The global market is very competitive today. This state of affairs is forcing many countries across the world to implement measures to safeguard them from the competitive pressure of the global market. There are those countries which believe in opening up their markets to facilitate free market operations whereas there are other countries which believe that “state capitalism” can help them protect their competitiveness in the global market.
Therefore, different countries across the world adopt different survival strategies to enable them remain dominant in the competitive global market. Ian Bremmer therefore demonstrates the manner in which “state capitalism” has played a critical role in influencing the manner in which countries participate in international trade (Bell 22).
Role of politics
It is said that politics plays a vital role in determining whether states participate in the international market effectively. As a result, state capitalism is regarded as having more influence on global business activities than free market capitalism. Politics is therefore treated as a key factor that influences the decision making process of countries. Politics is threatening the presence of free markets and the growth of the global economy in general.
There are certain countries in the world which are developing at a very high rate as a result of adopting “state capitalism” regime. Such countries have been observed to overtake the major economies in the world. This state of affairs has therefore influenced many countries to implement state capitalism regime so as to enable them protect their markets as well as participate competitively in the global market (Bell 25).
Capitalism takes many forms
Capitalism is said to take many forms. For example, there are instances whereby some states use their existing wealth to enable them create more wealth. However, Bremmer stipulates that the most common form of capitalism is whereby nations manage to implement both free market and state capitalism regimes to enable them remain competitive in the global market.
In the case where free markets prevail, it is the responsibility of states to ensure that they eliminate issues such as greed so as to ensure that business practices are carried out in a fair manner. This is because greed can lead to the collapse of international markets.
For example, the Dutch Tulip Craze which occurred in 1967 is an example of a market failure which can occur when states exercise greed in their market activities (Bremmer 32). Therefore, the governments which support the existence of free markets always ensure that their corporations and states engage in economic activities fairly.
States protect their economic activities
Bremmer stipulates that state capitalism is a situation whereby nations tend to stimulate their economic activities so that they can remain focused on their economic agenda. State capitalism enables governments to be able to protect the rights of their citizens. It also enables governments to protect the economic activities that take place in their countries as well as the choice of the consumers from the adverse effects of the international market (Denitch 12).
Most countries tend to protect the interests of the main players in their national economy. They ensure that outside nations do not interfere with the performance of the local corporations and markets. This state of affairs ensures that companies do not suffer from the negative effects which result from the poor performance of the global market.
Capitalism has been in existence for a long time
To demonstrate that state capitalism is a concept that has been in existence for long, Bremmer refers to a speech that was made by Wilhelm Liebknecht in 1896. Wilhelm was the founder of the Social Democratic Party of Germany and he believed that state capitalism was an important regime for any country to implement in order for it to manage to expand its local and international markets effectively.
However, Bremmer argues that free markets are the ones which enabled the world market to recover from the financial crisis that happened between 2008 and 2009. Therefore, it is important for states to adopt free market regimes to enable them to stabilize their economy.
However, as the world economy grows, many countries are finding it important to protect their markets thereby making them to be regarded as state-capitalist countries. This trend is becoming common among nations worldwide because most of them are being driven by the urge to protect themselves from the instability of the global economy (Møller 43).
Countries practice capitalism in diverse ways
Bremmer says that there are diverse ways in which countries can practice state capitalism. For example, countries such as China and Russia are regarded as the leading practitioners of state capitalism. The two countries have well laid out plans which enable them to avoid the various crises which usually hit the world economy. It is said that China and Russia adopted state capitalism regime after abandoning communism which used to guide them in their daily market activities.
Most energy rich countries such as Angola, Nigeria, Saudi Arabia, United Arab Emirates and Malaysia have also adopted state capitalism regime to protect themselves from the adverse effects of the international market (Bremmer 56). These countries protect their markets so that they can benefit from issues such as rising price levels of goods and services. This state of affairs has made many energy deficient countries to experience unfavorable balance of payment.
Policy Tools influence the competitiveness of an economy
Bremmer points out that the manner in which states make use of policy tools determines whether they should be regarded as either state-capitalists or free market regimes. Many countries which practice state capitalism tend to favor their national corporations.
Corporations such as National Iranian Oil Company, Gazprom Russia and China National Petroleum Corporation own approximately 75 percent of the oil reserves in the world (Robertson 56). Such states are therefore able to influence the extent to which other nations in the world use their energy reserves.
Ownership of corporations by the government
Nations that operate under state capitalism regime have a large number of corporations being owned by the government. Therefore, the government is able to regulate the activities of such corporations effectively thereby ensuring that they operate as expected. The government therefore ensures that all the activities that such corporations undertake meet the needs of their economy.
The corporations are also protected from the negative consequences which they can face when they participate in international business activities. Therefore, it is possible for such countries to protect their corporations from external risks such as the financial crisis which was fueled by the collapse of the US financial markets between 2008 and 2009. For example, China’s First Automobile Works is owned by the state in order to ensure that it is protected from the competitive pressure associated with the global market (Møller 7).
Governments support private corporations
Bremmer also stipulates that many governments support privately-owned companies which have great impact on the operations of their economy. There are certain services which are offered efficiently to the public when they are left in the hands of the private sector. As a result, governments need to ensure that they give such companies sufficient support to ensure that they keep delivering quality products and services to the members of the public thus enabling them to remain competitive in the global market.
