Beginning in the late 1970s, UK and U.S. economies entered a period of increasing privatization and deregulation. In time, these Margaret Thatcher- and Ronald Reagan-led policies were adopted by many other nations, and the current era of globalization can in part be attributed to the more uniform trade, regulatory and fiscal policies that evolved internationally as a result.
Now, according to a new book by Eurasia Group President Ian Bremmer, we may be in for another shift. In The End of the Free Market, he details a new, perhaps threatening reality: a proliferation of “state capitalism.” After decades of expanding wealth for citizens and corporations (particularly following the collapse of the Soviet Union), state-owned wealth has made a comeback with China, Russia and multiple Arab monarchies, such as Saudi Arabia, leading the charge.
“Twenty years ago, the collapse of Eastern Europe and Soviet Communism drove a stake through the heart of the argument that governments could generate national prosperity though direct and active management of national economies,” wrote Bremmer. “But as the sun sets on the first decade of the twenty-first century, that story has already become ancient history. The power of the state is back.”
Empowered by the vast wealth now in their coffers, governments may become more willing to flaunt international norms and buck the globalization trends that are now standard operations in the West. Higher instability and political risk may very well follow.
For those less interested in the shifting macroeconomic winds across the globe, there is another takeaway here. Bremmer’s subtitle asks “Who Wins the War Between States and Corporations?” If his main conclusion-that the state wins-is correct then that means the corporation loses. And greater state power could mean that international operations become trickier. If large, perhaps unavoidable, locations for doing business, like China, become more volatile, it will mean a lot more difficulty for multinationals looking to expand.