11     Competing Capitalisms

Let me be frank: If we did not have the good points of the West to guide us, we wouldn’t have got out of our backwardness. We would have been a backward economy with a backward society. But we do not want all of the West.

—Lee Kwan Yew, Minister Mentor of Singapore, 1994

The widely held perception that excesses in U.S. financial markets and inadequate regulation were responsible [for the 2008 financial crisis] has increased criticism about free market policies, which may make it difficult to achieve long-time U.S. objectives … It already has increased questioning of U.S. stewardship of the global economy and international financial structure.

—Admiral Dennis C. Blair, U.S. Director of National Intelligence, 2009

There is a runestone in the fields near Vasteras in Sweden that tells of Grimmundr, son of Viofastr. The characters etched into the stone are colored red with the iron oxide that according to local legend also once stained the horns of Kare the goat. The stone dates to roughly the time mining began on the copper mountain. The inscription tells of a bridge being constructed linking the area of Vasteras, later home of Stora Kopparberg shareholder Bishop Peter, to Dalarna.

Grimmundr, however, was part of Sweden’s other great enterprise of that era, one commemorated not only on hundreds of runestones that dot the Swedish countryside, but via similar carvings that stretch from Central Asia to North America. Grimmundr was a Viking warrior, and according to the stone, he traveled, like most Swedish Vikings, to the East. But take the totality of all Viking journeys around the world and you have the greatest global enterprise undertaken in the world until that date. Centuries before Genghis Khan, before the transpacific explorations of China’s great eunuch admiral Zheng He, before the West’s “Age of Exploration” or today’s global era, Viking ambition and courage were linking seemingly impossibly distant corners of the planet.

Nearby stones, such as the one near what remains of the church of Stora Rytterne, tell of destinations as far away as Khwarezm in what is today Uzbekistan. The Vikings were also known as “Rus,” and they founded Kievan Rus, which later became Russia. They traded with the Khazars. They led raids into Baghdad. One Viking leader, Ingvar the Far-Travelled, was famous for his ill-fated expedition to the Caspian region, the last of its kind, that took place in the middle of the eleventh century. And they made a strong impression. An Arabic traveler described them by saying he had “never seen more perfect physical specimens, tall as date palms, blond and ruddy.”

Their far-flung global enterprise was, in terms of the ideas to which this book has been devoted, both public and private. It was both entrepreneurial and as officially sanctioned as things got back then, around the turn of the first millennium, carefully planned yet necessarily largely improvised. It depended on the best seagoing transportation technologies of the time and large amounts of brute force. It required vision and was driven by a desperate instinct for survival. It won for most of its participants temporary victories in short, bloody lives. Glory came in the form of the songs of the skalds or the runes scratched into rough-hewn stones left scattered about the countryside.

For a Viking, or a goat farmer, or a miner to live to the age of forty in the year 1000 was a major triumph. It is thought that Ingvar’s expedition was ravaged by disease to the point that there were no survivors. Hygiene was not a strong suit; baths were rare, shelters were crude and afforded little comfort from the extremes of the weather. Teens were effectively adults, and adulthood typically lasted just a decade or two. While Swedes enjoyed more independence than many in feudal Europe and did not really experience slavery or other ills common to the era, famine, ignorance, and hardship were daily companions.

In the knitting together of the world via the trade routes pioneered by those Vikings and in the creation of enterprises like the copper mine not far from the bridge referred to on the Vasteras runestone, seeds were planted, however, that have borne fruit we are enjoying to this day. In the thousand intervening years, the story of the rivalry between public and private power and how each has shaped the world and each other has been as far-fetched, hair-raising, and compelling as any sagas of the Vikings. But for all the great questions that story has raised and all the injustices that may be associated with it, one thing is certain: we are far better off today because of the rise of private enterprise and the evolution of government that—although it is a global phenomenon stretching back to the beginning of recorded history—also has such important roots in the rolling hills northwest of Stockholm.

In other words, while much of this book is devoted to exploring the tensions between public and private power, and in particular how we have come to a time when the balance between the two has clearly been lost in many parts of the world, we must be sure to frame any conclusions we draw in the context of the great benefits we continue to derive from the thriving markets and the advancing notions of modern government that distinguish our era from times past.

Virtually all the aspects of your daily life that place you at an advantage over poor Grimmundr, who almost certainly died a very unpleasant death somewhere in “the East,” owe some credit to products, processes, or champions of the marketplace. Virtually every major new technology, the breakthroughs in agriculture that have largely defeated famine, the rise of incomes, rising levels of education and understanding, and the diffusion of culture have roots in the rise of modern business.

Similarly, we need to note that most of the innovations that business helped spur were enabled by the actions of governments, beyond laws and regulations, via underwriting highways, canals, railways, and airports, via providing schools and hospitals and security.

More broadly speaking, the greatest mistake we could make in our interpretation of the history briefly covered by this book would be to fall prey to oversimplifications. Businesses are, for the most part, more powerful than ever, larger than ever, with greater global reach than ever. Supercitizens have emerged as a new class of significant players on the international stage. But they are not all-powerful, and the character of the power they possess is much different from that of states. States have lost some of the traditional powers they had; but all of them, even the weakest of semi-states, maintain some prerogatives, some ability to enforce the law, some ability to apply force, some control over their borders or their economy. And sometimes, as in the case of rogue states mentioned in the last chapter, some are using new technologies and strategies to remain relevant actors—much as weak states and political players have done throughout history.

Our study of the history of the relationship between business and government should leave us certain that we would not want to turn back the hands of time, that the evolution of the mechanisms of both government and business has been essential to the story of the progress we rightly celebrate, that the issues we face today have deep roots, and that fairness requires a subtler eye than the knee-jerk reflexes of contemporary litmus-test politics often allow for.

Nonetheless, as we look for patterns among the developments of the past thousand years, clear conclusions of immediate relevance do emerge. Perhaps foremost among these is that time and time again, when either public or private actors gain too much influence over the other or over society as a whole, the public at large suffers, sometimes grievously. What the past two decades have shown with striking clarity is that government overreach as embodied in Soviet communism crushed the economic life and spirit out of a great nation, while market overreach as embodied in America’s recent reign of unchecked financial and corporate greed can send even the world’s richest nation hurtling toward fiscal crisis, social division, and diminishing influence on the global stage.