Most states refer to such companies as “national champions” because of the commanding position that they take in the economy. For example, Vale is a Brazilian mining company which was coerced by the government to undertake activities aimed at stimulating the growth of the Brazilian economy (Robertson 13).
Sovereign Wealth Fund
Bremmer demonstrates that Sovereign Wealth Fund (SWF) is a tool that can be used to identify a state that practices state capitalism. For example, UAE has invested $300-650 billion on Abu Dhabi Investment Authority. There are certain governments which are transparent about the role that SWF plays while there are other nations which remain secretive. Bremmer notes that Norway’s Government Pension Fund is an example of an SWF in Norway.
However, the government of Norway remains open and accountable regarding all the functions that its SWF undertakes. Therefore, it is true that though Norway is not a capitalist state, it has some elements of a capitalist state.
State capitalism and free markets are important for national growth
The US was observed to bail out most of its financial institutions from the economic crisis which happened between 2008 and 2009. This measure was aimed at reviving the free market but not to get rid of it. This is an indication that though countries tend to protect their corporations from the negative effects that are associated with the free market regime, they still hold on to some elements of the free market regime.
This is because the free market regime has some advantages over state capitalism. However, it is important for a nation to ensure that it embraces some elements of state capitalism despite its efforts to implement the free market regime. This is in order to ensure that it can be able to safeguard itself from the adverse effects which result when it interacts with other states in the global market.
However, there are those countries which are usually unable to implement effective techniques to guard them from the adverse effects of the free market regime. Bremmer therefore stipulates that it is important for states to ensure that they implement the correct tools which can safeguard them effectively from the adverse effects of the international market (Bell 23).
It is therefore true that those countries which have large national oil corporations and state-owned corporations are capitalist in nature. Such countries also employ tools such as SWF to boost their competitiveness in the international market. However, the presence of these institutions serves as a major threat to the existence of the free market regime. Many developed nations across the world have one thing in common.
Though they advocate for free markets, most of them do not open up their markets completely. They instead force developing nations to open up their markets thereby enabling them to take advantage of the market opportunities in those countries. The developing nations therefore end up experiencing balance of payment (BOP) problems. Therefore, developed nations benefit at the expense of the developing nations.
International system has fissures
Bremmer therefore says that the international system has fissures that need to be addressed before they get out of hand. He shows what countries such as China and the US have a mutual financial interdependence. However, he adds that the international financial system may be destroyed if China decides to close its doors to the international market (Denitch 14).
This is possible because China is one of the major countries which practice state capitalism. However, since China is a major player in the international market, the global economy would become unstable if China decides to close its doors to the international market.
International market fosters competition
The expression “The End of the Free Market” is a topic of discussion among many Americans today. State capitalism is regarded as a sign of internal political susceptibility. This is because most states which engage in state capitalism are often afraid of the risks that they would face if they decide to open up their markets. Bremmer also says that the free market regime has more advantages than state capitalism.
This is because free markets facilitate innovation and foster long-term development of the international market. In addition, when states participate in the international market, they are able to gain exposure to resources which enable them to boost their production capacity.
Countries such as China have opened up their markets completely thereby making it possible for other countries to invest in it (Maxton 25). This state of affairs has enabled China to increase its production capacity thereby enabling it to compete aggressively with other major global players such as the US.
“The End of the Free Market” is therefore a book that is targeted to the US market. This is because the US has not yet opened up its markets effectively thereby limiting the number of investors into the country. This state of affairs has made emerging economies such as China to threaten the dominance of the US in the International market.
They are implementing measures which are enabling them to increase their competitiveness and to expand their global market share significantly. The measures that these economies are implementing include keeping their markets open, welcoming world-class foreign workers, and investing in hard power.
These measures have enabled these countries to become successful in the international market (Maxton 67). It is therefore important for the US to adopt these measures to enable it keep up with the competitive pressure in the global market.
Bremmer concludes that in order for America to continue being the leader in the international market, it should remain strong, smart and principled. Bremmer therefore illustrates that though there are many countries which engage in state capitalism, they should also embrace the free market regime to enable them remain competitive in the international market (Martinez 23).
Therefore, it is true that though the free market regime plays an important role in ensuring that states compete effectively in the international market, it is important for them to adopt some elements of state capitalism to safeguard them from the risks associated with the international market.
Works Cited
Bell, Daniel. The End of Ideology: On the Exhaustion of Political Ideas in the Fifties : with “The Resumption of History in the New Century”. Boston: Harvard University Press, 2001. Print.
Bremmer, Ian. The End of the Free Market: Who Wins the War Between States and Corporations? New York: Penguin Group USA, 2011. Print.
Denitch, Bogdan Denis. The End of the Cold War: European Unity, Socialism, and the Shift in Global Power. Minnesota: University of Minnesota Press, 2000. Print.
Martinez, Mark Anthony. The Myth of the Free Market: The Role of the State in a Capitalist Economy. Sterling: Kumarian Press, 2009. Print.
Maxton, Graeme. The End of Progress: How Modern Economics Has Failed Us. New York: John Wiley and Sons, 2011. Print.
Moller, Orstrom J. The End of Internationalism: Or World Governance? Westport: Greenwood Publishing Group, 2000. Print.
Robertson, Pat. The End of the Age. New York: Thomas Nelson Inc, 2002. Print.