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The Menace Between Communism and Capitalism
on April 24, 2010
Despite the fact that the Cold War is 20 years over, we still tend to think in an unfortunate paradigm that sees 'communism' and 'capitalism' as the two major political categories. This book is written to let us know about the existence and growing presence of a third category: state capitalism. A quote from Chinese Premier Wen Jiabao (taken from a CNN interview and used in the book) well illustrates what state capitalism is: "The complete formulation of our economic policy is to give full play to the basic role of market forces in allocating resources under the macroeconomic guidance and regulation of the government. More bluntly, state capitalism is a market that is in large degree controlled by the government. Companies exist, but often serve political ends.
The book was motivated, it seems, by the 2009-2009 economic bust and explaining why this both strengthens nations that are already practice state capitalism and encourages more folks to defend state capitalism as an alternative to the free markets that many (rightly or wrongly, as the author puts it) blame for the bust.
Make no mistake: the author of this book is not writing in support of state capitalism, but simply wants us to be more aware of what it is, what its strengths and weaknesses are, and why it affects us. The author himself, though, writes as a supporter of semi-free markets with minimal, but necessary, regulation.
The first half of "The End of Free Markets" is devoted to explaining state capitalism. It developed primarily as an outgrowth of the Cold War. China and Russia both experienced broken communist regimes and the impossibility of replacing those regimes with largely unregulated markets. As a result of these failed attempts, state capitalism became a way to harness the creative and competitive powers of the market while keeping government strong as a force. (Of course, China used market processes to escape the inflexibility of communism, while Russia brought government back INTO their markets after seeing that the transition to markets didn't work out). Today, a good many countries practice more or less restrictive versions of state capitalism: Saudi Arabia, United Arab Emirates, China, Russia, Ukraine, Algeria, India - the list goes on. State capitalism is, indeed, on the rise.
The second half of the book discusses what, from the standpoint of a market supporter, the primary difficulties are with state capitalism and why it affects market economies. The author notes that state capitalism, while it does harness some of the power of the market, the ends of state capitalism is always political: governments own or favor companies in order to bolster their own power. Thus, companies do not exist to provide goods and services so much as to strengthen the power of those in office. Instead of making decisions based on what the consumers or shareholders want, decisions are either made politically or have to be approved by those with political ends. (I am very surprised that the author doesn't also mention the fact that the same thing which brought communism down - the inability of an entire economy to be controlled centrally - will likely be the downfall of state capitlaism, which is central planning that is only a tad decentralized).
And why is this bad for those nations who operate with market principles? In an age of globalization, one downside is inevitably that other nations problems and dysfunctions become our own. Particularly with state capitalism, where decisions are always made on a political basis, any dependence we have on state capitalist countries means that we are at the mercy (to some degree) of their political forces. Should they want to, say, institute protectionistic measures (as they often do because it makes citizens more likely to support you) then we bear the consequences. Should they want to rhetorically grandstand against the US (think Venezuela's Hugo Chavez), then their companies have to follow suit. In other words, it is risky enough depending on international companies, but when those companies are owned by or in cahoots with foreign governments, there is a bleeding of economic and foreign policy that becomes...well...even more complicated.
Overall, I was surprised at how engaging and readable this book was. Yes, I like books on politics and economics, but this author's writing style was clear and very readable. He does a good job explaining the ins and outs of how state capitalism works in different nations. Also, the author is neither a gloomy pessimist or unbridled optimist (either would make me much less willing to take him seriously). He is optimistic that state capitalism has a limited shelf-life but pessimistic that the economic downturn of '08-'09 have ensured that it will be around longer than it may have been.
Overall, this is an indispensable book to read in understanding the current climate of world politics. While our own nation increases its government intervention into the economy, it is important to read about other nation's descent into such territory.