Over the course of my book tour, I've gotten a thousand different kinds of questions. But there are two recurring themes in some of them that I want to address here. Both themes are based on myths.
Myth #1- The free market has failed.
Myths are tools we use to persuade others to see the world as we want them to. The most powerful myths are those that are most useful.
The myth that the free market has failed is especially useful for those who want to dominate capitalism for their own purposes. The Chinese leadership and Russia's political elite, for example, know they must embrace capitalism to generate enough jobs and domestic prosperity to maintain their hold on power. They also know that free markets create winners and losers--and that the winners can use the wealth that markets generate to establish some level of independence from the state.
That's why state capitalist governments are only too happy to use the financial crisis and global recession to argue that Western-style free market capitalism has "failed." It's a myth designed to help them promote their own capitalist model, one that helps the state control as large a share as possible of the wealth that markets create..
My book is called "The End of the Free Market," because I believe that this state-driven form of capitalism has fragmented the globalized market of recent years into several pieces. America, Britain France, Germany, Japan and many others are still free-market countries. But the growing importance of China, Russia, and a number of authoritarian energy-exporting states for the global economy has reversed many of globalization's gains of the past several years--and will threaten the dynamism of free market capitalism for decades to come.
The book's title does not imply that I believe that free market capitalism can't survive this challenge. I believe it will--and that it should.
Anyone who speaks up for (intelligently and effectively regulated) free market capitalism these days is swimming against a pretty strong tide. Bankers, like the executives in charge of the oil companies and coal mines so much in the news lately, have used their clout to win the right to regulate themselves for the past several years. That problem has gotten us where we are today. But that's a failure of oversight, not of market-driven capitalism.
Blame Alan Greenspan or your favorite bad boy bankers. Blame the SEC or CFTC. But don't ignore the demonstrated power of the cross-border flow of ideas, information, people, money, goods and services to bring hundreds of millions of new players into the global economy.
As long as the myth of free market failure remains useful for state capitalists, they'll keep pushing it.
Myth #2- President Barack Obama is pushing the US toward state capitalism (or even socialism).
This is a myth made famous mainly by tea party conservatives--though now that Sarah Palin has accused the president of being in bed with the oil companies, the message is getting a little muddy. The US financial sector has not been properly regulated for many years. The financial crisis and its lingering impact on US workers will probably push congressional Democrats to overreact by over-regulating. And with 17.1 percent real unemployment in America, it's a tough political climate for any president to be pushing for new trade deals.
But anyone who really believes that Barack Obama is pushing the United States toward state capitalism has:
a) Chosen to believe this for partisan political reasons
b) No idea what state capitalism really looks like
c) No real appreciation for American checks and balances
d) All of the above
Have American corporates lost their ability to influence the legislative agenda? Hardly. Is America still governed by institutions rather than people? Of course. The number of US companies that some claim are "too big to fail" pales beside the number of Chinese state-owned and state-supported companies and the enormous number of workers they employ. US government involvement in the banking sector is (and will remain) negligible when compared with state intervention in banking in Russia, China, or the Arab monarchies of the Persian Gulf.
Speaking of too big too fail, remember when President Obama expressed outrage over bonuses paid at AIG? He got less outraged pretty quickly when he realized the legal nightmare he'd invite by trying to intervene. That rhetoric is smart politics, but that's about it.
In fact, here's a really useful way of understanding a key difference between a free market state, where political leaders cannot freely circumvent the rule of law, and a state capitalist system, where governments rewrite rules as necessary to accomplish political goals. A free market state is one where companies get lawyered up. For better or worse (we're all free to judge these things for ourselves), companies have the right to defend their interests in court when they believe that government is unfairly undermining their interests. Whatever you or I think about bonuses at AIG of the maneuverings at Goldman Sachs, it's a very good thing that any company, large or small, can get a fair hearing in court when a point of law is at stake.
You can get lawyered up in a state capitalist country as well, but that won't always protect you from getting Googled out. When the Chinese state decided that Google's resistance to censorship might be making the company more trouble than it was worth, all the lawyers Google could buy couldn't have protected their interests. For foreign companies, winning a judgment from a Chinese court against the Chinese state falls pretty far short of a sure thing. And your lawyers can't protect you from hackers and other forms of harassment.
The Chinese government doesn't really believe that free markets have failed. Most US conservatives don't really believe that President Obama wants to run the US economy--or that he could even if he did. These myths are useful.
They're also false.
Ian Bremmer is president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between States and Corporations? (Portfolio)
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