Ian Bremmer and Alexander Kliment published an interesting article in the World Politics Review today called, “State Capitalism and the Future of Globalization.” In it they argue that the assumption that globalization and capitalism will lead to free markets and free ideas must be reconsidered.
Far from blossoming into the pro-Western, market-oriented democracy that the 1990s shock therapists dreamed of, the successor to the Soviet Union has developed into a quasi-authoritarian petro-state, strongly committed to a form of tightly managed oligopolistic capitalism, in which elements of free market ideology coexist with strict government control over sectors that the Kremlin considers vital to Russia’s economy and security.
In Russia today, Bremmer and Kliment point out that Prime Minister Vladimir Putin has crafted a public policy that puts the interests of the state and its officials above the interests of investors, domestic or foreign. These state capitalists have codified their behavior by passing the “strategic sectors law” of 2008, where foreign investors must receive special governmental approval to obtain large stakes in Russian companies in the 42 sectors deemed of national strategic importance.
As an example of this state control, Bremmer and Kliment point to the energy sector where the state now controls 50% of Russia’s oil output, up from 10% when Putin initially come to power. Part of this was accomplished by
jailing in 2003 of Mikhail Khodorkovsky and the state takeover of his Yukos oil company. [And] several years later, the state pressured the Shell-led consortium at the Sakhalin-2 oil and gas project to cede a controlling interest to Gazprom for below-market value.
Interestingly, the 13 largest energy companies on Earth are owned and operated by governments and these state-owned companies now control nearly 80% of global crude oil reserves. As Russia and China take the lead to dominate sectors domestically, they are also funneling the wealth from these state organizations into sovereign wealth funds, maximizing not only their investment returns but also international political influence.