State Capitalism Comes of Age
The End of the Free Market?
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 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 theseRead the full article on ForeignAffairs.com