The question we should consider is not, as some modern politicians implicitly or explicitly frame it, whether business or government is good or whether one is relatively better than the other. The more salient and constructive question is what roles we want business and government to play in society, and this in turn forces us to ask what goals we have for society in the first place.

Once nation-states exclusively possessed the right and responsibility to answer these questions for themselves, and undoubtedly today they maintain central roles in that regard. But even as nations seek to address such core issues, they must do so with the awareness that historical forces such as those manifested under the broad rubric of globalization are changing the ground rules that define the options available to states. Some issues require regional or global efforts. Some issues are beyond the reach of most states. While the available options are different for major powers and for semi-states, the arrival on the scene of supercitizens, powerful stateless global private actors, alters further the possible coalitions that may seek to influence each outcome.

So, for this era, we also need to consider what has changed and what has not. What choices are being made by peoples and governments, and how do they impact the choices made by private actors? How are these different choices likely to impact one another? And finally, we need to ask what we ought to hope and work for, what our era ought to contribute to this vital, unending debate.

A Shining but Isolated Moment

Other than students of political science or philosophy, few people today spend much time thinking about how societies ought to be organized. Fewer still ask why we even organize them in the first place. But clearly, with or without public debate or even much thought, citizens of every country of the world, leaders in every kind of enterprise, take steps that provide de facto answers. Actions are taken. Results occur. Institutions and laws and regulations and budgets and consequently economies and societies are made and remade. The problem is that too often, too few people have any say in those decisions, and of those, too few have given much thought to the consequences of their actions for average people.

And while the role of countries is changing, it is still the political and economic decisions made within the largest and most influential of those countries that lead global opinions and drive global actions. In each case, based on the system in place within those countries, the way in which the public, their representatives, and private actors influence outcomes is different. But each case also produces outcomes that drive, inspire, and provoke opinion leaders in other nations.

In other words, in the global marketplace of ideas, the stock of some systems is always rising and the stock of other systems is falling. We have seen this throughout history as ideas cross borders and are embraced or rejected, as some countries blaze trails and others follow. The Reformation and the Enlightenment and the Industrial Revolution and the Information Age are all names we give to periods in which a few key ideas, often spurred by geopolitical and economic swings of fortune and often triggered by the advent of new technologies, catch on and set the tone for an era. Throughout history other waves, smaller, also momentous—from the adoption of paper money to the embrace of the idea of limited liability corporations—also begin in one corner of the world or another and then catch on, both changing the planet and indicating to observers which innovators are setting the course for their times.

For the past century, certainly from the First World War onward but likely for several decades before that, given the importance of the rise of American industrialists like Rockefeller and Morgan, the United States has been the undisputed leader in terms of advancing one vision of how societies ought to be organized. Free-market capitalism plus democracy was the simplified formula, with the recipe differing from generation to generation. For most of that century an alternative view, that of communism, primarily of the Soviet type, was promoted as an option in which equity came not from the free choice of individuals but from the actions of a state entrusted with responsibility for planning a future that would be best for most of the people.

First the Soviet version collapsed from its own weight and the profound flaws in its approaches—from the failure of central planning to the inability of closed societies to compete effectively in a world in which the free flow of information was the oxygen on which economies depended in order to grow.

America was triumphant, and then, as often happens, it misinterpreted its victory. It assumed that its triumphs were primarily due to its own virtues rather than to the weaknesses of its enemy. And it then misidentified those virtues to the point that American capitalism became almost a parody of itself—at the same time that professional American athletes were using steroids to pump themselves up to cartoonish dimensions, American businesspeople were blazing new trails in excess and using their unprecedented wealth to gain new license to behave ever more excessively. America was not alone in this—financial capitals and corporate suites around the world saw similar displays. But it was the American example they were following, and, as indicated in the epigraph from Admiral Dennis Blair at the outset of this chapter, the America example is what they were discrediting.

In history it is impossible to tell for decades whether any particular period, regardless of how fraught or momentous it may seem at the time, is a true turning point, whether its spirit or its ideas will endure. Clearly, the years 1648, 1776, and 1848 were, in retrospect, such watersheds. Were the 1970s, when we saw currencies delinked from gold, a backlash against the New Deal, the accelerated rise of both multinational corporations and income inequality, and the forces that triggered the beginning of the end of communism, such a watershed? Perhaps.

In retrospect, it also seems possible that the 1990s and the first decade of the twenty-first century mark one of those turning points. It was a period that began with the end of Soviet communism and what was then perceived as “the end of history,” and ended approximately seventeen years later with a financial earthquake that ended all that “end of history” talk as well as the notion of ever-ascendant America, hyperpower and ideological beacon.

In the early days of the period, a time of comparative economic euphoria in the United States, we didn’t see the ways in which destructive forces within U.S. markets were being unleashed, inequalities exacerbated, and new powers like China, India, and Brazil unleashed to rise to relative importance they hadn’t enjoyed for a century and three-quarters. The market triumphalism of that period, while capturing an important dimension of what America’s cold war victory had meant, paid too little heed to the challenges that were coming next, assumed that too much of what seemed true in the moment would endure.

Clarity would come with the economic and political upheavals of the early twenty-first century: America bogged down in wars in the Middle East it could not afford and battered by economic crises it should have foreseen and forestalled but did not, the BRICs rising, Europe and Japan struggling to reinvent themselves. September 11, 2001, suggested that nonstate actors could pose a destabilizing challenge even in the era of a seemingly unassailable sole superpower. But from an ideological perspective, from the point of view of how the world viewed itself and the question of how it should organize itself, the shocks associated with the financial crises of 2008 and 2009 were far more important than that devastating September day in which seventeen acres of Lower Manhattan were laid to waste.

After the financial crises, observers raised on a bipolar ideological diet pitting capitalism against communism saw no less than a turning point in public opinion on the purpose of the state and the role of markets. Both the “too much state” of Soviet communism and the “too much market” of American capitalism had been revealed to be deeply flawed (although the flaws of Soviet communism proved to be fatal, while American capitalism contains the means to identify and remedy its own weaknesses).

