The End of the Free Market | Ian Bremmer

Summary of: The End of the Free Market: Who Wins the War Between States and Corporations?
By: Ian Bremmer

Introduction

In ‘The End of the Free Market: Who Wins the War Between States and Corporations?’, Ian Bremmer explores the resurgence of state-controlled economies, despite the fall of communism in the late 1980s. As the impact of the 2008 financial crisis lingers, many governments have taken a more active role in their nations’ financial sectors. The book investigates the variants of state capitalism practiced by countries like Mexico, Brazil, Russia, and China, as well as the tools and strategies employed by these nations to exert control over their economies. As state-owned or -allied companies rise in power, this book raises the question of what the future holds for Western capitalism.

The Resurgence of Public Ownership

The 2008 financial crisis led to a revival of government intervention in the world’s banking and industrial sectors. Despite the widespread belief that state-controlled economies were fading away, many Western nations bailed out and effectively nationalized private companies to prevent collapse. The public infusion of money into private companies gave free-market skeptics a chance to question the viability of US and European capitalist hegemony. The G20 group, which once included “free-market champions,” now embraces countries like China, India, and Russia, who are skeptics of free markets. While Western nations blame free markets for the crash, other countries see the US as the origin of the crisis. The individual impulses powering globalization and capitalism cannot be reversed by decree, so what does this mean for Western capitalism?

The Rise of State Capitalism

The world has seen a resurgence of state-owned or -allied companies, especially in countries such as Mexico, Brazil, Russia, and China. These countries uphold state capitalism, a commercial model that exercises political control over the economy. This variant of capitalism is prevalent today because governments see themselves as operators of the economy and have a strategic policy of promoting the interests of the ruling elites above individuals. In contrast, Western nations recognize the need for both public and private interests to provide for society’s needs. While these countries also intervene in their economies, they believe in open markets as the best way to promote long-term prosperity. The concept of unfettered capitalism does not exist because the government, to some extent, always intervenes in the economy.

The Tools of State Capitalism

Nations employ various intermediary institutions to manage aspects of their economies and holdings. State capitalism uses four significant tools: National Oil Corporations (NOCs), State-Owned Enterprises (SOEs), Privately Owned National Champions, and Sovereign Wealth Funds (SWFs). The use of these tools facilitates the maintenance of political power rather than merely making a profit. The NOCs, which lay claim to 75% of the world’s oil, receive aggressive government support and outcompete multinational corporations. The governments retain ownership of SOEs, which manage non-petroleum resources or provide crucial services, like the US Postal Service or China’s State Grid Corporation. Privately owned national champions are strategically significant firms spun off from SOEs or with minority government ownership, such as India’s Tata Group and China’s Lenovo. SWFs invest in strategic assets and answer only to their state handlers, with the most well-known being Kuwait Investment Authority and the Abu Dhabi Investment Authority. Ultimately, the tools are less important than how they are used, and their use can be part of resource nationalism, with oil, gas, and other commodities acting as political tools and strategic assets.

The Four Waves of State Capitalism

State capitalism has seen multiple resurgences, starting with OPEC’s creation in 1960. Emerging markets in China, Brazil, India, and Russia took cautious steps towards capitalism in the 80s and 90s. The third wave saw economic liberalization and rising commodity prices, while the 2008 financial crisis marked the fourth wave. State capitalists, including Russia, China, and Saudi Arabia, have emerged as a fundamental challenge to the future of free markets due to their relative insulation from toxic bank assets. The failure of free markets during the crisis provides fodder for those espousing state capitalism as the way forward.

Saudi Arabia’s Grand-Scale Capitalism

The Saudi Arabian monarchy uses its oil wealth to maintain political control by investing in civic projects that deter threats to the ruling family. They tightly hold their oil industries and keep government involvement in regulating economic activity, allowing little motivation for citizens to adopt competitive free-market capitalism.

Saudi Arabia’s monarch uses its oil wealth to maintain political control through the construction of civic projects aimed at deterring threats to the ruling family. Their “grand-scale capitalism” seeks to house, employ, and educate two million people across six megacities. Recent efforts to open national companies to global competition have ended in government rescues, revealing little motivation for Saudi citizens to shift from state support to competitive free-market capitalism. The monarchy maintains tight control over its oil industries, with Saudi Aramco being the world’s largest oil company directed by Saudi royals and energy professionals. Furthermore, an SOE known as the Saudi Basic Industries Corporation works somewhat opaquely in the petrochemical industry, withholding promotions and bonuses in the wake of oil price drops. The Saudi Arabian Monetary Agency serves as both the nation’s central bank and sovereign wealth fund, ensuring political continuity.

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