the state enjoy growing market power in major economic sectors in the
world’s fastest-growing economies. “Sovereign wealth funds,” a recently coined term
for state-owned investment portfolios, account for one-eighth of global investment, and
that figure is rising. These trends are reshaping international politics and the global
economy by transferring increasingly large levers of economic power and influence to
the central authority of the state. They are fueling the large and complex phenomenon
of state capitalism.
Not quite 20 years ago, the
situation looked a lot different.
After the Soviet Union buckled
under the weight of its many
internal contradictions, the new
Kremlin leadership moved quickly
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to embrace the Western economic
model. The young governments of
the former Soviet republics and
satellites championed the West’s
political values and began joining
its alliances. Meanwhile, in China,
liberal market reforms that had
been launched a decade before
began to breathe new life into the Chinese Communist Party. Emerging-market powers,
such as Brazil, India, Indonesia, South Africa, and Turkey, began deregulating their
dormant economies and empowering domestic free enterprise. Across western Europe,
waves of privatization washed away state management of many companies and
sectors. Trade volumes swelled. The globalization of consumer choice and supply
chains, of capital flows and foreign direct investment, of technology and innovation
strengthened these trends still further.
But the free-market tide has now receded. In its place has come state capitalism, a
system in which the state functions as the leading economic actor and uses markets
primarily for political gain. This trend has stoked a new global competition, not between
rival political ideologies but between competing economic models. And with the injection
of politics into economic decision-making, an entirely different set of winners and losers
is emerging.
During the Cold War, the decisions taken by the managers of the Soviet and Chinese
command economies had little impact on Western markets. Today’s emerging markets
had yet to emerge. But now, state officials in Abu Dhabi, Ankara, Beijing, Brasília,
Mexico City, Moscow, and New Delhi make economic decisions — about strategic
investments, state ownership, regulation — that resonate across global markets. The
challenge posed by this potent brand of state-managed capitalism has been sharpened
by the international financial crisis and the global recession. Now, the champions of free
trade and open markets have to prove these systems’ value to an increasingly skeptical
international audience.
This development is not simply a function of the decline in the United States’ power and
influence relative to those of emerging states. If the governments of these states had
chosen to embrace free-market capitalism, the United States’ declining share in the
world market would have been offset by global gains in efficiency and productivity. But
the rise of state capitalism has introduced massive inefficiencies into global markets and
injected populist politics into economic decision-making.
PRINCIPAL ACTORS
State capitalism has four primary actors: national oil corporations, state-owned
enterprises, privately owned national champions, and sovereign wealth funds (SWFs).
When thinking of “big oil,” most Americans think first of multinational corporations such
as BP, Chevron, ExxonMobil, Shell, or Total. But the 13 largest oil companies in the
world, measured by their reserves, are owned and operated by governments —
companies such as Saudi Arabia’s Saudi Aramco; the National Iranian Oil Company;
Petróleos de Venezuela, S.A.; Russia’s Gazprom and Rosneft; the China National
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Petroleum Corporation; Malaysia’s Petronas; and Brazil’s Petrobras. State-owned
companies such as these control more than 75 percent of global oil reserves and
production. Some governments, on discovering the leverage that comes with state
dominance of energy resources, have expanded their reach over other so-called
strategic assets. Privately owned multinationals now produce just ten percent of the
world’s oil and hold just three percent of its reserves. And in much of the world, they
must now manage relations with governments that own and operate their larger and
better-funded commercial rivals.
In sectors as diverse as petrochemicals, power generation, mining, iron and steel
production, port management and shipping, weapons manufacturing, cars, heavy
machinery, telecommunications, and aviation, a growing number of governments are no
longer content with simply regulating the market. Instead, they want to use the market
to bolster their own domestic political positions. State-owned enterprises help them do
this, in part by consolidating whole industrial sectors. Angola’s Endiama (diamonds),
Azerbaijan’s AzerEnerji (electricity generation), Kazakhstan’s Kazatomprom (uranium),
and Morocco’s Office Chérifien des Phosphates — all of these state-owned firms are by
far the largest domestic players in their respective sectors. Some state-owned
enterprises have grown particularly enormous, most notably Russia’s fixedline-
telephone and arms-export monopolies; China’s aluminum monopoly, powertransmission
duopoly, and major telecommunications companies and airlines; and
India’s national railway, which is among the world’s largest nonmilitary employers, with
over 1.4 million employees.