“We had grown so cynical of Marxist talk of the contradictions of capitalism,” Peter Jay commented to the BBC in September 2008, “because Marxism itself had, by the 1970s, so conspicuously failed—while capitalism thrived—that its acolytes were discredited.” “The post–Cold War period,” wrote one columnist for London’s Guardian newspaper, gave rise to “another utopian ideology … a type of market fundamentalism became the guiding philosophy.” Thus, he wrote, also in a statement shot through with post-traumatic-stress-induced overstatement, “in a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed.” The New York Times wrote during the crisis that it is “certainly not too soon to look beyond the current crisis to the flaws and fallacies of the anti-regulatory ideology that has held Washington in its grip since the Reagan years … The nation needs a new perspective on the markets, one that acknowledges the self-destructive bent of unfettered capitalism.” Two days later, across the ocean, Tony Benn wrote that “there will be a big demand for a major policy change. This is a failure of a system where we relied on the markets and excluded government. And the markets failed.”

America’s European allies and the spokespeople for rising powers from China to India questioned aloud, and in stark and inflammatory terms, whether the American model had been undone. In 2008, the German finance minister Peter Steinbruck predicted, “The U.S. will lose its status as the superpower of the world financial system. This world will become multipolar … The world will never be the same again … When we look back 10 years from now, we will see 2008 as a fundamental rupture.” French president Nicolas Sarkozy in April 2009 stated at a G20 summit that “the all-powerful market that is always right is finished” and argued that “the page has been turned” on Anglo-American capitalism. Perhaps more surprisingly, the British Conservative shadow chancellor of the exchequer George Osbourne joined the chorus of doubters when he repudiated the foundational premise of the Anglo-American model that free markets are always efficient and therefore government should just get out of the way. Even Alan Greenspan admitted that his “belief in deregulation had been shaken,” undermining his lifelong view that “government regulators were no better than markets at imposing discipline.”

In the search for solutions, all manner of ideas were floated and embraced. It seemed clear that a new era of international collaboration and perhaps new institutions was called for. The G8 morphed into the G20 and stepped to the center of the crisis. The Economist noted that central-bank policies “would be more powerful if coordinated. But it is not only central banks [that] need to combine.” National governments would have to work together too: “Even if, as the Europeans claim, the crisis was made in America it now belongs to everyone.” The BBC saw the changes as a watershed, stating that a “new world order emerges from the chaos” and noting that “slowly the shape of the world after financial flood is beginning to emerge. The first thing to be said is that everyone is in the same boat. And they have to bail together.” The article announced a “new superpower diplomacy—not East versus West, nor a return to the disastrous maneuvering of the late nineteenth century of the 1930s, but the management of relationships within better agreed rules.”

The obvious question then was what those rules would be. Would the old rules be tossed aside? For a moment, it looked as if they might. Massive government stimulus programs amounting to hundreds of billions or trillions of dollars of intervention were announced in the United States, the European Union, Japan, and China. Smaller countries offered smaller programs. New coordinating mechanisms were bruited. Market reforms were debated. Where seemingly needed, in the United States for example, the government stepped in and bailed out automakers and financial institutions.

Within short order a predictable backlash occurred. The world and the president of the United States had embraced “socialism,” and “statism” was on the rise. Everything from a U.S. debate about how to provide health care more efficiently, to a population that was both overburdened with costs and had major segments who were without care altogether, to the rise of China, was interpreted as a sign that more than reform was afoot, that an ideological swing back to the ideas of the 1930s was taking place. Whether those ideas were the ideas of Franklin Roosevelt, John Maynard Keynes, or Leon Trotsky depended on how hysterical the backlash critic was. With the passage of months, the voices calling for reform and those warning against it still hang in the air, shifting shapes as the arguments bounce from U.S. Tea Party spokespeople on the right to anti-establishment protesters from Cairo to Athens to London to cities across the United States. Pundits and more thoughtful observers alike are seeking to make sense of the swirling forces buffeting world leaders, trying to understand which are meaningful and will have lasting consequences and which will prove evanescent and spin off into the air like the whirlwinds of an afternoon dust storm.

Clearly, it is my view that a look to history provides better answers to what the long-term trends are, the forces that are in play, and the questions that need to be addressed than does listening to campaign rhetoric, scrolling through blogs, or reading opinion columns. It lets us better see many sides of key issues—the technological, social, and economic benefits introduced by the rise of markets and their limitations. We can talk about who is commanding the economic heights, but when we study how they got there, we find we must ask: Have they also taken the commanding heights of the polity? Is that a good thing? We can see the great benefits of the spread of democracy worldwide at ground level and the equivalent value of the spread of entrepreneurship and the opportunities created by the capitalist system, but we also see that democracy is being forsaken at several strata above ground level by the concentration of enormous power in the hands of a few supercitizens who increasingly have zero allegiance to any nation-state.

There has been a decoupling of the interests of supercitizens and those of the ordinary people around them, between those who represent the views of people who must necessarily live within borders and those for whom borders no longer have meaning, between those who require jobs and capital flows and those who view people, villages, cities, and states as economic options, part of a constantly changing calculus in which efficiencies and profits rule. At the same time, those supercitizens and their ideological and political allies and champions (often the beneficiaries of their largesse) have falsely conflated economic growth with economic well-being. Metrics that aggregate and hide inequality, such as GDP, are embraced over those that reflect better the real and variant conditions within a society. Meanwhile increasingly as state power has been eroded and transnational challenges have grown, the question arises of how public interests are served and private ones are effectively and appropriately channeled and counterbalanced. Institutions are changing more slowly than the environment in which they operate. Both national and international mechanisms for translating the public will into action are inadequate to the moment.

