These days we are transfixed by the struggle between BP and the
U.S. government. This is a familiar conflict — between a
multinational company trying to make a profit and the government trying
to regulate the company and hold it accountable.
But this conflict is really a family squabble. It takes place amid
a much larger conflict, and in this larger conflict both BP and the
U.S. government are on the same team.
The larger conflict began with the end of the cold war. That
ideological dispute settled the argument over whether capitalism was
the best economic system. But it did not settle the argument over
whether democratic capitalism was the best political-social-economic
system. Instead, it left the world divided into two general camps.
On the one side are those who believe in democratic capitalism —
ranging from the United States to Denmark to Japan. People in this camp
generally believe that businesses are there to create wealth and raise
living standards while governments are there to regulate when necessary
and enforce a level playing field. Both government officials like
President Obama and the private sector workers like the BP executives
fall neatly into this camp.
On the other side are those that reject democratic capitalism,
believing it leads to chaos, bubbles, exploitations and crashes.
Instead, they embrace state capitalism. People in this camp run Russia,
China, Saudi Arabia, Iran, Venezuela and many other countries.
Many scholars have begun to analyze state capitalism. One of the
clearest and most comprehensive treatments is “The End of the Free
Market†by Ian Bremmer.
Bremmer points out that under state capitalism, authoritarian
governments use markets “to create wealth that can be directed as
political officials see fit.†The ultimate motive, he continues,
“is not economic (maximizing growth) but political (maximizing the
state’s power and the leadership’s chances of survival).†Under
state capitalism, market enterprises exist to earn money to finance the
ruling class.
The contrast is clearest in the energy sector. In the democratic
capitalist world we have oil companies, like Exxon Mobil, BP and Royal
Dutch Shell, that make money for shareholders.
In the state capitalist world there are government-run enterprises
like Gazprom, Petrobras, Saudi Aramco, Petronas, Petróleos de
Venezuela, China National Petroleum Corporation and the National
Iranian Oil Company. These companies create wealth for the political
cliques, and they, in turn, have the power of the state behind them.
With this advantage, state energy companies have been absolutely
crushing the private-sector energy companies. In America, we use the
phrase Big Oil to describe Exxon Mobil, BP, Royal Dutch Shell and
others. But that just shows how parochial we are. In fact, none of
these private companies make it on a list of the world’s top 13
energy companies. A generation ago, the biggest multinationals produced
well more than half of the world’s oil and gas. But now, according to
Bremmer, they produce just 10 percent of the world’s oil and gas and
hold only about 3 percent of the world’s reserves.
The rivalry between democratic capitalism and state capitalism is
not like the rivalry between capitalism and communism. It is an
interdependent rivalry. State capitalist enterprises invest heavily in
democratic capitalist enterprises (but they tend not to invest in each
other). Both sides rely on each other in interlocking trade networks.
Nonetheless, there is rivalry. There is a rivalry over prestige.
What system works better to produce security and growth? What system
should emerging and struggling democratic nations aim for? There is
also rivalry over what rules should govern the world order. Should
countries like Russia be able to withhold gas from Western Europe to
make a political point? Should governments be able to tilt the playing
field to benefit well-connected national champions? Should
authoritarian governments like Iran be allowed to nuclearize?
We in the democratic world tend to assume state capitalism can’t
prosper forever. Innovative companies can’t thrive unless there’s
also a free exchange of ideas. A high-tech economy requires more
creative destruction than an authoritarian government can tolerate.
Cronyism will inevitably undermine efficiency.
That’s all true. But state capitalism may be the only viable
system in low-trust societies, in places where decentralized power
devolves into gangsterism. Moreover, democratic regimes have shown
their vulnerabilities of late: a tendency to make unaffordable promises
to the elderly and other politically powerful groups; a tendency toward
polarization, which immobilizes governments even in the face of
devastating problems.
We in the democratic world have no right to be sanguine. State
capitalism taps into deep nationalist passions and offers psychic
security for people who detest the hurly-burly of modern capitalism. So
I hope that as they squabble, Obama and BP keep at least one eye on the
larger picture.
We need healthy private energy companies. We also need to
gradually move away from oil and gas — the products that have
financed the rise of aggressive state capitalism.
