The rivalry between democratic capitalism and state capitalism is not like the rivalry between capitalism and communism. It is an interdependent rivalry. State capitalist enterprises invest heavily in democratic capitalist enterprises (but they tend not to invest in each other). Both sides rely on each other in interlocking trade networks.

Nonetheless, there is rivalry. There is a rivalry over prestige. What system works better to produce security and growth? What system should emerging and struggling democratic nations aim for? ~David Brooks

Brooks is discussing Ian Bremmer’s The End of the Free Market, which Greg Scoblete also reviewed recently. (Greg has some more critical remarks on Brooks’ column here.) The rivalry Brooks describes is not really between state capitalism and something that isn’t state capitalism (“democratic capitalism”), but between a state capitalist arrangement that includes public ownership of certain major industries (mainly energy companies) and a state capitalist arrangement in which corporations influence the state’s regulatory and policy apparatus to create favorable conditions for themselves. Dr. Clyde Wilson has defined the latter sort of state capitalism as “a regime of highly concentrated private ownership, subsidized and protected by government.” In practice, that is what we have here and throughout the industrialized world. As Blond puts it, “We’ve created a condition in which large businesses dominate—via a rigged market of rent-seeking capital—in an economy that cuts off for the majority the path to mobility and prosperity.”

One can approve of this, as I am guessing Brooks ultimately would, or one can see it as a dangerous system that unduly concentrates economic and political power into relatively few hands and invites frequent abuses and misallocations of resources, but it is important that we understand what it is we’re contrasting with Putinism, Chavismo, and other systems in which there are some government-owned and run industries. Obviously, there is a meaningful and real difference between governments that own and operate major industries and governments that collude with corporate interests, but these are really two species of state capitalism that differ from one another in degree and not in kind.

When Bremmer refers to the rise of the more statist state capitalism, Phillip Blond would respond that the free market ended long ago and the concentrated wealth and power of government and corporations make sure that it doesn’t revive. Relative to our system, wealth is even more concentrated and power is even more centralized in what Brooks and Bremmer are calling state capitalism, but our system is already far removed from the free market of what Blond calls popular capitalism. In other words, Blond’s objection to “democratic capitalism” is that it is precisely not democratic or anything like it. Perhaps that is an obvious point, but so far it is one that I have not seen made.

Brooks has other questions that actually point to the increasing similarities between the two systems or are simply off topic all together:

There is also rivalry over what rules should govern the world order. Should countries like Russia be able to withhold gas from Western Europe to make a political point? Should governments be able to tilt the playing field to benefit well-connected national champions [bold mine-DL]? Should authoritarian governments like Iran be allowed to nuclearize?

To take the last question first, Iran’s authoritarianism has nothing to do with it, nor is its corrupt, cronyist economic model relevant here. If Brooks is asking whether Iran should be allowed to acquire nuclear weapons, the “rules” that govern this are clear enough, but there is no practical means of preventing Iran from acquiring these weapons if it decides to do so. If Brooks is asking whether Iran should be allowed to develop its nuclear program for energy, the “rules” already permit this under the NPT. Were Iran not a signatory to the treaty, there would be no legal mechanism to prevent Iran from doing whatever it wanted in developing nuclear technology. Proliferation issues are even less relevant when we realize that a country’s economic model has nothing to do with whether a government is permitted to develop nuclear weapons or not.

As far as Russian gas cut-offs are concerned, the cut-offs have had a political dimension in the past when there were tensions between Ukraine and Russia, but on the whole the pricing and shipment disputes behind the cut-offs have centered around Russian attempts to reduce state subsidies, which naturally resulted in higher prices for the consumers. As Paul Robinson explained in The Spectator four years ago, Gazprom has been trying to bring its pricing into line with what the EU wants:

The reason the EU dislikes the low prices charged by Gazprom to CIS members is that these are considered an unfair subsidy to CIS industries, which gives them a competitive advantage over European companies.

And he added later:

In short, the increase in gas prices is fully in keeping with the West’s desire to complete the process of creating a genuine market economy in Russia, Ukraine and the other countries of the CIS, as well as progressing towards fulfilling the environmental demands of the Kyoto accord. It is an entirely welcome gesture from the perspective of any free-market economist, not to mention any environmentalist.

So two of Brooks’ examples of how state capitalism affects international order are either unrelated to the question of state capitalism or actually concern the greater “marketization” of the Russian energy sector and the reduced role of state subsidies in the functioning of Russian energy exporters. As for governments tilting the playing field to benefit the well-connected, we have been seeing this happen here in the U.S. for the last two years on a depressingly regular basis (and it didn’t start two years ago). It is not at all clear that tilting playing fields in the name of collusion and cronyism is a unique trait of state capitalist systems run by authoritarian governments.

Update: In fairness to Bremmer, Greg noted this in his review:

Bremmer’s picture of global state capitalism is nuanced – he acknowledges that even free market democracies interfere in markets for political purposes, as is the case with Europe and America’s generous farm subsidies and tariffs. The signature difference is the degree and scope of state interference and the lack of democratic transparency in the countries that practice state capitalism.

So I stand partly corrected. Bremmer does acknowledge these points, and Greg made a point of mentioning this.