In just the past year, major scandals have erupted at several of the world’s most influential state-owned companies, with repercussions going far beyond the boardrooms. In Brazil, graft scandals centered on state-owned petroleum company Petrobras have triggered waves of arrests and played a role in the ongoing impeachment of President Dilma Rousseff. Meanwhile, in Malaysia investigations continue into allegations of massive irregularities in state fund 1MDB, allegations that have shaken the government of Prime Minister Najib tun Razak and reportedly triggered investigations into 1MDB in Singapore, Switzerland, the United States, Hong Kong, Luxembourg, the United Arab Emirates, and Malaysia.
These scandals signify both the increasing influence of state companies in developing nations, and some of the problems posed by modern-day state capitalism. In my new CFR book on the rise of modern state capitalism, State Capitalism: How the Return of Statism is Transforming the World, released this month, I explore the growth of enterprises like Petrobras, and the potential problems caused by their expansion.
These two giants, Petrobras and 1MDB, are hardly unique. As I write, over the past two decades, many developing countries have turned away from free market capitalism and toward modern state capitalism, which is a combination of traditional state economic planning and elements of free market competition. This new state capitalism can seem little different from free market capitalism, and in some countries, like Norway or Singapore, state companies are well governed and, often, quite profitable. However, in many other nations---from Malaysia to China to Brazil---the expansion of state capitalism has crowded out private enterprise, warped the political system, and fostered graft. For more on my new CFR book, click here.