State-owned Enterprises and the Global Economy
Josh Kurlantzick | Carnegie Endowment | April 2008
An increasing number of governments are becoming global economic players - and this in the form of state-controlled companies or gigantic sovereign wealth funds. The global economy used to be dominated by the democratic West but the states that are now gaining influence are primarily authoritarian nations. This shift towards a new balance of power however does not necessarily indicate the end of the free market economy.
China has turned into one of the largest national
economies thanks to its state-owned businesses. Ever more states are now
attempting to follow China's
recipe for success by decidedly creating national corporations and subsequently
making them into global players. This is the way that the Russian
state-controlled company Gazprom has come to control a fifth of gas production
worldwide; that the state-owned oil company Saudi-Amco in Saudi Arabia can
provide three times more oil than any other; and that of the two most
profitable airlines in the world, one is owned for the greater part by a
sovereign wealth fund (Singapore), the other would not have been established or
built up without state help (Emirates). Private businesses such as ExxonMobil
or Shell were supplanted from their place as industry leaders long ago.
This development does
not necessarily represent a threat for free markets. Of course the possibility
subsists that the governments of authoritarian countries open new markets or
procure orders for their companies by means of political pressure. But at the
same time, state capitalism encourages the formation of small elites that
control great shares of the wealth. These groups are prone to corruption and
thereby undermine themselves. Particularly in the long term, state-controlled
corporations could suffer from severe reverses. National domination is not
automatically synonymous with competitiveness in the global economy, especially
in so far as the managers of these national monopoles often lack the experience
of business competition. India
for instance has more multinational companies than China that are competitive on the international
level despite the country being smaller and distinctly poorer. And for that
matter it is also democratic.
This summary was prepared by the Atlantic Community editorial team from "State Inc." published here in Carnegie Endowment.
Related materials from the Atlantic Community:
- Hans F. Bellstedt: Bangalore and the Challenge of Inclusive Growth
- Nicolas Véron and Jakob von Weizsäcker: Valuable Capital
- Frederik C. Köncke: Multinationals Face Political and Economic Risks
