The End of the Free Market: Who Wins the War Between States and Corporations? Ian Bremmer Ch. 3: State Capitalism: What It Is and How It Happened Ch. 4: State Capitalism Around the World State Capitalism - Defined State capitalism is characterized by the dominance of state-owned business enterprises in the economy An economic system in which commercial economic activity is undertaken by the state, with management and organization of the means of production in a capitalist manner—maintaining the labor markets and capital markets. “State capitalism is a system in which the state dominates markets, primarily for political gain.” (Bremmer) Tipping point that separates state capitalism from free market capitalism I. Role of state in the economy State capitalism - Government plays role of lead economic actor Free Market capitalism – Legal limits on state’s ability to regulate the actions of private companies and investors Development strategy State capitalism – considered a strategic long-term policy to guide the economy over a period of decades Free Market capitalism – will use intervention only to rebuild a shattered economy or jump-start an economy out of recession Role of markets State capitalism – markets are primarily a tool that serves national interests, or at least those of ruling elites] markets are used to extend the state’s own political and economic leverage—both within society and on the international stage Free Market capitalism – markets are an engine of opportunity for the individual markets are used to extend private corporation’s own economic leverage Governance State capitalism – The adoption, according to circumstances, of different mixes of public and private capital. state may retain control - “Leviathan as a Majority Investor” - or limit itself to the role of mere shareholder - “Leviathan as Minority Investor” The capitalist firm may be a component part of the state bureaucracy, but political interference in day-to-day operations of the firm generally limited Governments often control and/or direct bank lending to targeted sectors of the economy Free Market capitalism Corporate board of directors are responsible for overall guidance of corporations How is state capitalism managed? Political leaders tend to use a variety of intermediary institutions to carry out development and political goals Resource Nationalism – use of oil, gas & other commodities as political tools and strategic assets NOCs – natural oil and gas corporations SOEs – other state-owned enterprises SWFs – sovereign wealth funds NOCs – National Oil & Gas Corporations Oil and Gas – projected world demand Oil – 29.3% Coal – 27.2% Natural Gas – 22.7% EIA – US Energy Information Administration Largest oil and gas companies by USD 2015 revenue ¾ of global crude-oil reserves are now owned by national oil companies Saudi Aramco, Sinopec (China) CNPC (China) NIOC (Iran) PDVSA (Venezuela) Petrobras (Brazil) Kuwait Petro.

1. The End of the Free Market: Who Wins the War Between States
and Corporations?
Ian Bremmer
Ch. 3: State Capitalism: What It Is and How It Happened
Ch. 4: State Capitalism Around the World
State Capitalism - Defined
State capitalism is characterized by the dominance of state-
owned business enterprises in the economy
An economic system in which commercial economic activity is
undertaken by the state, with management and organization of
the means of production in a capitalist manner—maintaining the
labor markets and capital markets.
“State capitalism is a system in which the state dominates
markets, primarily for political gain.” (Bremmer)
Tipping point that separates state capitalism from free market
capitalism
I. Role of state in the economy
State capitalism - Government plays role of lead economic actor
Free Market capitalism – Legal limits on state’s ability to
regulate the actions of private companies and investors
Development strategy
State capitalism – considered a strategic long-term policy to
guide the economy over a period of decades
Free Market capitalism – will use intervention only to rebuild a

2. shattered economy or jump-start an economy out of recession
Role of markets
State capitalism –
markets are primarily a tool that serves national interests, or at
least those of ruling elites]
markets are used to extend the state’s own political and
economic leverage—both within society and on the international
stage
Free Market capitalism –
markets are an engine of opportunity for the individual
markets are used to extend private corporation’s own economic
leverage
Governance
State capitalism –
The adoption, according to circumstances, of different mixes of
public and private capital.
state may retain control - “Leviathan as a Majority Investor” -
or limit itself to the role of mere shareholder - “Leviathan as
Minority Investor”
The capitalist firm may be a component part of the state
bureaucracy, but political interference in day-to-day operations
of the firm generally limited
Governments often control and/or direct bank lending to
targeted sectors of the economy
Free Market capitalism
Corporate board of directors are responsible for overall
guidance of corporations
How is state capitalism managed?

