Authoritarian governments everywhere have learned to compete internationally by embracing market-driven capitalism. But if they leave it entirely to market forces to decide winners and losers from economic growth, they risk enabling those who might use that wealth to challenge their political power. Certain that command economies are doomed to fail but fearful that truly free markets will spin beyond their control, authoritarians have invented something new: state capitalism. In this system, governments use various kinds of state-owned companies to manage the exploitation of resources that they consider the state’s crown jewels and to create and maintain large numbers of jobs. They use select privately owned companies to dominate certain economic sectors. They use so-called sovereign wealth funds to invest their extra cash in ways that maximize the state’s profits. In all three cases, the state is using markets to create wealth that can be directed as political officials see fit. And in all three cases, the ultimate motive is not economic (maximizing growth) but political (maximizing the state’s power and the leadership’s chances of survival). This is a form of capitalism but one in which the state acts as the dominant economic player and uses markets primarily for political gain.
To illustrate the differences between a Soviet-style command economy and these various forms of capitalism, imagine a football game or soccer match. Command economics is a game in which the state tries to predetermine the final score by ensuring that all players, referees, and spectators faithfully perform their preassigned roles. It’s more a pageant than a sport. Post–Soviet Russian–style laissez-faire capitalism is a blood sport with few rules and referees who represent the competing interests of the spectators who wagered most on the outcome. The strongest dominate, and everyone else loses. Mixed capitalism is a game with referees who exist only to ensure proper enforcement of recognized rules and with players involved in genuine competition. Government’s only role is to ensure that the rules are written effectively and fairly. It’s an ideal, one to which most U.S. and European policy makers aspire. State capitalism is a match in which government controls most of the referees and enough of the players to improve its chances of determining the game’s outcome. Spectators profit from some limited level of genuine competition, but the state rigs the game to ensure that favored players have what they need to score the vast majority of points on its behalf.
This book is about the emergence of this new strand of capitalism and how it threatens free markets and the future of the global economy.
