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The Rise of Innovative State Capitalism

Author: Joshua Kurlantzick, Senior Fellow for Southeast Asia
June 28, 2012
BusinessWeek

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Over the past five years, as much of the developed world has staggered through crisis, a new type of capitalism has emerged as a challenger to laissez-faire economics. Across much of the developing world, state capitalism—in which the state either owns companies or plays a major role in supporting or directing them—is replacing the free market. By 2015 state-owned wealth funds will control some $12 trillion in assets, far outpacing private investors. From 2004 through 2009, 120 state-owned companies made their debut on the Forbes list of the world's largest corporations, while 250 private companies fell off it. State companies now control about 90 percent of the world's oil and large percentages of other resources—a far cry from the past, when BP (BP) and ExxonMobil (XOM) could dictate terms to the world.

Even as state capitalism has risen, some writers, business leaders, and politicians contend that such systems fail to encourage innovation, the key to long-term growth and economic wealth. Ian Bremmer, the president of Eurasia Group and author of The End of the Free Market: Who Wins the War Between Corporations and States, argues that state capitalists "fear creative destruction—for the same reason they fear all other forms of destruction that they cannot control." In China 2030, a recent analysis of China's economy, the World Bank concurred, noting that the country needs "a better innovation policy, [which] will begin with a redefinition of government's role in the national innovation system … [and] a competitive market system."

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