3. Political leaders tend to use a variety of intermediary
institutions to carry out development and political goals
Resource Nationalism – use of oil, gas & other commodities as
political tools and strategic assets
NOCs – natural oil and gas corporations
SOEs – other state-owned enterprises
SWFs – sovereign wealth funds
NOCs – National Oil & Gas Corporations
Oil and Gas – projected world demand
Oil – 29.3%
Coal – 27.2%
Natural Gas – 22.7%
EIA – US Energy Information Administration
Largest oil and gas companies by USD 2015 revenue
¾ of global crude-oil reserves are now owned by national oil
companies
Saudi Aramco,
Sinopec (China)
CNPC (China)
NIOC (Iran)

4. PDVSA (Venezuela)
Petrobras (Brazil)
Kuwait Petroleum Corporation Petronas (Malaysia)
These state-owned giants are the world’s largest energy
companies measured by reserves.
The biggest multinationals collectively produce just 10% of the
world’s oil and gas and hold about 3% of its reserves.
(Bremmer, p. 56)
Bremmer Thesis: Back to neo-mercantilism
Russia, Venezuela, Nigeria, Libya, Angola and Algeria scrapped
foreign-investment-friendly policies in favor of higher taxes on
foreign firms operating in the energy sector and legal mandates
for a larger state role in the development of new fields.
Legal safeguards against resource exploitation by outsiders
Use of state power to negotiate contracts with multinational
corporations (such as Exxon Mobil) for technology and drilling
expertise
Rich source of government revenue
Relationship between state and oligarchs (neo-merchants)
There are powerful reasons why Houston-based Exxon would
want to get back into business with the state-backed firm: Their
agreement to form a joint venture, signed in 2011, allowed
Exxon to conduct offshore exploration in the Black Sea and the
Kara Sea in Siberia.

5. The undeveloped oil fields are thought to be the most promising
in the Russian Arctic, according to S&P Global Platts.
In 2012, the two firms agreed to jointly develop more oil
reserves in Siberia and establish a research center in the Arctic.
Plans to build a large natural gas plant near Vladivostock in
eastern Russia followed in 2013.
The deepening relationship was put on hold, however, after the
U.S.,European Union and other Western countries imposed
sanctions on Russia in 2014 over its role in the crisis in
Ukraine.
Exxon, which has been operating in Russia for more than 20
years, was allowed to finish some of its projects. But then the
drilling stopped.
April 2017 - CNN
Largest Russian oil and gas companies
Gazprom
Lukoil
Rosneft
Surgutneftegas
Chinese strategy
To meet domestic demand for oil and gas, Chinese leadership
has sent its 3 national oil companies out into the world to win
access to the long-term suppliers of oil and natural gas.
Algeria, Nigeria, Niger, Ghana, Angola - Competing with
Western multinationals for energy supply contracts

6. China can offer foreign governments political & financial
incentives
Chinese engineers work with national oil companies, bypassing
laws that prohibit private MNCs in the oil and gas sectors
Will invest in large-scale partnerships with repressive regimes
that MNCs can’t approach
Will finance pipelines
Largest Chinese oil and gas companies
Sinopec
China Petroleum & Chemical Corp – CNPC
PetroChina
Recall mercantilism:
Countries need colonies to gain wealth
Colonies not only provide much-needed resources (raw
materials) but they also server as markets
Colonies exist to serve mother country
Saudi Arabia
Holds ¼ of world’s oil reserves
Aramco, the world’s largest producer and exporter of crude oil
and a large-scale oil refiner and producer of natural gas
is 100 percent SAG-owned
its revenues typically account for around 85-90% of the SAG’s
budget.