A more recent trend has complicated this phenomenon. In some developing countries,
large companies that remain in private hands rely on government patronage in the form
of credit, contracts, and subsidies. These privately owned but government-favored
national champions get breaks from the government, which sees them as a means of
competing with purely commercial foreign rivals, and they are thus able to carve out a
dominant role in the domestic economy and in export markets. In turn, these
companies use their clout with their governments to gobble up smaller domestic rivals,
reinforcing the companies’ strength as pillars of state capitalism.
In Russia, any large business must have favorable relations with the state in order to
succeed. The national champions are controlled by a small group of oligarchs who are
personally in favor with the Kremlin. The companies Norilsk Nickel (mining);
Novolipetsk Steel and NMK Holding (metallurgy); and Evraz, SeverStal, and
Metalloinvest (steel) fall into this category. In China, the same applies, albeit with a
wider, less high-profile ownership base: the AVIC empire (aircraft), Huawei
(telecommunications), and Lenovo (computers) have all become state-favored giants
run by a small circle of well-connected businesspeople. Variations of the privately
owned but government-favored national champions have cropped up elsewhere,
including in still relatively free-market economies: Cevital (agroindustries) in Algeria,
Vale (mining) in Brazil, Tata (cars, steel, and chemicals) in India, Tnuva (meat and
dairy) in Israel, Solidere (construction) in Lebanon, and the San Miguel Corporation
(food and beverage) in the Philippines.
The task of financing these companies has fallen in part to SWFs, and this has greatly
expanded those funds’ size and significance. Governments know they cannot finance
their national champions simply by printing more money; inflation would eventually
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erode the value of their assets. And spending directly from state budgets could leave a
shortfall in the future if economic conditions deteriorated. Thus, SWFs have taken on a
greater role. They act as repositories for excess foreign currency earned from the
export of commodities or manufactured goods. But SWFs are more than just bank
accounts. They are state-owned investment funds with mixed portfolios of foreign
currencies, government bonds, real estate, precious metals, and direct stakes in — and
sometimes majority ownership of — a host of domestic and foreign firms. Like all
investment funds, SWFs look to maximize returns. But for state capitalists, these
returns can be political as well as economic.
Although SWFs have gained prominence in recent years, they themselves are nothing
new. The Kuwait Investment Authority, now the world’s fourth-largest SWF, was
founded in 1953. But the term “sovereign wealth fund” was first coined in 2005,
reflecting a recognition of these funds’ growing significance. Since then, several more
countries have joined the game: Dubai, Libya, Qatar, South Korea, and Vietnam. The
largest SWFs are those in the emirate of Abu Dhabi, Saudi Arabia, and China, with
Russia playing catch-up. The only democracy represented among the ten largest SWFs
is Norway.
CLOSE TIES
One essential feature of state capitalism is the existence of close ties binding together
those who govern a country and those who run its enterprises. Russia’s former prime
minister, Mikhail Fradkov, is now chair of Gazprom, Russia’s natural gas monopoly.
Gazprom’s former chair, Dmitry Medvedev, is now Russia’s president. This client-patron
dynamic has brought politics, politicians, and bureaucrats into economic decisionmaking
to an extent not seen since the Cold War. And it is this dynamic that raises
several risks for the performance of global markets.
First, commercial decisions are often left to political bureaucrats, who have little
experience in efficiently managing commercial operations. Often, their decisions make
markets less competitive and, therefore, less productive. But because these enterprises
have powerful political patrons and the competitive advantages that come with state
subsidies, they pose a great and growing threat to their private-sector rivals.
Second, the motivations behind investment decisions may be political rather than
economic. The leadership of the Chinese Communist Party, for example, knows that
generating economic prosperity is essential to maintaining political power. It dispatches
China’s national oil corporations abroad to secure the long-term supplies of oil and gas
that China needs to fuel its continued expansion. Thanks to state funding, these
national oil corporations have more cash to spend than their private-sector competitors
— and they pay above-market rates to suppliers to lock in long-term agreements. If the
national oil corporations need additional help, the Chinese leadership is able to step in
with promises of development loans for the supplier country.
