On the Perils of "State Capitalism"

A fascinating piece on the concerns of economist Ian Bremmer, appearing in the Telegraph:

His latest thesis – one that has taken America, particularly on the right, by surprise and has fuelled great interest on the left in part as a result of appearances on John Stewart's political satire The Daily Show – is that the biggest threat to the world economy and global growth is not the financial crisis, but the rise of "state capitalism" as an increasingly viable alternative to the free market.

State capitalism, as Bremmer defines it, is "a set of governing principles" used by governments around the world to manage the performance of markets and companies for long-term political survival. Think the oil-rich Gulf states, or Venezuela, or China itself.

"State capitalism is corporations captured by states," he says, explaining a phenomenon he argues has yet to be fully embraced by the political or financial spheres.

Bremmer argues that increasingly influential countries are using financial markets to create wealth based on the perceptions of national interest.

As a result, it is not sub-prime mortgages or risky derivative trades that pose the biggest threat to the future of the global economy, but rather these very countries with which the US, the UK and the rest of Europe trade.

"The biggest challenge for the world economy…[is] the shift from free markets and multi-national corporations being key economic players to something very, very different where we're now competing with a different and quite valuable model."