7. Resource Nationalism – use of oil, gas & other commodities as
political tools and strategic assets
NOCs – natural oil and gas corporations
SOEs – other state-owned enterprises
Other State-Owned Enterprises
Saudi Basic Industries Corporaton – SABIC
State Grid Corporation of China
China Southern Power Grid
China Development Bank
Agricultural Bank of China
China FAW Group Corporation (automobiles)
Endiama (Angola) - diamonds
Sovereign Wealth Funds – The 2nd Tool of State Capitalism
SWF - Investment vehicles of foreign currency reserves,
foreign and domestic stock, and foreign and domestic real estate
owned by a government
Source of funds:
Foreign currency earned from export of natural resources,
mostly oil and natural gas (Russia, Arab states of Persian Gulf,
North Africa)
Balance of trade surplus (China’s net income from trade with
US, Europe, Japan)
One-time transfers from federal budget
Pension reserves and social security funds

8. & Profits
SWF
How the Money in SWFs is Invested: Portfolio
Foreign currency (and Bitcoin & other cryptocurrencies)
Stock in domestic and foreign companies
Foreign and domestic government and corporate bonds
Precious metals
Foreign and domestic real estate
SWFs – Who Controls Them
Stakeholder – the government
“What makes them different—and poses challenges for free
markets—is that those who manage their investments don’t
answer to shareholders. A sovereign wealth fund has one
stakeholder: its parent government.” (Bremmer, p. 70)
Purpose of SWFs
Protect & stabilize the budget and economy from excess
volatility in revenues/exports
Diversity from non-renewable commodity exports
Earn greater returns than on foreign exchange reserves

9. Assist monetary authorities dissipate unwanted liquidity
Increase savings for future generations
Fund social and economic development
Political strategy
Largest Sovereign Wealth Funds
Russia
China
Saudi Arabia
SWFs are a small component of global institutional investors
But SWFs are growing quickly in number and
relevance…especially since 2000
AUM – Assets Under Management
MENA – Middle East & North Africa
Who wins the War Between States and Corporations? The
challenge to free-market capitalism
State Capitalism’s threats:
1. It will close the door to Western companies and their
governments.

10. “What happens when the Chinese leadership decides that its
development strategy no longer depends on so much foreign
investment and prefers instead to use all the tools at the state’s
disposal (its SWFs, NOCs and SOCs) to support local
companies and shelter them from foreign competition?” (p.
150)
2. It will use SWFs to acquire strategic stakes in key industries
around the globe, whether it be:
-Telecommunications,
-Energy,
-The media
-The financial sector,
-Or even to secure intellectual property rights in other fields.
It distorts WTO and other trade rules, making it difficult to
establish and enforce fairness and “rules of trade”
Decoupling: The process by which emerging-market countries,
particularly in Asia, sharply reduce their dependence for growth
on US markets.
It undermines both America’s singular international influence
and global economic interdependence that encourages
governments to work together in ways that bolster growth
The advantages provided by state capitalism encourage some
countries to pursue high-risk political strategies and reduce the
ability of free-market democracies to pressure them to change
their ways.
Russia threat to withhold oil/gas to Ukraine
Iran’s ability to fund its own nuclear weapons program

11. The End of the Free Market
Ian Bremmer
Ch. 1: The Rise of a New System
Ch. 2: A Brief History of Capitalism
President and founder of Eurasia Group, the leading global
political risk research and consulting firm
Credited with bringing the craft of political risk to financial
markets—he created Wall Street's first global political risk
index(GPRI)—and for establishing political risk as an academic
discipline.
Teaches at Columbia University, and held faculty positions at
the EastWest Institute, Hoover Institute (Stanford) and the
World Policy Institute.
Published in International Affairs, The National Interest, World
Policy Journal, The New Republic, The New Statesman, The
Los Angeles Times, The Wall Street Journal, The New York
Times, Washington Post, Foreign Affairs, Harvard Business
Review, Foreign Affairs, and Newsweek
Ian Bremmer
Chapter 1: Rise of a New System
Primary Theses
THESIS I: Communism is dead
1989
Solidarity-led government takes power in Poland
Latvia, Lithuania, Estonia declare themselves to be sovereign