The Marketplace of Ideas Works Slowly

If there is a lesson to the historical study of these issues, it is that even as financial marketplaces accelerate to such a pace that major actors make hundreds of millions of assessments and decisions a day and commercial marketplaces are rapidly evolving to suit a complex global reality, the marketplace of ideas moves much more slowly. Even revolutions as they arise—whether in 1776, 1789, 1848, or 2011—while seeming to produce swift and dramatic upheaval, can mislead. The French Revolution produced a stunningly different world overnight, yet within little more than a decade France was coping with a new kind of monarch. Eighteen forty-eight touched many of the most important capitals of Europe, blowing through like a violent summer storm, leaving scars and disorder, but the ideological shifts it promised were slow to take root.

Thus, the upheavals of the past two decades—the fall of communism, the stunning blow of 9/11, the shock of financial crises from the emerging world in the late 1990s to the bursting of the tech bubble to the collapse of Bear Sterns, Lehman Brothers, and AIG to the Eurozone’s debt troubles—hint at changes that may be afoot but do not answer long-term questions about where we are headed in the way that newspaper headlines may have suggested they did.

That is going to be worked out in the marketplace of ideas, and the process that will resolve it will be, as it has been in the past, a struggle among competing systems. The past two decades have not only seen the fall of communism and a blow to the appeal of market fundamentalism, they have also seen a worldwide embrace of the idea that markets play an important role in all societies. While American capitalism did not triumph per se, capitalism did. But that clearly did not mean the end of ideological tensions in the world. With the crises of the past decade in the United States, Japan, and parts of Europe and the rise of emerging powers around the world, with some of the fastest-growing states—like China—involving considerable state control and some of the most resilient in the developed world—as in Germany and other countries in Northern Europe—featuring very different ideas about how government, business, and labor should collaborate, it is clear that this competition will not just turn on the issue of how to balance the roles of public and private power, but will determine just what that balance is and how it is to be achieved for decades to come.

The upheaval of the immediate post–cold war era behind us, we are now entering an era of competing capitalisms. Political scientists who were early observers of this phenomenon include Peter Hall and David Soskice, who, in 2001, published Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Since the idea first emerged, though, the nature of that competition and the view of America’s place within it have changed markedly.

Five Capitalisms: If Not America’s Model, Then Whose?

One of the models to compete, of course, will be the American model, bloodied but unbowed. Judging from the debates prevailing in Washington in the first years of the second decade of the new century, old ideologies die hard. One political party in the United States, the Republicans, have as a central tenet of their philosophy the idea that government should be rolled back wherever possible. “Big government” means regulations, taxes, numbers of federal employees, the federal budget as a percentage of GDP. The other party, the Democrats, while more comfortable with government programs, are nonetheless reluctant to offer an opposing view to that of the Republicans. They tend to compromise, in part because they too are heavily dependent on the financing provided by large corporate and financial interests, much as the Republicans are. There are no moves presently afoot to reform campaign finance in the United States to help address this problem. In the run-up to the 2012 presidential elections, the incumbent U.S. president’s advisers have told him that he will have to raise $750 million to $1 billion to hold on to the office he already has. That kind of money can only be achieved through close ties with centers of private power that in turn advocate for the U.S. “government-lite” approach to capitalism. A fault line in the current U.S. debate can nonetheless be seen in the disagreement over whether America’s recovery will best be triggered—as Republicans argue—by cutting back government to reduce the bloated U.S. federal deficit or whether, as some Democrats assert, the answer is more government spending and involvement in major infrastructure and other job-creating programs. It is, however, all a matter of nuance within the traditional American “Lockean liberal” ideal that government should stay out of people’s affairs whenever possible. Neither side advocates government-controlled industrial policies or broadly expanded social safety nets or greater government involvement in the day-to-day affairs of business and markets, as might be found in other countries.

While virtually every nation offers its own variation on capitalism, several are associated with countries that are so big or influential that their approaches are likely to be the prime contenders when it comes to vying with the United States to produce the ideas that will shape twenty-first century political and economic philosophies and practices. One of these is the world’s most populous country, its fastest-growing major economy, an economy that is likely to pass that of the United States in size in purchasing-power-parity terms by 2016 and in real terms by 2030. That country is China, and in many respects its system, because of its roots in communism and central planning, is the most radically different among the leading versions of capitalism. In fact, in China, it has been referred to as “socialism with Chinese characteristics,” which translates in the eyes of many others as “capitalism with Chinese characteristics.” Called everything from “bamboo capitalism” (by The Economist) to “authoritarian capitalism” by its critics, it is a rapidly and somewhat chaotically evolving hybrid encompassing everything from wildly underregulated, intensively competitive and entrepreneurial “cowboy capitalist” enclaves to five-year plans and the heavy hand of government direction and ownership of major enterprises that recalls traditional socialism.

Other developing economies come at the issue of public-private balance from a different perspective, although many of the most important, including the other three BRICs, Brazil, India, and Russia, are all much more comfortable with a major role for the state in their economies than are traditional developed economies. Setting aside the Russian example as being too idiosyncratic, corrupt, and authoritarian to win broad support, you are left with the Indian and Brazilian models, which share some important similarities. Called by the Indians “democratic development capitalism” and referred to by Lawrence Summers as forming the core of an emerging Delhi consensus to rival the Washington consensus of the 1980s, 1990s, and early 2000s, this approach recognizes the special needs of developing societies for an active government role in addressing the social, economic, and political requirements of massive populations of historically disenfranchised citizens while seeking to harness the energizing qualities of the marketplace. The third major alternative is what once was called Eurosocialism, best exemplified among large states by the German example. Germany has outperformed not only all the other major countries of Europe but all the world’s leading developed economies in the swiftness of its recovery from the economic crisis of 2008–2009. In fact, so robust was its recovery that as the Eurozone faced a crisis due to the fiscal failings of several countries in its southern tier (Greece, Portugal, and Spain), Germany was seen as the indispensable economy of the entire European Union, the locomotive all were looking to for power. But Germany is not the only example of an approach to capitalism that involves a strong social safety net, an active role for government in promoting business, and a unique collaborative relationship between business, government, and labor. Sweden is another fine example, demonstrating that reports of the death of the European model were, to paraphrase Mark Twain, greatly exaggerated. Finally, there is a fourth important non-U.S. variation on capitalism from states that are not large but are nonetheless influential because of the success they have achieved. These states were dealt with in the “countries behaving like companies” section in the last chapter. They are the entrepreneurial states, small countries with vibrant economies responding to an active government role—although with varying degrees of government intervention in markets. In addition to Singapore, the United Arab Emirates, and Israel, countries as diverse as Chile and Lithuania might also be included in this group.

