A fascinating new book is about to hit the shelves. Called The End of the Free Market, it argues that all-powerful governments from around the world will be the new driving force in the global economy, skewing the decision making process away from individuals, companies and the market towards states, political interests and authoritarianism.
Stated in one bald paragraph it sounds a little apocalyptic. But Ian Bremmer, the highly respected author who is president of the Eurasia Group in the United States, makes a compelling case. The financial crisis has left Western capitalism nervous and risk averse, constantly under attack from a body politic keen to take advantage of public anger over the events of 2007 and 2008. Issues like the control of the banking system, remuneration and the failure of so much of the financial sector, whether Northern Rock, Lehman Brothers, AIG or Royal Bank of Scotland, has created a fundamental crisis in confidence.
At the same time, and with little of the same scrutiny, cash-rich governments from the Middle East and Asia are taking advantage of this malaise. Bremmer argues that, with the collapse of communism little more than a generation ago in historical terms, China, Saudi Arabia and Russia are now the leading players in this new era of state capitalism.
The battle for the rights to energy and food are at the forefront of the new trend, coupled with what Bremmer describes as the ability of such states to “buy” their citizens loyalty. He suggests that the development is a threat to long term global recovery.
Of course, in the UK, Europe and beyond, the state or state representatives are playing a far greater role in the lives of those corporations that generate profits. Every move against the banking sector has a knock on effect for businesses. As banking executives tirelessly argue, for every extra £1 they are ordered to keep on their books (a protection against a future crisis) £15 is lost to the economy.
That is basic function of the banking industry – leveraging money and managing risk to enable the economy to grow. As I have said before, five years ago a banking CEO had little need to worry about the workings of the Chancellor’s mind. Now it has to be at the heart of every decision making process.
Bremmer’s new book takes apart this new trend analyses the possible outcomes – not least the threat to the United States as the world’s leading economic powerhouse. George Osborne describes the book as a “powerful anaysis”. The economist, Nouriel Roubini, says it is “indispensable”.
With fears of a double-dip recession stalking Western economies, the question is whether Bremmer has alighted on the central trend of the next decade and beyond. Is this a trend we should fear? Has the market system brought it upon itself, a dose of medicine richly deserved?
I look forward to your thoughts.