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SOFT COVER IS PUBLISHED 6 TIMES A YEAR~WORLD NEWS & EVENTS

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• Published on: 2009
• Binding: Paperback

Customer Reviews

Challenging Thoughts -
The most interesting article in this issue was "State Capitalism comes of Age," by Ian Bremmer. This is NOT the return of socialism, however. Bremmer posits that the state's heavy hand in the developing capitalistic economies signals a strategic, not temporary, rejection of the free-market doctrine. Governments already own the world's largest oil companies and control three-quarters of its energy reserves. In addition, sovereign wealth funds (SWF) account for one-eighth of global investment, and the figure is rising. Further, some state-owned enterprises have grown to enormous size - Russia's arms-export and fixed-line phone monopolies, China's aluminum monopoly, power-transmission duopoly, and major communications and airline firms, India's national railway (1.4 million employees). Finally, a more recent trend is that of large, private companies that draw on government help for credit, contracts, and subsidies - eg. mining and steel in Russia, aircraft, communications, and computers in China, cars, steel, chemicals in India, etc. - often financed via SWF.

Bremmer's prime concern is that the motivation behind investment decisions may be more political than economic - eg. China's national oil corporations have more cash to spend than their private-sector counterparts, can pay above-market rates to lock in long-term agreements, and the Chinese leadership can add development loans for a supplier country - all aimed at generating long-term economic prosperity rather than short-term financial returns. (Other recent Chinese government actions have included tax relief for certain exports, removing non-performing top managers, limiting exports of rare-earths from Mongolia to encourage local manufacturing, mandating importers provide technology transfer, selecting new markets to enter and support. China's approach also allows it to favor labor-intensive approaches, for political stability reasons, over the more capital intensive, regardless of immediate economics, and to protect its firms against short-term financial pressures that create 'follow-the-leader over the cliff' behavior - eg. U.S. banks vs. derivatives and subprime loans.)

Bremmer points out that state capitalism began with the Arab oil embargo in 1973, was boosted by the growth of economies already leaning that way (Brazil, China, India, Mexico - some of which accrued large capital surpluses while the U.S. went deeper into debt). (Another major impetus was the colossal failure of U.S. consultant-led shock therapy efforts in the 1990s to transform Russia economy to free-market capitalism.) Clearly, the ongoing global recession has undermined international confidence in the free-market model, and developing nations are not likely to incur greater enthusiasm for it. Meanwhile, even developed nations have temporarily taken up the practice, via massive bailouts and liquidity injections.

Bremmer closes by expecting developing nations to eventually turn toward the U.S. model as a result of inherent inefficiencies in state-managed economics. Granted, there is always the chance that eg. the Chinese will repeat the earlier Great Leap Forward-type blunders. However, the U.S. economy has always been much more state capitalist than Bremmer realizes, evidenced by decades of repeated corporate/city bailouts - Penn-Central, Chrysler, New York City, Lockheed, Long Term Capital Management, the S&L crisis, the airline industry, the auto industry, and now the sub-prime debacle. The difference is that our actions have all been directed towards organizations deemed "too big to fail," not people.

Bremmer is also oblivious to America's "unmanaged" economy having chosen to outsource millions of jobs over the past several decades. Further, despite Adam Smith's warning, we can no longer defend ourselves from rapacious resource-rich countries or even new strains of influenza, and our merchant navy has followed the Rust Belt into oblivion - per state decisions. Soon, Asia's lead in electronics and nanotechnology, combined with China's continual upgrading of its military, will threaten Pax Americana. (China not only fought directly against the U.S. in the Korean War, but also abetted the Vietnam War by allowing Soviet war goods to traverse its railroads.)

Bottom Line: State capitalism is not likely to fade in the near future. Its best practioner, China, has earned enormous credibility through 30 years of double-digit economic growth, as Bremmer points out. France's deliberate move into nuclear power has not only positioned it well vs. global warming, but also to export its expertise to Mid-Eastern nationa and China. Nations with government-provided and/or single-payer health care are also significant practicioners of state capitalism, and enjoying much lower health care costs and a competitive advantage vs. U.S. exports. Even the U.S. has been a state capitalism practitioner for decades - just not nearly as successfully as other nations, especially those of the Far East.