Other models are also influential to varying degrees. The size of Japan’s economy gives it prominence, but unfortunately, since the mid-1990s, so does its dysfunctionality. South Korea’s success has led it to grow to be one of the few strong examples of a developing country that “graduated” to first-world status. But it is small, and it is likely soon to face unique challenges associated with absorbing the remnants of a failed north. South Africa is especially influential in Africa. Turkey is influential but anomalous in the Middle East due to its size, proximity to Europe, and trade- rather than resource-based economy. Other important states such as Nigeria, Egypt, and Mexico are far too troubled to set examples for anyone.

So it seems most likely at this point that much as approaches to the Reformation that came from England, France, Germany, Holland, and Scandinavia vied with one another to shape the standards of the era, so too will it be that ideas on how to balance public and private power in the twenty-first century are likely to come from one of these four schools of thinking if they do not come from the United States.

To determine which ideas may prevail, rather than viewing this as a zero-sum contest in which one will win and the others will lose, we should instead ask how these approaches are the same, how they are different, and how their similarities and differences are likely to be reflected in action. This is particularly necessary given that, as we have already established, the limitations of national power in terms of addressing global challenges will require in the next several decades ever greater collaboration among nations and the creation of stronger global governance mechanisms. The rules and values of those institutions are likely to be shaped by these groups as well, and thus how this competition plays out is likely to end up determining the shape and mandates of those new entities (or the evolving shape of existing entities from the G20 to the international financial institutions or the World Trade Organization and others).

“Capitalism with Chinese Characteristics”

It is easy to understand the escalating interest in and influence of the Chinese model. Since China began economic reforms in the late 1970s, perhaps 400 million Chinese have been lifted out of poverty. The country has averaged double-digit annual growth rates for almost two decades. In 2010 it passed Japan to become the world’s second-largest economy. It may become the world’s largest in nominal terms by 2020. It holds the world’s largest reserves of foreign capital, with the total now exceeding $3 trillion.

China is home to the most dynamic economy in the world. Yet beyond descriptions of the scope and speed of its growth, the Chinese economy defies easy description. On the one hand, China is still nominally communist, working from five-year plan to five-year plan with the government playing an active and sometimes heavy-handed role in the affairs not only of state-owned companies but of foreign companies seeking a share of its burgeoning market. Plans passed by the National People’s Congress are implemented by economic authorities coordinated by the State Council.

The state is the architect and chief funder of major initiatives in areas as diverse as new energy technologies (in which China has outspent the rest of the world together over the past three years) to building a new transportation infrastructure to acquiring critical natural resources through neomercantilist deals around the world. The state is also the entity that demands and typically wins major investments and technology transfers from would-be foreign entrants into the economy. Yet since the reforms initiated by Deng Xiaoping, the role of the state in the economy has shrunk dramatically. While the state still plays a larger role in the Chinese economy than in any other major economy by far, companies that are not majority owned by the state account for two-thirds of output. These companies are also responsible for the lion’s share of profits in the economy, and according to one South Korean estimate, they contribute almost three-quarters of Chinese GDP.

State-owned enterprises have steadily seen their share of assets, profits, and sales in the economy decline over the past several decades, to the point that in each category they represent a minority share. Further, while the Chinese government can be heavy-handed in negotiations and brutal in enforcing its laws, it is also extremely haphazard in enforcing those laws. While this approach has a name suggesting it is part of a plan, “one eye open, one eye shut,” observers suggest that this approach not only exacerbates some of the greatest weaknesses in the Chinese economy, such as financial mismanagement and lack of transparency, it also is indicative of one part of the “system” that is not very systematic. China is just growing too fast for the government to keep up. This “riding the tiger” element of China’s government involvement in the private sector is complemented by another contradiction: social programs that are so limited in their benefits to citizens that the country is constantly facing the potential of massive unrest—with more than 180,000 demonstrations reported in the last year alone. While such problems and challenges associated with rapid growth and a constantly evolving rule book have led observers like the editors of The Economist to conclude that “‘capitalism with Chinese characteristics’ works because of the capitalism, not the characteristics,” this assessment deliberately downplays the further contradiction that China’s leaders have, for three decades, defied the predictions of their critics by making central planning work in very effective way, driving the most profound economic transformation ever seen by such a large population over such a short period of time.

Indian and Brazilian “Democratic Development Capitalism”

One clear way that China’s economic values and policies are gaining influence is through the integration of China into the core discussions of leading global economies. This began in November 2008 when President George W. Bush in mid–economic crisis convened not a meeting of the traditional powers of the G8 but of a new, more broadly inclusive group that included China: the G20. While getting China to the table was clearly the primary reason for this approach, the rising economic weight of other emerging powers like Brazil and India was also a factor in the decision.

The subsequent intensification of coordination of the policies and activities of the four BRICs has added to this group’s influence on the global stage as have related efforts to collaborate with additional midlevel emerging powers such as South Africa and Turkey. Both countries have also, beginning notably with their collaboration at the World Trade Organization ministerial in Cancún in 2003, played a much more active role in international diplomacy, seeking to advance their national interest and to anchor developing world coalitions on issues as diverse as climate change talks, reforms at international institutions, nuclear nonproliferation, and even key elements of Mideast diplomacy. That said, the differences among the BRICs are as significant as their similarities. Most notably, India and Brazil are, unlike China, democracies, thus giving their citizenry a much more direct say in how they balance public and private interests. India is a regional rival of China’s with a long history of border tensions, and Brazil, while much more closely engaged with China via trade and investment (China is Brazil’s number-one trading partner, surpassing the United States), has had significant disagreements with the Chinese over monetary policies.