12. Gorbachev announces that each country can take its own path to
socialism
Berlin Wall opened
Czechoslovakian Communist government resigns” “Velvet
Revolution”
1991
Croatia and Slovenia declare independence from Yugoslavia
Ukraine votes for independence, and USSR ceases to exist
Remaining Communist states:
Democratic People’s Republic of Korea: North Korea
Kim Il-sung (1948 – 1994)
his son Kim Jong-il (1994 – 2011)
grandson Kim Jong-un (2011 to present)
GDP: $17 billion
Cuba
Fidel Castro (1959 – 2016)
Raul Castro (2016 – present)
GDP: $87 billion
THESIS II: Most countries in the world are not representative
democracies
Source: Economist Intelligence Unit
Norway
Iceland
Sweden
New Zealand

13. South Korean
USA
Italy
Japan
Authoritarian Regimes
Congo
Chad
Syria
North Korea
THESIS III: Globalization has not led to the end of the nation
state
Thesis: While globalization has led to the rise of blocs…
ASEAN - Association of Southeast Asian Nations (1967)
Brunei Darussalam,Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Philippines, Singapore,Thailand, and Vietnam.
European Union (1951)
Austria, Belgium, Bulgaria, Croatia, Cyprus, Czech Republic,
Denmark,Estonia, Finland, France, Germany, Greece, Hungary,
Ireland, Italy,Latvia, Lithuania, Luxembourg, Malta, Poland,
Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, The
Netherlands, and the (?) United Kingdom.
NAFTA - North American Free Trade Association (1994)
Canada, United States, Mexico

14. World Trade Organization (1986)
GATT – General Agreement on Tariffs and Trade (1948)
APEC – Asia Pacific Economic Cooperation (1989)
G20 – (1999) Argentina, Bolivia, Brazil, Chile, China, Cuba,
Egypt, Guatemala,India, Indonesia, Mexico, Nigeria, Pakistan,
Paraguay, Philippines,South Africa, Thailand, Tanzania,
Uruguay, Venezuela, Zimbabwe
Eurasian Customs Union – (2000)
Russia, Belarus, Kazakhstan, Armenia;
(candidates: Syria, Tajikistan, Mongolia)
While globalization has led to the rise of blocs…and to the
emergence of corporations that are larger than nation states
The world’s top 100 economies: 31 countries; 69 corporations
(World Bank 2016)
State Grid – China
Sinopec - China

15. Thesis: While globalization has led to the rise of blocs…
…the state and national sovereignty has not withered away
Manufacturing Companies owned or closely aligned with their
home governments
Cemex – Mexico - $13 billion (cement)
Petrobras – Brazil - $97 billion
China National Petroleum Corporation - $300 billion
Petro China - $348 billion
Sinopec –China $294 billion (energy and chemicals)
Rosneft – Russia - $81 billion (oil refining)
Gazprom – Russia - $99 billion
World’s Largest Financial Institutions - 2016
State owned
State owned
“On both sides of the Atlantic, political officials say they’re
tried to rescue drowning banks and economically vital private-
sector companies to breathe new life into them—before
releasing them again to swim on their own. They insist they
will claim victory only when all those they’ve saved no longer
need them.