Such behavior distorts the performance of energy markets by increasing the cost that
everyone pays for oil and gas. It also deprives privately owned energy multinationals of
the additional income they may need for expensive long-term projects, such as
deep-sea exploration and production. This slows the development of new hydrocarbon
reserves since few state-run oil corporations have the equipment or the engineering
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expertise needed for this kind of work. State capitalism ultimately adds costs and
inefficiencies to production by injecting politics, and often high-level corruption, into the
workings of markets.
If business and politics are closely linked, then the domestic instabilities that threaten
ruling elites — and, more specifically, their definition of the national interest and their
foreign policy goals — begin to take on greater importance for businesses. For
outsiders, better understanding these political motivations has become a coping
strategy. Many private companies doing business in emerging markets have learned the
value of investing more time in closer relations with both the government leaders who
award major contracts and the bureaucrats who oversee the legal and regulatory
frameworks for their implementation. For multinationals, this expense of time and
money might seem like a luxury at a time of global recession, but to protect their
overseas investments and market share, they cannot afford to do otherwise.
ENTER THE STATE
State capitalism began to take shape during the 1973 oil crisis, when the members of
the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut oil
production in response to the United States’ support of Israel in the Yom Kippur War.
Almost overnight, the world’s most important commodity became a geopolitical
weapon, giving the governments of oil-producing countries unprecedented international
clout. As a political tool, OPEC’s production cuts served as embargoes against specific
countries — in particular, the United States and the Netherlands. As an economic
phenomenon, the oil crisis reversed the previous flow of capital, in which the
oil-consuming states bought ever-larger volumes of cheap oil and in turn sold goods to
the oil-producing countries at inflationary prices. From the perspective of OPEC’s
members, the crisis put an end to decades of political and economic impotence and the
colonial era itself.
The oil crisis showed oil producers that through unified action, they could both control
levels of production and capture a much larger share of the revenues generated by the
major Western oil companies. This process proved easier in cases in which national
governments could use domestic companies to extract and refine their own oil. In time,
national oil companies came under greater government control (Saudi Aramco, for
example, was not fully nationalized until 1980) and eventually eclipsed their privately
held Western counterparts. The oil crisis gave birth to the modern national oil
corporation, a model that has since become widespread and has been applied to the
natural gas sector as well.
A second wave of state capitalism began during the 1980s, driven by the rise of
developing countries controlled by governments with state-centric values and traditions.
At the same time, the collapse of governments that relied on centrally planned
economies for growth caused a surge in global demand for entrepreneurial opportunity
and liberalized trade. That trend, in turn, sparked rapid growth and industrialization in
several developing countries during the 1990s. Brazil, China, India, Mexico, Russia, and
Turkey, along with countries in Southeast Asia and many others, moved at different
speeds along the path from developing to developed.
Although many of these emerging-market countries had not been part of the communist
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bloc, they did have histories of heavy state involvement in their economies. In some of
them, a few major enterprises, often family owned, enjoyed virtual monopolies in
strategic sectors. After World War II, Nehru’s India, post-Atatürk Turkey, Mexico under
the Institutional Revolutionary Party, or PRI, and Brazil under alternating military and
nationalist governments never fully subscribed to the capitalist view that only free
markets can produce durable prosperity. Political beliefs predisposed these regimes to
the idea that certain economic sectors should remain under government management,
not least to avoid exploitation by Western capitalists.
When they began to liberalize, these emerging-market countries only partially embraced
free-market principles. The political officials and lawmakers who introduced partial
reforms had spent their formative years in educational and government institutions that
had been created to propagate national values as defined by the state. In most of these
countries, economic progress was accompanied by far less transparency and a much
weaker rule of law than was the case in established free-market democracies. As a
result, it is hardly surprising that the new generation’s faith in free-market values has
been limited. Given the relative immaturity of their governing institutions, emergingmarket
states are those in which politics matters at least as much as economic
fundamentals for the performance of markets. Rich-world governments once took little
notice of them, since these countries had little or no influence in international markets.
