The End of the Free Market

"Let me tell you my understanding of Ian Bremmer’s view, both from hearing him speak and from reading his book. Bremmer looks at the East-West theme largely through a political lens. One of his quips encapsulates his fundamental view: “In the Rest the state controls the corporations whereas in the West the corporations control the state.” My reading of his work is that in the West, the influence of the corporations has led to an erosion of political culture: they’ve infiltrated the political discourse. On some level, Ian is quite enamoured of China’s state capitalism, of the role of the Sovereign Wealth Funds, of the implications of the state controlling the corporations. “We are at a global inflexion point. If nothing else changes, we are witnessing the decline of Western supremacy.” I would say it’s pretty clear that governments like China are not obsessed with profit maximisation per se, they’re obsessed with volume maximisation. In that sense they have a bigger utility function – one with a longer term horizon (instead of a myopic view). It’s not just “we’ve got to make profits”. It’s about China, the grand society. I found this type of perspective very interesting. However, I think Ian would argue that there are still very big economic risks to the success of the emerging world that could cause things to unravel. To give you a specific example, I think Ian would say (and many economists would agree) that one of the key reasons that China has done extremely well is because her wages have been very low. A confluence of factors – low wages, a large population and state-controlled capitalism – have worked well for China. At very minimum, these three factors have made it possible for China to perform phenomenally. The problem is that we’re now seeing wages rising. And even though you have state capitalism, there is still a risk that the whole thing falls apart. In an environment where wages are rising fast, you end up not only with inflationary pressure but widening income inequalities, and this can be very problematic for the state capitalism model. I think Ian, like most of us, would say that China is not out of the woods. Yes, I’ve written about that. But when you say advantages, it depends what you’re talking about. If you’re asking me if democracy is a prerequisite for economic development, clearly it’s not. China is not democratic, nor is Singapore, nor was Chile in the manner in which we define democratic process. There are numerous countries around the world that have achieved long-term, sustained economic growth and lifted millions of people out of poverty without living in a classical democracy. So that’s not up for debate. The question is, as a long-term strategy is it possible for countries to have sustained economic growth with a large role for the state? Also, what happens when you have a large, critical middle class who demand greater political franchise? We don’t know what the answer to that is. I would say that the larger the middle class becomes in China, the more demands they will make for democracy, and the political transition will always be tricky. However, I don’t think we’re quite there yet."