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end of the free market?

Friday 25 June, 2010

I attended a talk on THE END OF THE FREE MARKET? given by Ian Bremmer, President of Eurasia Group, who’s written a book entitled The end of the free market:  who wins the war between states and corporations? This event was organized by the Chicago Council on Global Affairs.  Here’s the summary:

It’s a different world after 21 months of turmoil.  There is less growth & it’s more volatile.  The state is becoming the principal actor in growth economies & their leaders have different ideas how economies should be run.

There have been 2 knee-jerk reactions to his book:

  1. the right admits Bremmer gets the problem & incorrectly points to Obama as the next state capitalist
  2. the left believes he’s gotten it right, really, but Bremmer doesn’t fully buy it, as his book title is rhetorical.

Bremmer met a very high-ranking Chinese official who had seen his new book & posed the question, “Now that the free market has failed, what is the role of the state?”  Bremmer’s considered response was; even though self-regulation of banking didn’t work, ruling without the rule of law is no better.

This uncertain economy has leaders of free-market economies on their heels & in indefensible positions.  With lower economic growth, politics have much bigger effects.  There are more wars between corporations and states, so corporations have the choice to fight or leave.  So far, it’s China-1, Google-0.  Only 2 of the top 15 oil companies are privately owned-the rest are all owned by states.  China no longer needs foreign capital & only needs the highest levels of technology.  They recognize an export-led economy is no longer sustainable.  So they are diversifying away from exports to the west to ensure that profits stay within the country & are committed to growing locally.  They still need someone to blame for their problems, so relations are getting politicized, which makes relations more difficult.

The free market is a global phenomenon.  State capitalism is determined by states.  China is locking up commodities, but not on a global scale.  India is competing with China for those commodities & it’s going to get more contentious.  Russia is opening up more to the U.S.

re: the environment, is growth sustainable?  State capitalism only exacerbates these problems.

It’s volatile now as the American way of life is getting squeezed, but Bremmer still places his bets on the U.S.  The U.S. still has the educational system, infrastructure, etc. to solve its problems.  The problems of the other developed nations of the world are far greater & they have more limited means to address them.

Q&A

  • National resilience is broken, along with many bureaucracies.  Japan has no National Security Council & no training facilities for public policy.  The U.S. needs a Minister of Trade & Economy to organize a national industrial policy.  Obama can drive issues, as he did with health care, but the question is:  can he focus on the right things?  There is little faith in the $, but China can’t diversify away from it & the € is a disaster.
  • The EU governments will never turn away an opportunity to subvert the interests of its peoples, but the € will stay because of the massive bureaucracy built around it.
  • Brazil is on a good trajectory as long as they are consistent with their fiscal policy.  Others will move more towards state capitalism if they can’t compete in their own space.
  • China is building ports in Kenya with Chinese workers & the Kenyans don’t like it.
  • The Chinese are more happy with their government than Americans are with theirs because the Chinese have benefited from 10% annual growth for the last 30 years, which has bought them time, but China is still a bubble.  Russia is more likely to unravel because its wealth is so resource dependent.
  • Free market advocates don’t really want free markets-they want monopolies for themselves, so regulations are returning.  The question then becomes will they render us less competitive.
  • Natural gas is getting over-invested, but it’s cyclical & becomes more important as it becomes a national security issue.
  • 75% of the PhD’s in the hard sciences in the U.S. today are from China & we’re sending them home.  We need to get them to stay & contribute here.  The educational crisis 2 lower levels is creating a 2-tiered system.  The educational system in India is rising, while it’s falling apart in Russia.
  • Take Russia out of the BRIC countries.  Indonesia is a growing frontier economy.  It’s politically stable & fiscally competent.  South Africa has great greenfield & JV opportunities with locals.  Neighbors Vietnam & Cambodia are growing along with China.
  • Companies can’t stiff-arm authoritarian states like Google tried to do in China.  Technology will become more security conscious, so Microsoft will become more like Northrup Grumman, with security clearances required for much more than is now.  We’ll sell secure products only to the U.S. & less secure products to the rest of the world.
  • All free traders have some elements of protectionism.  We just need to whack down invalid political claims.
  • The government of Turkey has gone after private businesses, but Turkey focuses on Turkey.  Turkey is tilting ever more towards the Middle East & will never become a member of the EU.

my $.02-I’d love to see a face-off between Bremmer & Marvin Zonis

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