16. But this is not how political decision makers in China, Russia,
and many other emerging markets see their roles in the future of
their domestic economies.
Their words and actions reveal that they believe that PUBLIC
wealth, PUBLIC investment and PUBLIC enterprise offer the
surest path toward politically sustainable economic
development. These governments will continue to micromanage
entire sectors of their economies to promote national interests
and to protect their domestic political standing.”
(Bremmer, pps. 22-23)
Ch. 2 – A Brief History of Capitalism
1. Capitalism emerges out of the breakdown of feudalism
Feudal Mode of Production – 1100 – 1600 AD
Based on an exchange of loyalty and service for protection and
use of land
One’s place in society was determined on the basis of one’s ties
to the land
LOWER GROUP:
Slaves – bought and sold, but their number declined after early
Middle Ages
Serfs
Could neither leave the manor nor be forced to go – made up
majority of peasant farmers
Does not fully enjoy rights of a free person. Serf is the tenant
at the will of the lord
May not join Catholic clergy; may not make a will; may not
serve on juries
Freemen
Individual tenants who rent the land

17. Tied to this land – ay not leave the land and travel
Own their own tools and animals
Upper Group
Lord – was a noble who owned the land
Vassal – one who provides military service and protection to
lord and his property
Church clergy
How system was financed: Feudal rents and extractions
1. Labor rent –
agricultural work on lord’s land (3 days/week)
Compelled service to lord (road crew, household service,
construction
Fixed amount of agricultural goods to be delivered at specified
times
Money rent –
Fixed amount negotiated in advance
3. Monopoly rent – for use of grain mills, ovens, baths, use of
roads, interest on loans, cutting wood for fuel, fish in stream
Labor & money
rent
Monopoly rent
Transition from feudalism to capitalism
14th century

18. Famines
Black Death (1315 – 1380)
Peasant uprisings because of starvation and lord’s attempts to
increase rents – peasants leaving lord’s estate and living as
vagabonds
Enclosures (1400 – 1590’s)
Opportunity for lord to sell wool to merchants meant fencing
off common lands to raise sheep and reclaiming peasant plots
Population
Aerial view of enclosures
4. Rise of merchant class
With exclusive monopoly to sell products long distance
Operating outside of the jurisdiction of the guild system in
towns
Able to accumulate profit from buying raw wool and trading it
on international market
CAPITALISM SLOWLY EMERGES FROM TWO FORCES
THAT TOOK 350 years:
AVAILABLE SUPPLY OF UNEMPLOYED FORMER
PEASANTS (SUPPLY OF LABOR)
+
MERCHANT CLASS WHO USE ACCUMULATED PROFIT TO
SET UP FACTORIES TO SPIN WOOL INTO CLOTH TO SELL
ON DOMESTIC AND FOREIGN MARKET (DEMAND FOR
LABOR AND SUPPLY OF CAPITAL)

19. mercantilism
Henry VIII ( 1491 – 1547) brakes with Roman Catholicism
End rents leaving England for Vatican
Dissolution of Catholic monasteries
End Catholic Church charity to vagabond peasants
Elizabeth I (1533-1603 grants monopoly rights to encourage
inventions and to establish new industries
Special privileges and patronage to monopolists
Assumptions (false)
A nation’s wealth = gold, silver and other treasure it controls
Total volume of wealth (gold, silver) was fixed—so my gain is
your loss
Mercantilism involves
Restrictions on imports – tariff barriers, quotas or non-tariff
barriers.
Accumulation of foreign currency reserves, plus gold and silver
reserves.
Granting of state monopolies to particular firms especially
those associated with trade and shipping.
Subsidies of export industries to give competitive advantage in
global markets.
Government investment in research and development to
maximize efficiency and capacity of the domestic industry.
Allowing copyright/intellectual theft from foreign companies.
Limiting wages and consumption of the working classes to
enable greater profits to stay with the merchant class.
Control of colonies, e.g. making colonies buy from Empire
country and taking control of colonies wealth.

