State Capitalism Stays in Control

Over the past year, leadership changes in many of the world’s biggest emerging markets have created vast hopes—both among citizens of these countries and among foreign investors—of dramatic economic liberalization in India, China, Indonesia, Mexico, Thailand, and other countries with new presidents and prime ministers. In some cases, as in India and China, many local analysts and investors believe that the new men in charge—Indian prime minister Narendra Modi, and Chinese president Xi Jinping—are potentially once-in-a-generation economic reformers who could streamline even the biggest, most lumbering economies, slashing state enterprises and drastically reducing waste.

However, the hopes for a retreat from state capitalism in emerging markets will amount to almost nothing. Modi, Xi, and every other supposedly visionary new leader across the developing world will not dislodge state capitalism, or seriously liberalize their economies. Instead, Leviathan will stay in control of the economy, eventually depressing growth and undermining the entire world’s chance to boom.

Read more of my analysis of why Modi, Xi, and other new leaders will not seriously dent the power of state enterprises here.