There are many victims of the global financial crises; the dethroning of the supremacy of free market economics is perhaps it’s one of the long lasting legacies. Ian Bremmer’s State Capitalism examines the transformation of free market capitalism in which the economic system is a means of wealth creation and social development to the adaptation of economics policy as a means of achieving political ends.
State Capitalism is the State’s use of economic resources as a tool to achieve its political objectives. It is not a coincidence that the nations which practice and supporters this form of interventionist capitalism, are those that have a history of authoritarian political systems such as former communist Russia and People’s Republic of China. This practice seems to be a lasting result of the transformation of these countries from Communism to Capitalism, in which they chose a compromise of Capitalism with Communist characteristics.
Adam smith said the invisible hand of the markets determine the actions of the individual agents. State Capitalism is the visible hand of the bureaucrats in their determination in preserving their plutocracy and its associated benefits. The practice of modern State Capitalism is primarily achieved through state controlled companies, sanctioned monopolies or implied quid pro quo following government edicts in the country of operation.
Bremmer shows the use of controlled firms as a political tool in the example of Gazprom. Due to its control of major oil and gas into Europe, Gazprom has become a major factor in Russian – EU relationship. While ostensibly it is a public company listed on NYSE, it has a chairman appointed by the Russian Government. This results in the replacement of board of directors by the Russian government as the primary driver of its business development . Thus the Russian government by the fact of appointing the chairman would ensure that their interests are taken care of before the shareholders.
While Gazprom is one example on the micro level, China would be the example on a macro level where the state ownership permeates throughout the major areas in the economy. While Red Capitalism examines the role of the State and its role in the Chinese financial system, Ian Bremmer examines the consequence of what if the state domination prevails throughout a large portion economic system.
There is no doubt that there has been tremendous social development as the result of the double digit growths in China in the recent decades. But the rise of Chinese economic status to be the second largest economy in the world has allowed it more leeway in the corridors of the global politics. To illustrate, China played a crucial role in the collapse of the Copenhagen Climate conference in which the goal of the majority does not fit China’s needs. With its new found influence, it ensured that the outcome which was a case of collapse in disagreement would be in its favor.
The book examines in detail of what I am sure is a very appealing method of managing of economic resources for the plutocratic nations in the less well developed regions of the world. It is a strong contrast to free market economics where the states would not hesitate in intervention for its own political priories rather than profit maximization. But the simple mechanism which enables its survival, the lack of political accountability, transparency and most of all democratic spirit is what makes it so appealing for the current practitioners of state capitalism. As long as political reforms are stalled and as the very few have control over so much, Communism with capitalistic characteristics will prevail in the near future.