At the same time, differences with U.S. capitalism are also deep, with both India and Brazil possessing strong socialist and socially activist political parties and with both, like China, necessarily heavily focused on their great development challenges. Four hundred million Indians, for example, still live without regular access to electricity. Fifty million Brazilians, almost a third of the population, live below the poverty line. While Brazil is now the world’s eighth-largest economy and will be fifth within a decade, it ranks 73rd on the Human Development Index. While India is currently the world’s tenth-largest economy and fourth in purchasing power parity terms and may be nominally the third largest by 2030, it ranks 121st. (China ranks 89th, the United States 4th, Norway first, Sweden ninth, Germany tenth, Israel 15th, Singapore 27th.)

An illustration of the engagement of the Brazilian government in social issues is the Bolsa Familia program introduced under the administration of Luiz Inácio Lula da Silva. The program is the world’s largest conditional cash transfer program and involves aid to poor Brazilian families to ensure proper health care, education, and the development of human capital. The program is credited with playing a central role in helping to reduce Brazilian poverty, which fell from 22 percent to 7 percent during the Lula administration. Lula, a socialist, saw fighting poverty at home and abroad as one of his principal missions, but in a break with Brazilian political dogma of decades past, he also actively maintained liberal market policies that helped ensure continued foreign investment in Brazil that reached record levels by the time he left office. Again, as in China, what is seen is a mix between activist government and a respect for the power of markets. Certain key enterprises, notably the oil company Petrobras, are still owned and controlled by the state. However, the complexity of such “mixed” systems was illustrated to me in a conversation with a former Lula cabinet minister who told me he once complained to Lula that when he went to Petrobras to seek aid for an important national priority, management argued that because they had private shareholders they could not comply, but that on other occasions they would argue, if it suited them, they were limited in their ability to cooperate due to the constraints on them as a state-owned company.

In a speech in Mumbai in 2010, Larry Summers argued that India’s approach to balancing its public and private interests would actually be a more attractive model to the world than the view promulgated in Washington or Beijing. Summers cited India’s “peoplecentric” policies and its focus on stimulating consumption rather than exports, saying that within decades, “the discussion will be less about the Washington consensus and the Beijing consensus than the Mumbai consensus.” In part, his views were linked to an Obama administration effort to draw closer to India and to offer its democratic model as a counterweight to China in Asia. But in part they were linked to a broader sense that thanks to its democratic heritage, and in part thanks to systems and cultural attitudes that date to the years of the British East India Company and have prepared India for an active, outward-looking role in the global economy, many feel that it will not be long before India’s approach places it ahead of China both in growth rate and in the appeal of its system to the world.

In several important elements of the Indian economy, from nuclear power to other energy resources to manufacturing enterprises like Hindustan Aeronautics or Hindustan Machine Tools, India also still has a shrinking but notable group of “public sector undertakings,” state-owned companies that are indicative of the fact that the Indian government continues to feel that for both security and development reasons it is sometimes necessary for the public sector (either at the national, state, or territorial level) to play an active role in the management of business activities.

The roots of this approach are in the almost four and a half decades of social democratic policies that guided India immediately upon gaining independence. But the evolution of the approach since 1991 to one with greater market freedoms has made India the world’s second-fastest-growing major economy after China. A failed experiment in Fabian socialism (which at one point produced the world’s highest income taxes) was replaced by a system that saw widespread regulatory reforms and much greater financial liberalization. The economy has opened to the world after having spent much of its first half century as a closed economy (no doubt in some respects reeling from the injuries associated with its exploitation at the hands of the BEIC). It also has taken the lead not only in striking its own public-private balance but in developing its own approaches to the development of industries. This includes what one leading Indian businessman has referred to as “Gandhian engineering”—which he characterizes as basing pricing and product development models on the needs of the population of poor average Indians. This has produced cell phones that are available for pennies per month and the world’s cheapest car, the Nano, and thus has imbued the public-private climate in India with a very different ethos and set of metrics.

German, French, and Scandinavian “Eurocapitalism”

In earlier sections of this book, we have considered briefly examples of how modern Swedish economics has evolved to encompass social programs that ensure workers of a safe haven when confronted with the volatility of international markets and at the same time create a consequently greater willingness to embrace the risks associated with freer trade and entrepreneurship. Similarly, during Sweden’s financial crisis of the 1990s, the government did not just bail out banks as in the United States, but because it was more comfortable with a public sector role, it demanded bank equity in exchange for its investment, thus ensuring a return for the Swedish people for putting tax dollars at risk and an incentive for banks to pay down their obligations as quickly as possible. (In the United States no such guarantees were made for returns, and although most Wall Street bailout funds have been recouped, massive U.S. government guarantees remain in place, thus putting taxpayers at risk in the event of another sudden market downturn.) Said the former Swedish deputy finance minister Bo Lundgren, “If I go into a bank, I’d rather get equity so that there is some upside for the taxpayer.” And the Swedish government went into banking with a vengeance at the time, at one point dedicating about 4 percent of Swedish GDP to its banking rescue and controlling over 20 percent of the entire banking system.

Through such approaches, the Eurosocialist impulses Americans once derided as a backward drag on Europe’s economies have actually propelled a number of them to considerable growth and ensured their stability. In fact, as such approaches indicate, more active government policies may actually be better suited to dealing with the dislocations and pressures associated with active exposure to the global marketplace. And even as Europe has been buffeted by crisis, many European states have prospered, showing economic resilience while balancing both notable fiscal prudence and achieving a high enough quality of life that they top world rankings of this attribute.

No country is a more prominent or influential example of the renewed relevance and appreciation for the European model than Germany. This is not just because it is Europe’s largest economy. It is also because, in the words of David Leonhardt of The New York Times, “despite its reputation for austerity, Germany has been far more willing than the United States to use the power of government to help its economy. Yet, it also has been more ruthless about cutting wasteful parts of government.” Had Germany not outstripped the United States in growth since 2005, these observations would have less impact. But they also have resonance because not only did Germany outperform the United States in its top-line numbers, but average Germans benefited more from the growth than their U.S. counterparts. While income inequality in the United States has been hitting new highs, average German wages have grown five times as fast as those in America over the past quarter century.