A third wave of state capitalism was marked by the rise of SWFs, which by 2005 had
begun to challenge Western dominance of global capital flows. These capital reserves
were generated by the huge increase in exports from emerging-market countries. Most
SWFs continue to be run by government officials, who treat the details of their reserve
levels, investments, and management of state assets as something close to a state
secret. As a result, it is not clear to what extent these funds’ investment and acquisition
decisions are influenced by political considerations.
The International Monetary Fund is now leading efforts to mandate higher levels of
transparency and consistency in SWFs, but such attempts will enjoy no more success
than do most voluntary arrangements. Those SWFs that are especially opaque will
remain opaque, and political leaders will continue to run them in order to gain both
political and financial returns. As a justification, the funds’ managers can point to the
avowedly political calls for divestiture from Darfur or Iran by the Western equivalents of
SWFs, such as Norway’s Government Pension Fund or the California Public Employees’
Retirement System.
A fourth wave of state capitalism has now arrived, hastened by the recent global
economic slowdown. But this time, the governments of the world’s wealthiest countries,
and not just those of emerging-market countries, are the ones intervening in their
economies. In the United States, lawmakers have intervened in the economy despite
the public’s historic mistrust of government and its faith in private enterprise. Australia,
Japan, and other free-market heavyweights have followed suit. In Europe, a history of
statism and social democracy makes nationalization and bailouts more politically
palatable.
Still, the world’s leading industrialized powers have not embraced state capitalism
without reservations. In the United States and Europe, the power of the invisible hand
remains an article of faith. Governments on both sides of the Atlantic know that to
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maintain popular support, they must keep their promises to return the banking sector
and large enterprises to private hands once they have been restored to health. But as
long as economic stimulus is at the forefront of political consideration in Washington,
across Europe, and in China, India, and Russia, political policymakers will remain at the
center of the global financial system. To pump-prime the economy, finance ministries
and treasuries will rescue private banks and companies, inject liquidity, and print money
simply because no one else can. Central banks, few of which are truly independent, are
no longer the lenders of last resort, or even of first resort; they are the only lenders.
This development has produced a sudden and important shift in the center of gravity of
global financial power.
Until very recently, New York City was the world’s financial capital. It no longer is even
the financial capital of the United States. That distinction now falls to Washington,
where members of Congress and the executive branch make decisions with long-term
market impact on a scale not seen since the 1930s. A similar shift of economic
responsibility is taking place throughout the world: from Shanghai to Beijing, from
Dubai to Abu Dhabi, from Sydney to Canberra, from São Paulo to Brasília, and even in a
relatively decentralized India, from Mumbai to New Delhi. And in London, Moscow, and
Paris, where finance and politics coexist, there is the same shift occurring toward
government.
HIGH STAKES
State capitalist economies are likely to emerge from the global recession with control
over an unprecedented level of economic activity, despite having taken large financial
hits, along with everybody else, during 2008 and 2009. China and Russia are bailing out
both their state-owned enterprises and their private national champions. Both favor
consolidating major industries to cut costs. Following the fall in oil prices from $147 a
barrel in July 2008 to less than $40 in February 2009, Russia is facing its first budget
deficit in a decade. China, a major oil importer and consumer, got some relief from the
price drop, but the global slowdown has left the governments of both countries
vulnerable to rising unemployment and accompanying social unrest. Both governments
have responded, for the most part, by exerting still tighter state control over their
economies.
Despite the global recession, SWFs, already major global economic players, are here to
stay for the near future. Although their total net value fell from an estimated high of
about $4 trillion in 2007 to less than $3 trillion by the end of 2008, this latter figure still
approaches the total global holdings in foreign currency of central banks and exceeds
the combined assets held by all hedge funds worldwide. SWFs account for about 12
percent of global investment, twice the figure of five years ago. That trajectory is set to
continue, and some credible forecasts put their likely value at $15 trillion by 2015.
In short, despite the global financial crisis, national oil companies still control threequarters
of the world’s primary strategic resources, state-owned enterprises and
privately owned national champions still enjoy substantial competitive advantages over
their private-sector rivals, and SWFs are still flush with cash. These companies and
institutions are truly too big to fail.
