Q&A With Ian Bremmer on State Capitalism

Greg Lawson: The term "state capitalism" seems to have a faint odor of fascism associated with it, at least to the extent that the state intervenes substantially in the marketplace but without eliminating private enterprise and profit seeking, as under socialistic thinking. Do you agree?

Also, do you envision a scenario where state capitalism may supplant free-market capitalism on a long-term basis in the developed world?

A: State capitalism does not have fascism's ideological component. The governments that practice it are attempting to "manage" the performance of markets for long-term political survival and, in some cases, personal gain -- not to promote an abstract ideal. And unlike fascism, state capitalism isn't centered on a cult of personality. The elite that drives Chinese Communist Party policymaking is made up of talented and capable technocrats who would not have impressed Benito Mussolini with their personal magnetism.

I think it's highly unlikely that state capitalism will ever replace the free-market variety in the developed world. Faith in the ability of markets to value assets and allocate resources is philosophically well entrenched in Australia, Canada, Europe, Japan, and the United States -- despite fluctuations in levels of market regulation and state intervention at particular moments and in particular sectors. I believe it would take a genuine political and economic catastrophe -- a global pandemic that kills millions, a terrorist attack carried out with weapons of mass destruction on a major Western city, a war in the Middle East that pushes oil prices to staggering new heights -- to force a fundamental long-term rethink within the developed world about the proper role of government in economic activity. I don't believe that the current crisis in Europe and the United States will rise anywhere close to that level. The core objective of government interventionism in the West right now is to restore the free market to health, not replace it. 

Iain Marlow: Many on the left have decried government bank bailouts as a huge waste of money resulting from the interdependent social relationships between the upper echelons of political and financial decision-makers. News organizations have revealed that some of this money was either unmonitored when it arrived at banks or was distributed by state officials with past and serious ties to financial organizations that have benefited.

Some, notably Naomi Klein, have suggested bailouts for the average American/Canadian/Briton. How would such a scheme work, and what would be its pros and cons?

A: I believe that the Obama administration faced an immediate challenge that had to be met quickly to prevent a very bad problem from becoming much, much worse. In short, it had to ensure that the banking system's heart continued to beat. The risk of system-wide failure presented a broad range of bad options. Whether the Obama team has handled this problem skillfully will only become clear with the passage of time.

As you rightly point out, the problems created by the social relationships that bind political and business elites are not unique to the developing world. But state-capitalist countries usually lack independent judiciaries to enforce the rule of law and independent media to investigate these ties and report on them. 

As for the bailouts, I'm a believer in investing in the provision of public goods, particularly when it comes to infrastructure. There has been a worrying level of decay in recent years in a lot of basic infrastructure in the United States -- schools, energy, roads, bridges, ports, airports, etc. This was a problem for the country's longer-term growth trajectory even before the current meltdown began. To invest in these things is to invest in individual citizens. Is the new administration doing enough in this area? Probably not, though I concede that it is probably too soon to tell.

Hamish Stevenson: Are the Western sovereign-wealth funds (SWFs) you mention -- Norway's Government Pension Fund and the California Public Employees' Retirement System (CalPERS) -- really that different from those of non-Western countries such as Saudi Arabia and China? Is it possible that we Western observers are mistakenly characterizing them as much more government controlled than they actually are? Is there any evidence that SWFs often make independent decisions that may in fact contravene the wishes of the government?

A: There is no question that the difference between Norway's Government Pension Fund and a Chinese or Gulf-state SWF is a matter of degree. But differences in degrees of transparency and the quality of governance between the funds based in liberal democracies and those found in more authoritarian states are too significant to ignore. It is easier to overlook these differences when the global economy is growing and international investment is steadily expanding. When times are good, emerging market-based funds operate more like Western portfolio managers. But with the global downturn, we're seeing changes inside many of these SWFs. CalPERS will have the same performance metrics and level of openness this year than it had last year. That is not true for some of the more opaque emerging-market-based funds that operate within relatively closed political systems. When funds based in Norway or California make political calls -- whether to invest in or divest from a certain country, for example -- we know about it because they report their decisions publicly. That is often not the case for funds based in China or the United Arab Emirates.