Part of the reason for Germany’s success with its workforce, at a time when the number of Americans working has actually contracted over a decade for the first time in our history, was that the German government got actively involved, revamped unemployment practices, and went to work finding ways to better place German workers in suitable jobs. German education programs were also beefed up so that as America plummeted on international math and science skills, German performance rose. Also, German regulators have been much tougher with German financial institutions, requiring greater capital reserves. Finally, Germany has worked to maintain a strong voice for labor in its economy, both by including labor unions on corporate boards (which has worked well for the companies and the unions) and by ensuring that workers themselves remain competitive and well paid. Nothing has undercut the influence of American unions like the collapse of American manufacturing. And while some might say that it was the unreasonable demands of unions that brought about that collapse, it could just as easily be argued that efforts to roll back the government’s ability to keep America’s education system, infrastructure, and other competitive factors up to global standards played as great or a greater role in that respect.

The German government has also been unhesitating, like the governments in virtually all the other examples cited here, to promote its businesses internationally. Here American business interests have suffered from their own success (or believing their own press releases). American businesses wanted government out of markets, and American capitalist theoreticians wanted America to avoid “industrial policy” like the plague. But the rest of the world didn’t get the memo. So Germany spends roughly thirty times as much as the United States promoting exports and similar amounts seeking foreign direct investment. As Jacob Kirkegaard of the Peterson Institute in Washington said in an interview with The Washington Post, “There’s a pervasive sense in the United States that government and the economy are supposed to be completely distinct and separate realms. During a deep recession, the fact that you have a more activist government has some advantages.” Of course, as we have noted, even prior to the recession, Germany—now home to the world’s number-four economy—was outperforming the United States in wage growth, education, and training and providing a strong social safety net for workers. Said the former Obama official Jared Bernstein, also to the Post, “It is true that other countries are more comfortable with this thing called ‘industrial policy.’ If you accuse Germans of practicing industrial policy, I’m not sure [Chancellor Merkel] would automatically take it as an insult. Over here … we just don’t like the words.”

The German model is also worthy of note because, unlike any of the other models, it is actually part of a regional model that has involved ceding significant national sovereignty to a supranational power, the European Union. The boldness of what Germany did should not be underestimated. It controlled one of the world’s most respected currencies and gave up that control to participate in the Eurozone. While the Eurozone experiment has undergone deep stresses as a result of the fiscal crises of Greece, Portugal, and other countries, as of this writing it seems likely that it will not only survive but that in order to avoid similar problems in the future, Europe’s monetary union will have to be complemented by a true fiscal union. If that is the case, and the countries of the region commit to living within common fiscal guidelines and to bearing responsibility for one another’s missteps, it will only be because Europe’s largest economy has decided that the costs of allowing the euro experiment to fail are too great. This vision that the role of the state is actually enhanced through ceding some sovereignty to supranational entities could have major implications in a world in which so many semi-states will be looking for collaborative mechanisms to enhance their influence and regain some control over their destiny that their current status is less likely to provide.

Singaporean “Entrepreneurial Small-Market Capitalism”

We have described what sets apart countries like Singapore, Israel, and the UAE in the previous chapter. It is true that these economies have the advantage of being small. It is also true, as many note, that their small size may mean that the lessons drawn from their successes—particularly those associated with their nimbleness, the role of government officials in managing aspects of the state very much as though they were managing a large corporation—are not broadly applicable. But first, there are many small economies that could benefit from applying their lessons (much as the economies of the Baltic countries have done in the years since the fall of communism—and much as a Palestinian state might once it is established). And next, as Singapore has shown, the skills of the city-state in managing city-sized development issues in places like Suzhou in China, where Singapore has effectively exported its urban planning know-how, can work successfully within larger national economies and thus play the kind of influential role that warrants the inclusion of these entrepreneurial small-market capitalists on this list.

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While this competition among capitalisms will produce relative winners and losers, it is unlikely to produce the absolute triumph of one view over another. As noted, what may work for small entrepreneurial states like the UAE, Israel, or Singapore almost certainly will not work for the megastates of the emerging world like the BRICs. What will work in a China fixated for five thousand years on maintaining internal stability and founded on Confucian values regarding family and community will not work in nearby India, with its democratic and multicultural traditions. What may work on the southern fringes of the Eurozone will surely differ from what may work in Germany or Scandinavia. For some parts of the world, regional integration may help offset the weakness of semi-states. On some issues such as trade or the environment or regulation of global financial markets to a common standard, stronger international institutions are the only possible way to preserve national interests. They don’t pose a threat to sovereignty, but rather offer the only option for sovereigns seeking to maintain influence over what ultimately does happen within their borders.

For most of the world, the balance between public and private power will be struck in a way in which the state plays the crucial role that only it can play as the institutional power center charged with serving the public interest. That role is virtually certain to be larger and more activist than it has been in the touted U.S. ideal for the past three decades. In fact, it is likely to be more like the role the U.S. government has historically played, whether it was through the interventions that helped create the railroads or those that led to the national highway system or the birth of the Internet.

The fact that virtually every other form of capitalism “on the market” has significantly greater roles for the state than advocated in and by the United States suggests that not only is the U.S. view unlikely to prevail, but indeed the momentum is actually with the alternatives. They are growing faster, they are combating inequality more effectively, they are competing more tenaciously, and they are protecting their people against the volatility of the modern marketplace more competently.

The Mines of Falun Revisited

Not much could have seemed more passé than the Swedish model of social welfare back in the 1990s when American capitalism was humming along. Sweden was buffeted by banking crises, seemingly being absorbed by the European Union, and pieces of its national heritage like Stora were spirited away by the forces of globalization to foreign homes and futures. Even before Stora’s merger and relocation, the signs were ominous. Just a few years after the shareholders meeting in the great pit of the mine, just a few years before the company gave up its Swedish identity for good, after a thousand years of mining, the soil of Falun had finally given up its last bit of ore and the company closed the mines.

