State capitalism, crony capitalism
When Ian Bremmer offers to tell you “what comes next, it is wise to pay attention:
I believe that things are going to get worse for free markets before they get better. China might be sitting on a bubble, but it’s not the one that James Chanos is pointing toward, one that will pop as soon as China’s real estate boom goes bust. Nor is it the scenario described by Gordon Chang in which the Chinese people rise up to challenge the Chinese government. I could mention the labor bubble (200 million Chinese men with no hope of finding spouses), the environmental bubble (no water, no arable land, no breathable air), or any of the dozens of other bubbles floating ominously across the Chinese landscape. All of them are serious. None are certain to threaten China’s state capitalist system anytime soon. I’d bet confidently on strong state-led Chinese growth over the next decade. Intensified national pride will only strengthen the system in the near term.
Second, the situation will get much worse for free markets because anemic growth and high unemployment in the developed world will feed a backlash against free market sentiment. We’re already seeing more support for protectionism and a tougher stance on immigration in both Europe and the United States. In America, Goldman Sachs is today’s scapegoat, but China is next in line, whether the subject is currency policy, cyber-security, trade imbalances, product safety, or something else.
All of that makes the recommendation that you and I share — strong government support of basic free market principles — one that looks increasingly vulnerable to populist politics within free market democracies. The problem is even larger in Europe and Japan than in America.