Deeper state intervention in an economy means that bureaucratic waste, inefficiency,
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and corruption are more likely to hold back growth. These burdens are heavier in an
autocratic state, where political officials are freer to make commercial decisions without
scrutiny from a free press or politically independent regulatory agencies, courts, or
legislators. Nonetheless, the ongoing global recession has undermined international
confidence in the free-market model. Whatever the true cause of the crisis, the
governments of China, Russia, and other states have compelling reasons to blame
American-style capitalism for the slowdown. Doing so allows them to avoid
responsibility for rising unemployment and falling productivity in their own countries and
to defend their commitment to state capitalism, which began long before the onset of
the current crisis.
In response, U.S. policymakers must try to sell the value of free markets, even though
this is a difficult moment to do so. If Washington turns protectionist and keeps a heavy
hand on economic activity for too long, governments and citizens around the world will
respond in kind. The stakes are high, because the large-scale injection of populist
politics into international commerce and investment will obstruct efforts to revitalize
global commerce and reduce future growth. Protectionism begets protectionism, and
subsidies beget subsidies. The Doha Round of world trade talks in 2008 failed in part
because of the United States’ and the European Union’s insistence on continued high
agricultural tariffs and China’s and India’s desire to protect both their own farmers and
some of their still-nascent industries, which cannot yet compete on their own. The Doha
stalemate has already cost hundreds of billions of dollars in potentially increased global
trade.
Other protectionist initiatives have begun to weigh on global commerce. China has
reinstated tax relief for certain exporters. Russia has limited foreign investment in 42
“strategic sectors” and imposed new duties on imported cars, pork, and poultry.
Indonesia has imposed import tariffs and licensing restrictions on over 500 types of
foreign products. India has added a 20 percent levy on soybean oil imports. Argentina
and Brazil are publicly considering new tariffs on imported textiles and wine. South
Korea refuses to drop its trade barriers against U.S. auto imports. France has
announced the creation of a state fund to protect domestic companies from foreign
takeover.
There is already a push by several countries in different regions to raise tariffs to the
maximum levels permitted under the Uruguay Round of the General Agreement on
Tariffs and Trade. Comprehensive global agreements and dispute mechanisms are being
superseded by a patchwork of about 200 bilateral or regional agreements. (Another 200
or so are in the works.) This fragmentation inhibits global competitiveness,
disadvantages consumers, and weakens the multilateral system — all at a time when
the global economy needs a new stimulus.
THE ROAD AHEAD
A growing number of Americans have come to believe that globalization moves their
jobs to other countries, depresses their wages, and exposes U.S. consumers to shoddy
foreign products. By 2012, there is likely to be at least one major U.S. presidential
candidate who stands on a neo-isolationist, “Buy American” platform. If U.S. lawmakers
are to avoid this protectionist trap, they would do well to relearn the lessons of the
1930 Smoot-Hawley Tariff Act, which raised tariffs on 20,000 imported goods to record
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levels, prompted retaliation in kind, and thus deepened and lengthened the Great
Depression.
The global financial crisis has created an illusion of international unity based on the
mistaken fear that everyone is sinking in the same boat. A year ago, the talk in policy
circles was of “decoupling,” the process by which emerging economies develop a
domestic base for growth broad enough to free them from dependence on consumer
demand in the United States and Europe. Predictions of decoupling have proved
premature. Economic problems originating largely in the United States have forced a
hard landing in dozens of developing countries by crushing demand for their exports.
But beneath the surface, decoupling is still apparent in the growing domestic markets of
Brazil, China, India, and Russia; in the investments these countries’ governments are
making abroad; in the regionalization of capital flows; and in the longer-term possibility
that the Gulf Cooperation Council, members of the Association of Southeast Asian
Nations, and some South American governments will launch viable regional currencies
and become more self-sufficient.
The United States can no longer count on strategic partners to buy its debt, as it did on
Japan and West Germany in the 1980s. It must now rely on strategic rivals, particularly
China, which does not believe that the United States can indefinitely retain its role as
the global economic anchor. Hoarding dollar reserves has helped Beijing keep the value
of the Chinese currency low, boosting China’s exports and generating record trade
surpluses. But China’s priority now lies in building its domestic market to create a new
model of economic growth that depends less on exports to the United States and
Europe and more on demand from Chinese consumers. When and if China succeeds,
“decoupling” will become a more meaningful term, and China will have less incentive to
buy U.S. debt. If fewer countries want U.S. Treasury bills, the interest rate will have to
be raised to make them attractive to buyers, and this will mean longer-term U.S.
indebtedness. The United States’ economic recovery, once it begins, will thus be
slower, and the erosion of the dollar’s position as the world’s reserve currency will
accelerate.
