The Rise of State Capitalism

The fall of communism did not mark the final triumph of free-market capitalism because it did not put an end to authoritarian government. The Chinese and Russian governments in particular have learned to compete internationally by embracing market-driven capitalism. But they know that 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, these and other authoritarian governments have invented something new: state capitalism.

Using this system, governments dominate key domestic economic sectors. They use state-owned and politically loyal privately owned companies to intervene in global markets for energy, aviation, shipping, power generation, arms production, telecommunications, metals, minerals, petrochem­icals, and other industries. The oil companies they own now control three quarters of the world's crude-oil reserves. These governments also control enormous investment vehicles known as sovereign wealth funds that have become vitally important sources of capital. In each case, the state is using markets to create wealth that can be directed as political officials see fit. And in each case, the ultimate motive is not economic (maximizing growth) but political (maximizing the state's power and the leadership's chances of survival).

The main characters in this story are the men who rule China, Russia, and the Arab monarchies of the Persian Gulf, but the apparent success of this new model has attracted imitators throughout much of the developing world.