international marketing

gas guzzlers for newer, more fuel-efficient cars.

World leaders offered a variety of criticisms, perspectives, and

proposals. Some denounced “American-style capitalism” at the annual

General Assembly meeting at the United Nations. French president

Nicolas Sarkozy called for greater oversight of the global financial

system. “Let us rebuild together a regulated capitalism in which whole

swatches of financial activity are not left to the sole judgment of market

operators,” he said. Brazilian president Luiz Inácio Lula da Silva, a former

labor leader, called for the global community to create a new foundation

for the world economic system that would prevent abuses and shrink

the gap between the rich and poor. Mahmoud Ahmadinejad, president

of Iran, told the Assembly that the financial crisis was a sign that the

American empire was “reaching the end of its road.”

Some observers noted that the rhetoric was breathing new life

into the long-standing debate between two competing schools of

economic thought. On one side of the debate was John Maynard

Keynes, a British economist and the author of The Economic

Consequences of the Peace. Published in 1919, the book explained

why the post–World War I economy in Europe suffered from inflation

and stagnation. In 1936, Keynes published The General Theory of

Employment, Interest and Money. Keynes advocated giving the state

broad powers to make decisions about a nation’s economy.

While campaigning as a candidate, U.S. Senator Obama promised

that his economic policies would create between 2.5 million and

3.5 million new jobs. The Emergency Economic Stabilization Act of

2008, the $787 billion economic stimulus package passed by the U.S.

Congress, was a textbook example of Keynesian principles designed

to boost aggregate demand. According to the White House, every

$1 of government spending would yield about $1.50 in gross national

product (GDP). In Keynesian economics, this was known as a spending

multiplier. Yet, as U.S. President Barack Obama expanded the government’s

role in health care, some began to see his policies as moving

the country towards a central planning economic model. Some

labeled his policies as socialist.

On the other side of the debate was Austrian economist Friedrich

Hayek, who was a proponent of free markets. In his 1943 book The

Road to Serfdom, Hayek argued that political freedom and economic

freedom go hand in hand. He warned that expanding the government’s

role in the economy could have unintended consequences, such as

reducing the role of the individual in society. Moreover, Hayek believed

that collectivism can lead to tyranny; he held up the Soviet Union as a

case in point. As the U.S. employment needle has barely moved amid

increased government spending and a burgeoning deficit, Hayek’s name

has been invoked. Not surprisingly, Hayek’s theories have caught on

with conservatives. For example, Glenn Beck, a conservative Fox News

personality, featured The Road to Serfdom on his talk show.

The battle of ideas described here is also being debated by a new

generation of economists and analysts. For example, political risk

consultant Ian Bremmer has written The End of the Free Market: Who

Wins the War Between the States and Corporations? The impetus for

the book came from an encounter with a Chinese diplomat who

asked, “Now that the free market has failed, what do you think is the

proper role for the state in the economy?” In his book, Bremmer

argues that China and Russia are using state capitalism to promote

the interests of their companies. State capitalism is an economic

system in which markets are used for political gain. Meanwhile, in

emerging markets such as Brazil, socialist-leaning leaders are steering

their countries away from free market principles.

Bremmer explains how the economic environment has changed

since the economic crisis began in 2008. In his view, the G-7 world

was characterized by widespread agreement that prosperity

depended on the rule of law, independent courts, transparency, and

a free media. In this world, free market capitalism is the dominant

ideology and global corporations are the principle economic heavyweights.

These global players seek to maximize profit and thereby

increase shareholder wealth. Bremmer notes that this consensus

provided the engine driving 40 years of globalization.

So, what has changed? China has emerged from the global

economic crisis in relatively good shape, yet China’s leaders do not fully

embrace free market economics. The courts are not independent, and

the media is not free. Moreover, China is not a democracy. Under state

capitalism, politicians become key economic actors; rather than making

profit the number one goal, they seek first to achieve political goals.

China’s success has emboldened socialist-leaning ruling elites in other

countries to pursue economic growth while solidifying their own bases

of political power. This is creating friction between competing economic

systems. As Bremmer explains, “There will be winners and losers, and

the world’s political and business leaders better begin to try to sort out

who those winners and losers will be.”

Discussion Questions

1. Does the global economic crisis signal that the American model

of free market capitalism is fundamentally flawed?

2. Keynes and Hayek aren’t necessarily household names, but they

did get a boost when economist Russell Roberts created a rap

video titled Fear the Boom and Bust with filmmaker John Papola.

The video is available on YouTube. After viewing it, you should

be able to answer the following question: Are you a Keynesian?

Or do you side with Hayek?

3. Policymakers in Japan, the world’s third-largest economy, must

transition their nation away from a manufacturing-dependent

model for growth. What industry sectors might emerge as the

new drivers of economic growth?

4. Do you think that the economic stimulus programs in the United

States, Asia, and elsewhere are the right approach to pulling the

world out of recession?

5. The case mentions China, Russia, and Latin America as countries

and regions where state capitalism is present. Are there state

capitalist powers in other parts of the world as well?