But if we dig further and see what that goat’s accidental discovery led to, in terms of the development not just of a corporation but of an idea that made a nation and helped change the world, then rather than a loss, we are left with what is in Falun now, something well preserved that is resonant with echoes and lessons of meaningful past lives. It had hints of Hoffmann’s fictional story:

Nobody in Falun remembered them. More than fifty years had gone by since Forebom’s luckless wedding day, when it chanced that some miners who were making a connection passage between the two shafts found, at a depth of three hundred yards, buried in vitriolated water, the body of a young miner, which seemed when they brought it to the daylight to be turned to stone.

The young man looked as if he were lying in a deep sleep, so perfectly preserved were the features of his face, so wholly without trace of decay his new suit of miner’s clothes, and even the flowers in his breast. The people of the neighborhood all collected round the young man, but no one recognized him or could say who he had been and none of the workmen missed any comrade.

The body was going to be taken to Falun, when out of the distance an old, old woman came creeping slowly and painfully up on crutches … The moment she saw the body, she threw away her crutches, lifted her arms to Heaven and cried in the most heart-rending way.

But the final quieting of the racket of the mines and the snuffing of the smelters and the long-ago clearing away of the hellish black smoke and constant flames had left, much like the smelting process itself, a residue considerably more valuable and even precious in appearance than the rock that had been hewn out of the earth.

From that rock had come an idea, a company that trailblazed for other companies, a changing view of the relationship between such companies and the state, the wealth to raise a nation, new ideas about the nature of money and about private property and power. It laid the groundwork for a society that, as the former Swedish finance minister Par Nuder noted, “felt like it had a kind of equilbrium, a better balance than others between caring for its people and remaining competitive, between growth and quality of life, between public and private power, between the interests of a nation and the requirements of globalization.” It was a view and a goal that resonated with other conversations I had with leaders from Singapore, Brazil, India, and other states seeking a better balance between public and private power.

At the same time, the story of Mats resonated with me in another way—as the poor miner remained largely unchanged while the world evolved around him.

In this, he was in some respects like the world’s governments today, which have been trapped by their inability to adapt and by the unceasing and frequently successful efforts of private interests to contain or alter those dimensions of public power that might restrict their growth and freedoms. They have been largely calcified, still very much in the national, centralized, hierarchic forms that first took shape centuries ago. What experiments there have been, such as those in global and regional transnational institutions, have been deliberately kept weak, often by public officials at the nation-state level reflexively defending sovereignty without sufficient awareness of how their stance might actually limit their ability to effectively serve the interests of their constituents in the global era.

And as many traditional components of government power have atrophied or been contained (even as governments themselves have sometimes grown more bloated and dysfunctional), the world has kept changing, much as did life in Falun high above the collapsed tunnel that entombed the young miner.

Global private actors have evolved so that, while lacking many of the legally enshrined powers of governments, they nonetheless can rival, challenge, defeat, or sidestep public power or, alternatively, they can simply manipulate it to serve their needs. Those actors, great corporations and financial institutions, operate far more nimbly on the global stage than governments still trapped within their own borders. In fact, they have learned to flourish in the voids where national governmental power has yet to reach effectively, as in the regulation of global financial markets, or by using their enhanced mobility to play governments against one another to win beneficial treatment. Throughout, these adaptable, creative private enterprises have taken advantage of progress itself, as well as official incompetence or greed, to influence the development of the laws and regulations that once contained them, in ways that ultimately have enabled them to profit and grow far beyond the imaginings of any who first conceived of the idea of “artificial persons.” Their growth and the innovations they have cultivated have undoubtedly benefited the world at large to the degree that they have stimulated economic activity, technological and social development, and progress. But at times their development has just as undeniably had negative consequences, spoiling the environment, distorting good governance, propping up cronies, and rapaciously capturing wealth and resources for the benefit of the few.

The challenge for governments and for the constituents they serve is determining whether the institutions of public power can adapt and evolve to effectively and appropriately counterbalance the super-empowered private actors when they threaten the public interest, and to enable them and work effectively with them when they serve it. Global regulatory and supervisory mechanisms will be needed, as will global laws and global representative-governance institutions. So too stronger national institutions and enhanced cooperation between nation-states. So too new forms of public-private partnerships—the best way for these organizations to serve society’s momentary and longer-term needs.

While it is undeniable that poor Mats was prematurely entombed, it need not be the case that governments meet the same fate. They need not be consigned as in that crude evolutionary chart I imagined to be simply a withering branch on the evolutionary tree of human social organization. Indeed, part of the crudeness of the imaginary chart is in the mistaken implication that somehow public and private power are actually separate. They are part of an ecosystem that, like any other, seeks and requires balance. The competition between capitalisms we see today is a manifestation of a major rebalancing that is taking place within that greater ecosystem, an effort to harness markets as engines of growth without having to simultaneously consume as their fuel the lives or dignity of billions, the environment around us, or the ideals of social justice.

The near- and longer-term outcomes of that rebalancing are unclear. What seems certain is that in America, and in other parts of the world, the balance has been lost and basic greater goods like equity of opportunity and of outcome have been compromised. It also seems certain that the final balance will exist among a new mix of states, semi-states, super-citizens, and the rest of us, within a system of global, regional, and national public and private mechanisms that will look quite different from what we have had in the past. Large corporations will have to revisit the ancient notion that they serve not just their shareholders but also society at large, and that the simple fact of their growth is insufficient fulfillment of their obligations to society—especially if through that growth they distort or impede the achievement of important social goals. Governments will have to recognize that they must cede sovereignty upward if they are to preserve it at the national level, and that ultimately their purpose is not to enable wealth creation alone but to ensure the best possible quality of life for all citizens. Companies must, as noted earlier, become in some ways more like countries, and countries more like companies. In both cases, we will need to maintain the discipline to regularly and constantly ask why we have such institutions in the first place, recognizing that neither has any right to exist unless they serve our collective as well as our individual needs and aspirations. For in the end, the twist in our story is that all power in that social, political, and economic ecosystem mentioned a moment ago ultimately flows from the people, the ordinary, fragile, mortal citizens, who grant it to the great enduring organizations that they create and allow to be created to serve them. They are not the bottom of the pyramid but its foundation, the only actors within it who are actually initially endowed with any power or rights at all, and thus the sole grantors of power to that changing mix of public and private organizations that have been or ever will be conceived and allowed to exist.