Homes Odyssey
Among all the books written about the fate of the free market in the aftermath of the global financial crisis,Ian Bremmers The End of the Free Market...
Among all the books written about the fate of the free market in the aftermath of the global financial crisis,Ian Bremmers The End of the Free Market: Who Wins the War Between States and Corporations? may turn out to be the most influential. And that isnt because this is the definitive book analysing the causes and effects of crisis. There is plenty of good literature on that already. This book is important because it attempts to shake out of complacency all those of us who believe that,even in the aftermath of the crisis,there is no alternative to free market capitalism. There is,according to Bremmer,a ready and less than optimal alternative,and it is neither long dead communism nor socialism,but rather state capitalism. This construct is one in which capitalism still exists but is used by the state to fulfil political ends. It is a capitalism that is driven primarily by political motive rather than profit motive like in China,Russia and Saudi Arabia. And if such a capitalism,which according to Bremmer is usually accompanied by authoritarianism,is allowed to replace genuine free market capitalism,at least in large,influential countries,we can end up in a world even more imperfect than the one we are in now.
Bremmer makes no excuses for the excesses committed in Anglo-Saxon capitalism in recent times,but then such busts have occurred periodically in the history of capitalism. Still,it is the recent crisis that has given state capitalism a false sheen as the world searches for new role models. But the real question posed is whether the world prefers a tinkered version of free market capitalism,corrected for its flaws,or a state-dominated form of capitalism?
The argument that,after various bailout plans,western countries now have state-dominated economies is not to be confused with state capitalism. Bremmer is right in assuming that the state will exit the key business of running business in the US and Europe soon enough. On the other hand,the state in Russia,China and Saudi Arabia is very much in the business of running business usually to meet political ends,domestic and overseas. The tools of control of the state over the economy are very few but very important: nationalised resource companies usually in petroleum,privately run national champions with close alliance with the state,and sovereign wealth funds. In essence,the state not only plays the referee but also controls the major players. That makes the system much less efficient than a free market system.
In Russia,for example,important government functionaries also run the major oil and gas companies. Those in the private sector are totally subservient to the governments political goals Bremmer has many examples. But it is this close nexus between the state and capitalist enterprises that generates enormous wealth more than what communism would have ever delivered that gives Putins Kremlin immense power both within Russia and overseas.
The story in China is similar there the free market is used by the Chinese Communist Party to create wealth and to deliver growth,jobs and well being to the people and plenty of foreign exchange to the Chinese government in return for the continued legitimacy of authoritarian rule within and influence outside. The Saudis use their control over the nations oil resources to hold on to power within and exercise power in the Islamic world. Unsurprisingly,the international influence of all three countries leans towards dodgy causes and unsavoury regimes. But for the moment,because these countries survived the crisis better than the US,Europe and Japan did,they may be more attractive role models for countries that tread a path somewhere between state capitalism and free market capitalism.
India too comes in for criticism from Bremmer for practising a much milder form of state capitalism. There is little doubt that the government still exercises too much influence over business and in fact still runs too much business,usually with political patronage as the prime goal. Still,democracy and the fact that there is an influential constituency in favour of free market capitalism have ensured that India hasnt strayed too far,yet.
Bremmers book,which ought to be read by anyone with an interest in political economy,has simple words of advice for countries that practise free market capitalism they must practise what they preach if they want to be role models again for countries like India,Brazil and South Africa which are in the middle of the road. So they must continue to be open to trade,investment and immigration even in the aftermath of the crisis,and must engage in such exchanges even with state capitalist economies. Like in the Cold War,the free world and the state capitalists are locked in mutually assured destruction if one tries to pull the plug on the other. So it is who stays the course longer that matters. Given the authoritarian,mercantilist,interventionist nature of state capitalist regime,Bremmer gives them only a limited lifespan. We agree. But the free market world needs to stick to its principles.
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