Navigating the Multipolar World: The Free Market vs. State Capitalism

January 25, 2014 — Leave a comment

Ian Bremmer, the president of risk consultancy Eurasia Group discusses the political tensions of the new decade.

THE FUTURIST: In your new book, The End of the Free Market, you write that human rights and free markets are inextricably linked, yet you perceive a future where many large and profitable state-run corporations exist, advancing neither free-market principles nor human rights. Briefly, was there a particular moment or incident in your travels where you reached this realization?

Ian Bremmer: These tectonic shifts have been under way for a long time. I’ve seen this on the horizon since I started the Eurasia Group. All states are going to become a much bigger driver for global investment. It’s happened more structurally in countries that have state-capitalist systems. Those countries are becoming more important. The eureka moment came several months after the financial crisis first hit. I got a phone call from the protocol office of the Chinese mission in New York. They said the vice minister of foreign affairs, He Yafei, was coming to town. They asked if I would have time to engage in an exchange of views. We got together a small group. I was sitting right across from him, and he said, “Tell me, now that the free market has failed, what do you believe the appropriate role for the state in the global economy should be?” I had to suppress a smile. It was a bold statement.

My response was that, just because the self-regulation of banks proved to be a bad way to run the global economy, does not mean that the absence of the rule of law, or an independent judiciary, or the presence of the state as both principal actor and arbiter of the economy is a better way to run an economy. That was the beginning of a long conversation where we began to engage each other’s worldviews. But the fact of the matter is, on some fundamental philosophical level, these worldviews and systems are incompatible. We in the United States have been able to ignore that, because America has done well in China, and China’s been a very small country (economically speaking). In other words, there’s been a lot of free-riding. It’s now 2010. China is growing at 10% a year and the United States has 10% unemployment. This is going to become a very politicized relationship.

THE FUTURIST: How will people in the United States begin to see that polarization?

Bremmer: Here’s one example: In 2008, as an American voter, you could choose McCain or Obama without any interest or concern as to what their views were in regard to China. That will never happen again.

THE FUTURIST: How does the United States navigate that relationship? What happens to our argument for greater openness in China, greater respect for human rights?

Bremmer: The first thing we have to do is understand that you can’t navigate something without a map. We haven’t had one. There are big problems with the basic narrative that Americans subscribe to about China. Here’s the story we tell ourselves: There’s an authoritarian, communist government on one side and there are people yearning to be free on the other. In that struggle, ultimately, the Chinese people will win; therefore, the United States stands on the side of the Chinese people. We don’t seem to understand that the vast majority of Chinese are exceptionally supportive of their leadership.

Imagine for a moment that there were political reforms put into China right now. They had free and democratic elections. Would the resulting government in China be more beneficial, antithetical, or indifferent to American interests than the government now in place in Beijing? I could make a very strong argument that the resulting Chinese government would be less pro-status quo, more nationalistic, and more problematic to U.S. interests.

THE FUTURIST: You could argue that the same phenomenon played out in Palestine when they elected Hamas.

Bremmer: Indeed you could. We tend to fetishize elections in the United States.

THE FUTURIST: What’s the most important thing the U.S. government can do to ensure a better relationship with China, one that’s mutually beneficial?

Bremmer: Be indispensable. We’ve forgotten about this. Many years ago, James Chase wrote about America as the indispensable nation. Today, the United States is in comparative decline vis-à-vis countries like China. I’m not a declinist. But the rise of the rest does mean the comparative decline of the United States.

In policy terms, that means we need to focus on the places where we can make them feel that we are indispensable.

1. We have by far the world’s largest military, and it’s essential for humanitarian response after a disaster, such as the 2004 Indian Ocean tsunami that struck Indonesia. The United States has more capability for large-scale coordinated operations because of the size of our military. Hard power becomes more important over time, especially as parts of American soft power, like financial leverage, deteriorate, comparatively speaking.

2. Reiterate our commitment to regulated free markets; that includes being open to Chinese investment in the United States. In 2005, CNOOC – the state-owned Chinese National Offshore Oil Company – made an offer for Unocal [a U.S.-based oil company]. At the time, U.S. lawmakers expressed concern over the Chinese government acquiring a U.S. energy interest. Ultimately, Unocal was sold to Chevron for millions less than the CNOOC offer. Some of the people who really wanted the sale to CNOOC to happen were Unocal management. Chevron already had good managers, but China wanted Unocal managers at CNOOC. More Western management in Chinese firms is insidious; it shows we do this stuff better than they do. They want access to better accounting and more transparency. We have it. This know-how over time makes us more indispensable to China.

3. Most important, we want to avoid protectionism. We don’t want the Chinese to look toward decoupling. That’s a bad scenario. But the argument for globalization will become harder to make politically in the United States, as laid-off workers complain that globalization favors Beijing more than Detroit.

THE FUTURIST: How do you sell globalization to an electorate that’s feeling increasingly pressured by it?

