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The Rise Of State-Controlled Capitalism

by NPR Staff
May 17, 2010 (Morning Edition)

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"State-controlled capitalism" may sound like a contradiction in terms, but author Ian Bremmer says it's a growing threat to U.S. corporations.

In his new book, The End of the Free Market, Bremmer, who runs Eurasia Group, a political risk consulting firm, argues that corporations based in free-market economies face growing competition from companies based in state capitalist economies.

Bremmer defines state capitalism as economies in which the state is the principal actor and judge, and uses the markets for political gains. China, Russia and Venezuela are among the examples. In free-market economies, such as the U.S., Europe and Japan, multinational corporations are the principal actors.

One arena in which free-market multinationals face competition with state companies is the oil industry. Seventy-five percent of the world's oil production is controlled by government-owned corporations, such as in Saudi Arabia and Norway.

And in China, U.S. companies compete against domestic automakers that are closely intertwined with the state. China is also developing its own aviation industry, which Bremmer sees a future threat to Boeing and Airbus.

"There are many, many multinational corporations based in the West who have thought they were going to be able to do great business and suddenly they are going to find they have real competitors on the ground, in the world's second-largest and fastest-growing economy," the author tells NPR's Renee Montagne, referring to China. "But it's not a fair playing field, there is no rule of law, and they are going to get 'Googled' out."

Bremmer is referring to Google's decision earlier this year to shift operations from China to Taiwan. The search engine giant said its intellectually property had been stolen, and it no longer wanted to comply with government censorship. Google also faced competition from the dominant search engine in China, owned by a domestic company called Baidu.

"We are no longer in a global, free-market economy. There are now two systems out there. There is a free-market system, largely in the developed world. There is a state capitalist system in China, Russia and the Persian Gulf. The systems are mutually incompatible," Bremmer says. "When your principal actors are multinational corporations in the private sector and they rely for their growth on unfettered access to global markets, and state capitalist systems don't do that, you are going to have a problem. And we are just at the beginning of that problem."

Despite the dire scenario he lays out in his book, Bremmer ultimately believes free markets will outlast state capitalism. He says the U.S. has a bigger economy, puts more money into research and development, and has stronger educational institutions.

In addition, state control can create inefficiencies, such as in Venezuela, where the state oil company in now much less productive than it was before the government took it over.

However in the next five to 10 years, Bremmer says, the U.S., Japan and Europe will be too busy climbing out of economic holes — created by high unemployment and government debt — to formulate a strategy to confront the growing power of state capitalism.

Copyright 2014 NPR. To see more, visit http://www.npr.org/.

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