What Is ‘state Capitalism’, and Why Do Some Consider It a Threat to the Contemporary Global Economic Order?

Question: What is ‘State Capitalism’, and why do some consider it a threat to the contemporary global economic order?

In this presentation, I will address two key issues here that continue to be the focus of global economic debates. Firstly, I will look at the definition of ‘State Capitalism’ and why do some consider it as a threat to modern global economic order?    

State capitalism is defined as a system in which the leading economic actors in the state use the market predominantly for political gain (Bremmer 2009, 41). The ideologies of this model give them political decision power to control the entire market (Bremmer 2009, 41). Other view it as a unique characteristics of social institutions development or state government actively providing legal framework that regulates the control of investor(s) owned business for the states (Capitalism state 2008, 443).  For example, the United States has strong military to enforce their hierarchical economic order (Capitalism state 2008, 443).    

State capitalism: what it is and how it happened

There are two distinct fundamental between State capitalism and free-market: Policy makers do not embrace state capitalism as means of rebuilding devastated economic and secondly state capitalist view market as to tools to serve national and political interest (Bremmer 2010, 250). The fact is that government efficiency in directing scarce resources of goods and services is not compare to as the market do (Bremmer 2010, 250).      

The idea of liberal economic order system was mainly created after World War II led by the United States in the establishment of a free market institutions along with their allies world power to organise the universal institutions (Ikenberry 2008, 24). Most critics will argue that the establishment of the system of democracies and market societies was designed to reintegrate the defeated Axis states and harassed allied states into a unified international system (Ikenberry 2008, 24).

Economic development today has seen scholars beginning to focus on the rise of state capitalism in modern era as an interventionist market order with the concentration of high state-led capital (Klimina 2013, 545). Unlike the 1950s when neoliberal control most part of the world’s economic which turn in the 1980s, the comparison of state activism in developing world could either be welfare statism or Keynesian macroeconomic interventionism (Klimina 2013, 545).

Comparatively, state capitalism regime represents state activism where non-democratic governments has either direct or indirect control over a portion of the society capital to advance the nation’s political economic power for those ruling (Klimina 2013, 545).

The economists would argue that industrial capitalist can see economic power rise of corporatism that is, the states acting as a servant to capital (Klimina 2013, 545). However, in developing state capitalist societies, the state becomes asset holder to control national resources for political needs in order to increase profit rather than servant (Klimina 2013, 546).

With post-Soviet transition, state capitalism emerging is still controversial debate among the neo-institutional Austrian, Institutionalist and post-Keynesian in the role of constructivist of the state economics (Klimina 2013, 546).