20. Criticisms of Mercantilism
Adam Smith’s “The Wealth of Nations” (1776) – argued for
benefits of free trade and criticized the inefficiency of
monopoly.
Theory of comparative advantage (David Ricardo)
Mercantilism is a philosophy of a zero-sum game– where people
benefit at the expense of others. Trying to impoverish other
countries can harm home country’s own growth and prosperity.
Mercantilism which stresses government regulation and
monopoly tends to lead to inefficiency and corruption.
Mercantilism justified Empire building and the poverty of
colonies to enrich the Empire country.
Mercantilism leads to tit for tat policies – high tariffs on
imports leads to retaliation.
Mercantilism and State Capitalism
Tariffs in response to domestic subsidies.
“Since China’s steel is effectively subsidized leading to a glut
in supply, it is necessary and fair to impose tariffs on imports of
Chinese steel to protect domestic producers from unfair
competition.”
US tariffs on imports of steel from China 266%. In Europe,
tariffs are 13%.
Protection against dumping.
“If some countries have an excess supply of goods, they can
sell at a very low price to get rid of the surplus. But, this can
make domestic firms unprofitable. Protectionism can be

21. justified to protect against this dumping.”
Examples, include European Union dumping excess agricultural
production on world agricultural markets and China’s dumping
of steel.
Infant industry argument.
“In Namibia, infant industries cannot compete with the mature
and century-old Chinese, French or English companies.”
A nation should first industrialize its economy and is then
gradually integrate economically with nations at the same level
of development
Assignment 2
State Capitalism
1. Tables 2.1 and 3.1 in The Rise of Neoliberal Capitalism
outline the ideas and institutions of neoliberal and regulated
capitalism. David Kotz has asked you, as his research assistant,
to create a companion table for state capitalism.
a. Using the following format, fill in the table.
Table 4.1: The Ideas and Institutions of State Capitalism
1. Dominance of _______________ ideas and theories
2. The Global Economy: (Rules of trade/protection;
intellectual property protection, exchange ranges, capital
movement, etc.)

22. 3. The Role of Government in the Economy
a) …
b) ..
c) …
d) …
e) …
f) …
4. The Capital-Labor Relation/Human
Rights/Democratic & Political Rights
a) …
b) …
c) …
d) …
5. The Corporate Sector
a)…
b) …
c) …
d) …
e) …
b. Elaborate on the section of your table, “Dominance of _____
ideas and theories”. What are the predominant ideas and
theories of state capitalism? Why and how do these theories
serve as the “ideological glue” that holds the state capitalist
regime together? (150 words)
2. Sovereign wealth funds (SWFs) are one major
tool/institution used by political leaders to manage their state
capitalist economies.
a. Drawing on Ang, Behrendt, Bremmer and Gedeon, write your
own definition of sovereign wealth fund. What are they used
for? In your definition, distinguish it from central bank reserves
and foreign currency reserves. (75 words)

23. b. What are the sources of wealth that feed sovereign wealth
funds? (75 words)
c. What do Bremmer and Ang argue are the geopolitical impacts
of the rise in importance and use of sovereign wealth funds?
What evidence if provided to support this argument? (100-150
words)
d. Ang and Behrendt discuss transparency, legitimacy,
accountability, etc. as benchmarks to judge the management of
SWF’s. Make a list and define at least 4 of the major
benchmarks that you would use in evaluating how well a SWF
has been managed. Focus on how each impacts the management
of SWF’s. (100-150 words)
3. Another major institution used to manage state capitalism
are national oil and gas corporations (NOCs). Take ONE of the
following state capitalist countries and discuss the role and
importance of NOCs in its economy. Name the major NOCs and
report on their assets and importance in the country’s GDP.
Recognizing that The End of the Free Market was published in
2010, go a Google search and update your country’s NOC’s
with 2018 data. (250 words)
Choose one:
· Saudi Arabia
· United Arab Emirates
· Russia
· Mexico
4. What are state capitalism’s challenge to free markets?
a. Summarize Bremmer’s discussion in Chapter 4 (200 words)
b. Prepare 3 practical legislative initiatives that you could
present to your national political leadership (depending on your
nationality: US Congress/President; Chinese Communist Party;
Russian Parliament, etc.) which would address concerns you
might have about the challenge of state capitalism to the
neoliberal (free market) system and what they might do about it.

24. (200 words)