Excerpts from an article in
McKinseyQuarterly.com:
It might not be "socialism", but what we are seeing not only in the US,
but across the globe could be somewhat similar in concept:
State capitalism is an economic system in which governments manipulate
market outcomes for political purposes. Governments embrace state
capitalism because it serves political as well as economic purposes--not
because it's the most efficient means of generating prosperity. It puts
vast financial resources within the control of state officials,
allowing them access to cash that helps safeguard their domestic
political capital and, in many cases, increases their leverage on the
international stage. But state capitalism also stems the rise of
globalization, because to varying degrees it hampers the flow of ideas,
information, people, money, goods, and services within countries and
across international borders.
The rise of state capitalism
As the Cold War stumbled to a close, the belief that governments could
micromanage national economies and generate prosperity seemed dead. The
dynamism and market power of Japan, the United States, and Western
Europe--fueled by private wealth, private investment, and private
enterprise--appeared to have fully and finally established the dominance
of the liberal economic model. As these countries' governments
privatized businesses and pensions, companies such as Exxon Mobil,
Microsoft, Toyota Motor, and Wal-Mart Stores feverishly sketched out
global expansion plans. Globalization became a household word.
But even before the still-developing global financial crisis had shaken
the foundations of faith in free markets, the determination of a new
generation of emerging-market heavyweights (many of them politically
authoritarian) to chart their own courses toward prosperity and power
ensured that public wealth, public investment, and public enterprise
would make a stunning comeback.
The engines of state capitalism
Yet, despite the massive state interventions in economies across both
the developed and developing worlds, many corporate leaders and
investors act as though globalization remains the dominant paradigm.
That is a mistake. In fact, the new importance of the state had become
obvious well before the onset of the current crisis. Energy markets
provide a good example.
The story extends well beyond energy. Across a broad range of economic
sectors, China and Russia are leading the way in the strategic
deployment of state-owned enterprises, and other governments have begun
to follow their lead. In defense, a growing number of emerging-market
governments--power generation, telecom, metals, minerals, and
aviation--not content with simply regulating markets, are moving to
dominate them.
Such state-corporate activity is fueled in part by the emergence of a
new class of sovereign wealth funds. States with large holdings in the
currencies of other countries are establishing ever larger risk-taking
funds meant to maximize their return on investment--and their political
influence. With the global credit squeeze making funds harder to come
by, sovereign wealth funds have become even more important for the
financing of state capitalism.
The global recession has accelerated the trend of state involvement in
markets as governments around the world spend billions to stimulate
growth and bail out vulnerable domestic industries and companies.
Winners and losers
As the landscape shifts around them, international companies and
investors will discover that the large-scale injection of politics into
market processes will produce its own set of winners and losers.
Because political factors unique to each state will determine the
response to each domestic economic slowdown, countries with relatively
strong political fundamentals will have a better shot at a quick
recovery.
Given the vast sums its government can spend on fiscal stimulus, China
will likely emerge from the global recession before most of the
developed world.
In Brazil, President Luiz Inácio Lula da Silva has over the past
several years forged a durable consensus in favor of disciplined
macroeconomic policy.
Second-order effects
There are other implications of these trends worth considering.
We're
likely to see new restrictions on the access to certain foreign markets
for some companies.
- Tit-for-tat protectionism will remain a serious threat until the global recession comes to an end.
- Social upheaval will pressure politicians to turn increasingly toward a familiar and reliable tool: subsidies.
- Some of the regulatory changes will favor domestic firms... and SOME domestic firms.
About the Author
Ian Bremmer is the founder and president of Eurasia Group, a political-risk consultancy.
Read more at McKinseyQuarterly.com