The following is the trancript of a wide-ranging discussion between noted
political scientist Ian Bremmer and Devin Stewart of the Carnegie
Council that follows Bremmer's analysis of the troubled relationship between
the United States and China, and the rise of what he calls "state capitalism",
where politics is the principal driver and rule of law is absent.
Devin Stewart: I'm Devin Stewart, from the Carnegie Council, and
I'm here with Ian Bremmer. He is head of the Eurasia Group, a Carnegie Council
Trustee, and author of a new book, The End of the Free Market: Who Wins the War
Between States and
Corporations?
Thanks for coming today, Ian.
Ian Bremmer: Thanks, Devin. Glad to
be here.
DS: The last time we talked, it was about The J Curve,
which is a fantastic book. Just last week, you were with Jon Stewart, on The
Daily Show. This week you were on Fox promoting your book. And you
stopped by the Carnegie Council. It's great to have you here. Let's start with
the title. Sorry, but the end of the free market, really? I mean, come on. Is
it really that dramatic?
IB: There's still a free market in the United States. There's a
free market in Europe. There's a free market in Japan. But the world as a whole
over the last 40 years has been governed by an increasingly global free-market
system. That was the dominant economic paradigm. We hit the tipping point on
that.
There is now a competing system. It's real. It's state capitalism. It's a
system where the state is the principal actor in the economy. It uses the
markets for ultimately political gains and there's no rule of law.
DS: What drove us to that tipping point? What were the
motivations, what were the factors that led up to this tipping point, to state
capitalism, which we have to define first? What is it that led us to this
point?
IB: There have been aspects of state capitalism that have come
for a while. You used to have authoritarian regimes that had centrally planned
economies. As globalization took hold, enriching the world, the one group of
folks that had a serious problem with it was the authoritarian governments,
because they increasingly needed to provide growth to their own domestic
populations or they were going to be out of power. Yet giving that over to the
private sector thoroughly undermined their model. So what they did was that
they created a system, a new system, that took the tools of the free market and
used them for political ends.
DS: And you call that state capitalism.
IB: That's state capitalism. Yes, it is.
DS: Tell me about your very interesting story in the book with
the vice minister for foreign affairs of the Chinese government, who kind of
inspired you - ironically or not - with the title of this book. Tell us about
that.
IB: He did inspire
me, there's no question. He is an incredibly
articulate fellow. His name is He Yafei, and he is
the vice minister of foreign affairs in China.
They called me up and they said he wanted to
exchange views with me. This was last May.
We got together. I'm sitting across the table from him and the first question
he asks me is, "Now that the free market has failed, what do you believe the
appropriate role of the state in the economy should be?"
This is a serious and senior guy. It turns out that he is the official that in
Copenhagen, when President [Barack] Obama did not meet with [Chinese Prime
Minister] Wen Jiabao, this is the guy that came in to meet with Obama.
DS: So he has some gravitas.
IB: He is a very impressive and articulate fellow. His English is
as good as anyone on the street here in New York.
DS: Who else was in that meeting?
IB: We had a few key economists. For some reason, they sat me
directly across from him, and I got the first question. Nouriel Roubini was
there, the illustrious "Dr Doom" economist. Bob Hormats was there, who was at
Goldman Sachs; now he is under-secretary of state. Don Hanna, who was the chief
economist at Citi at the time. So there were about six major economists and me,
the political scientist.
DS: And you're right in the middle.
IB: I'm right in the middle, and he asks the first question, not
to the economists, but to the political scientist. This was completely
stage-managed.
DS: You had to represent your whole field of political science in
front of all these important people. What was your response?
IB: Looking back on it, it was very clear that China is not just
about the economy. China is ultimately about the politics. China is a country
that knows that it needs economic growth because of its ultimate priority,
which is political stability. If you lose the economic growth, you lose the
political stability.
In the United States, if we lose economic growth here, we can vote out our
government. But you're not going to get rid of the Supreme Court. You're not
going to get rid of the House of Representatives. They are still going to be
there.
In China, if you lose economic growth, you can lose the entire regime. And they
are very, very aware of that.
DS: What is state capitalism? Before we go further, we have to
define our terms. How does it differ from the free market?
IB: State capitalism is very simple. It is an economic system
where the state is the principal actor, and it uses the markets for,
ultimately, political gains, in the absence of rule of law. In a free-market
economy the principal actor is, of course, not the government. The principal
economic actor is the private sector; it's the multinational corporation. There
is rule of law.
Now, there are rules, and the government plays a role. In a properly regulated
free-market economy, the government is a referee, who, when there are problems,
will penalize somebody -
DS: So in the free market, government is a referee.
IB: Yes.
DS: In state capitalism, government not only controls the rules
of the game; they are also the referee and they control the main players of the
economy.
IB: They are a referee where one of the teams is stacked with the
ref's friends and family, and they only bother to tell that team what the rules
are. That is a rather different game than the one that we're used to playing on
the international economy.
DS: Before we get to whether that works or not, that doesn't
sound quite fair. If you are going to be competing in a global marketplace,
where governments can muster the resources to buy major assets through their
sovereign wealth funds, for example, is it fair to be able to put these things
on the market to states that have that much influence in their own economies?
IB: It looks fair if they need you. If suddenly they don't need
you, you can find that it's not fair very quickly. In the absence of
contractual obligations that have to be fulfilled, in the absence of your
ability to go and actually lay suit against someone, you have problems.
In the United States, a lot of people were upset about AIG, those bonuses -
$165 million. Obama came out and said he was outraged. People were talking
about ripping those contracts up. The next week, Obama thought about it and
came back and said, "You know, I've reconsidered. I'm actually less outraged
than I thought I was."
Why did he do that?
DS: That always happens, though.
IB: It happens all the time.
DS: You start outraged, get less outraged.
IB: And then you get less outraged.
In this case, of course, the American people were still outraged, and Congress
was still outraged. But Obama sort of recognized that in the United States, if
they had ripped those contracts up, you were going to get lawyered up for
years.
DS: Is that like getting "Googled out"?
IB: It's a little different than getting "Googled out." Getting
lawyered up means that -
DS: It's what happens in a free-market system.
IB: What happens in a free-market system. In a state capitalist
system, when they don't need you, you get "Googled out." So it's being "Googled
out" versus being lawyered up. I think that is actually a very good dynamic.
Think about it.
DS: That's a great article right there. Which one is more
painful, do you think?
IB: Being lawyered up is like a death by 1,000 cuts, which is why
you want to generally avoid it. Getting "Googled out" can hit you suddenly.
DS: ... So tell me ... what you mean by "Googled out." How do you
view what I think - and I think a lot of the colleagues here at the Carnegie
Council believe - is a pretty extraordinary event, where it seems that Google
took a moral stand on China and decided to do an ethical thing? In the popular
imagination, businesses only operate, at least in the free-market system, from
profit. State capitalism is based on politics or state power, right?
IB: Ultimately, yes.
DS: What about the driver of ethics? How do you square that with
the future of China?
IB: There's a lot to unpack in that question. The first is that
there is a difference, of course, between long-term profitability and
short-term profitability. What we have seen in the US over the last two years
is that there were a lot of financial institutions that were focused on
short-term profitability and took some decisions that we might consider
immoral.
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