The U.S. government might conclude that its power to set and enforce global economic
rules is on the wane. It cannot, in any case, have much faith in playing a leadership role
in the G-20 (the group of major economies). This forum includes emerging
powerhouses, such as China and India, which have been excluded from the G-7 (the
group of highly industrialized states), and the natural divergence between their
economic interests and those of the developed states will make it difficult to build any
consensus on the toughest economic challenges. The problem is amplified by the
tendency of politicians, in both the developed and the developing worlds, to design
stimulus packages with their constituencies, not the need to correct macroeconomic
imbalances, in mind.
In the long term, state capitalism’s future will likely prove limited, particularly if it cannot
provide even its two leading practitioners with a working model for sustainable
economic growth. Managing China’s looming social and environmental challenges will
ultimately prove beyond the capacity of bureaucrats; they will eventually realize that the
free market is more likely to help them feed and house the country’s 1.4 billion people
and create the 10-12 million new jobs needed each year. In Russia, faced with a
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declining population and an economy too dependent on the export of oil and gas,
policymakers may conclude that future economic prosperity requires renewed
free-market reforms. The United States should reassert its commitment to expanding
trade both with the European Union (the world’s largest and most cohesive free-market
bloc) and with growing economic powers, including Brazil, India, South Africa, Turkey,
members of the Gulf Cooperation Council, and emerging-market countries in Southeast
Asia, not least to ensure that these countries do not creep toward state capitalism,
thereby adding to the inefficiencies in the global market and limiting U.S. commercial
opportunities.
At the same time, U.S. policymakers should push for new commercial opportunities in
state capitalist countries, while also helping U.S. companies active in China, Russia, the
Persian Gulf, and elsewhere develop hedging strategies against the risk that market
access may be lost to more favored domestic companies. As a model of effective
hedging, U.S. multinationals should look to Japan’s “China plus one” diversification
strategy of investing in other countries in addition to China. Instead of betting too
heavily that Chinese markets alone will provide the bulk of their future earnings, U.S.
companies should broaden their investment targets to include a range of emergingmarket
countries across Asia and beyond.
Now is the time for the United States to welcome new infusions of foreign investment,
including from SWFs. Some proposed investments already require careful review to
ensure that they do not compromise U.S. national security. As long as such a review is
genuine, rather than a political effort to discourage foreign investment, it need not
dissuade investment proposals. The need to protect their investments will give foreign
governments and companies a greater stake in the stability of the U.S. financial system.
Mutually assured financial destruction will ensure that state capitalist countries
understand that it is also in their interest for the United States to remain economically
successful.
Whether free-market capitalism will remain a viable long-term alternative will depend in
large measure on what U.S. policymakers do next. Success will depend not just on
making good economic policy calls but also on continuing to make the overall U.S.
brand compelling. Washington must preserve the United States’ huge comparative
advantages in hard power — an area in which the United States still outspends China
ten to one and outspends all the other states of the world put together — and soft
power, which the Obama administration has, so far, improved by enhancing the United
States’ image worldwide.
State capitalism will not disappear anytime soon. Throwing up walls meant to deny
access to U.S. markets will not change that. Instead, profiting from commercial
relations with state capitalist countries is in the United States’ near-term economic
interests. For the sake of the United States’ and the world economy’s long-term
prospects, defending the free market remains an indispensable policy. And there is no
substitute for leading by example in promoting free trade, foreign investment,
transparency, and open markets, in order to ensure that the free market remains the
most powerful and durable alternative to state capitalism.
Copyright © 2002-2010 by the Council on Foreign Relations, Inc.
All rights reserved.
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Published on Foreign Affairs (http://www.foreignaffairs.com)
Links:
[1] http://www.foreignaffairs.com/files/audio/FA_BremmerPodcast.mp3
State Capitalism Comes of Age http://www.foreignaffairs.com/print/64948
11 de 11 31/01/2010 10:28 a.m.