The End of the Free Market

Cover via Amazon

The End of the Free Market: Who Wins the War Between States and Corporations? by Ian Bremmer. 3.5 stars out of 5.  An informative, easy to understand take on the challenges facing free-market capitalist economies (i.e. the US) in the face of state run capitalist economies (i.e. China and Russia).

My father-in-law Roy recommended this book to me as a follow up to Joseph Nye‘s The Future of Power, as a more in depth look at how the two promenant economic models in the world were going to fare in the 21st Century – those two models being the free-market capitalist system (as used by the US and the EU among others) and the state-run capitalist system (as used by China and Russia, among others).  It’s an extremely informative book, and easy enough to read for someone like me, who knows economics only from a Squawk Box and New York Times education.

Roy is also a business man, and his review of this book is much more succinct and has a lot more education behind it.  I am an English major and a musician.  We’ll leave it at that.

What is state-run capitalism, exactly? Well, first, it’s called state capitalism.  And state capitalism is defined in this book as “a system in which the state plays the role of leading economic actor and uses markets primarily for political gain.”

Who runs economies based on the state capitalist concept? The world’s leading state capitalists are China, Russia, and Saudi Arabia, along with a handful of others.

Where did state capitalism come from? Some would assume state capitalism came out of the ashes of communism’s economic failures.  And that’s partially true, in that both China and Russia have rebuilt their economies with it.  Bremmer argues that state capitalism is more influenced by mercantilism, in that mercantilism is “economic nationalism for the purpose of building a wealthy and powerful state.”

So then, what is state capitalism again? It’s a market system in which the state’s political apparatus controls production in a capitalist fashion (i.e. Middle Eastern royal families investing their country’s oil wealth in the global markets so as to diversify their monetary and political welfare).

How does state capitalism differ from free market capitalism, especially in light of all the bailouts on Wall Street since the crash of 2008? It’s a good question, but Bremmer argues that the bailouts etc. of 2008-2009 are only a small window of intense government interference in the economy, only something to prop up companies until they get their legs under them – whereas state capitalism is where government controls companies much more consistantly.

Why should I care about it? a) Because there’s a lot of talk about how China will surpass the US economically in the 21st Century, and we should know how their system works. b) Because the global market is so intertwined that countries running these types of economic systems will have more and more impact on the every day life of 21st Century Americans (or, because I’m in Thailand, 21st Century Thais as well).  c) A quote that will get you thinking:

Herein lies state capitalism’s greatest threat: Opportunity can enable dependence, and it’s clear that an expanding number of Western companies and their governments are becoming ever more reliant on the willingness of all these new [state-capitalist] players to remain open for business.  What happens when the Chinese leadership decides that its development strategy no longer depends on so much foreign investment and prefers instead to use all the tools at the state’s disposal to support local companies and shelter them from foreign competition?

So, are we going to economically lose our mantle to China? Bremmer predicts that state capitalism will, in the long run, fail.  But you might want to spend some time with this book to understand why.

Goodreads.com score of 3.5 stars out of 5.

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~ by Kevin George Carey on February 17, 2011.