Bremmer: It will become a less popular sell. That’s why you see people arguing in favor of protecting automotive sector jobs even if they aren’t competitive. It’s why the European Union spends 40% of its budget on the farming sector, just 8% of the population. The Europeans just shouldn’t be farming. They should be spending more where they have an advantage.

THE FUTURIST: The United States, too, should focus on its advantages?

Bremmer: Yes, and the United States has huge competitive advantages. A couple of months ago someone asked me, is America even going to be relevant in 10 or 15 years? I told him to ask that question again, but replace “America” with “world’s largest economy.” So, in 10 to 15 years, is the world’s largest economy going to be relevant? The question is farcical. The United States will still, overwhelmingly, be the world’s largest economy and reserve currency.

Research and development throughout the world is U.S.-driven. The world’s best institutions of higher learning are in the United States. It’s harder to get immigration into this country, but scientists are still seeking training here. Who would I bet on to make the next world-changing patents in 20 years for new energy technologies? I’d bet on the United States, of course. If I was betting a pool of money, would I bet as much on the United States after 20 years as I would today? No I would not. Would there be a significant shift? Probably yes. But I would still bet on the United States.

Unfortunately, the trajectory is moving in a way that’s more and more uncomfortable. U.S. institutions, which operate well in a steady state or during times of increasing wealth, are terrible at responding to impending crisis. India has been dealing with this same problem for some time, which is why China continually eats their lunch. The kind of system that we have in the United States is decentralized away from the president on key legislative issues; it’s one where individual constituencies win political battles except in the bleakest crises. Given that, it’s very hard for elected political leaders to make globalist arguments publicly. That’s a weakness in the American political system that is structural and will become increasingly apparent as we muddle through these deficit and spending issues.

As a political scientist, I expect that America won’t address these issues proactively; as a consequence, the war between states and corporations will look increasingly combative.

THE FUTURIST: Do you assume the average American voter is incapable of grasping the inherent logic of a globalist perspective?

Bremmer: I would never say “incapable,” but there is a serious collective-action problem. The average American is capable of understanding why voting is important, but what are our voting numbers? As the economic situation, especially from a comparative perspective, becomes tougher, as deficits grow, you’re also going to see much more populism. Some of that will be driven top-down, and a lot of that will be driven by frightened, upset people. It’s a reality. The United States is not well positioned – given all of our priorities on a daily basis – to actually deal with these globalist perspectives. That’s clearly true.

When I talk about these issues, I’m trying not to be ideological about them. The embrace of globalization is how, I am convinced, we will ultimately have the strongest global growth with the most boats rising. But I also understand why it is relatively unlikely to happen. We have to be honest about that.

THE FUTURIST: The year is 2020. Is the average human being – take the aggregate, Russia, China, Iran, western Europe, the United States – more free or less?

Bremmer: A little less, for two reasons. First, the dynamics playing out between the United States and China and within China itself will not have run their course by then. As a consequence, we will increasingly experience an absence of global cohesion and institution making. There will be no sufficient global response to climate change or to proliferation. That creates more volatility and instability, which tends to empower these entrenched authoritarian systems.

The second reason is the increasing risk of the diffusion of dangerous technologies. Rogue states and individuals are more empowered, irrespective of the amount of money going into counterterrorist efforts. It doesn’t take teams of people to take down planes anymore but one sufficiently motivated individual, and not just planes but other targets with real-time market implications. That’s going to have an impact on individual liberties.

The combination of those two things, the dangerous technology growth and the tectonics of an increasingly non-polar world, will affect the spread of freedom and democracy. The fight between free but regulated markets against state capitalism will result in swings in that direction.

THE FUTURIST: On the most micro-level, what can a reader of THE FUTURIST do to improve that situation?

Bremmer: I focused just now on the massive decentralization of dangerous technologies. The flipside of that coin is the decentralization of empowering technologies. The most significant of those is the Internet, the blogosphere, and communications networks. We’re living in an increasingly content-rich environment. Some of that content is dangerous, but more of it is benign.

We’re also living in a world where really interesting and valid content becomes more important even if it comes from people who have not been anointed by the powers that be. The average insightful reader with something intelligent to say can contribute ideas and criticism in a way that has actual and meaningful potential to affect the way political, civic, and economic leaders think and act, and in a way that 10 or 20 years ago was unimaginable.

About the Interviewee

Ian Bremmer is an American political scientist specializing in U.S. foreign policy, states in transition, and global political risk. He is the president and founder of Eurasia Group, a global political risk research and consulting firm providing financial, corporate, and government clients with insight on how political developments move markets. His latest book, The End of the Free Market: Who Wins the War Between States and Corporations? will be released by Portfolio in May 2010.

AuthorAffiliation

This interview was conducted by Patrick Tucker, senior editor of THE FUTURIST magazine.

Originally published in THE FUTURIST, May-June 2010

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