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The End of the Free Market by Ian Bremmer (Portfolio Penguin, 2010) is a fair-minded look at the current stand-off between markets and sovereign governments – as far as author Ian Bremmer takes it.

However, as head of the Eurasia Group, billed as "the world's leading global political risk research and consulting firm," Bremmer's view is from the perspective of global finance. Bremmer goes beyond "talking his book" and acknowledges the need for governments to regulate markets and do this better. "The economic meltdown of 2008-2009 reminded us that investors and commercial strategists too often play for short-term gain and ignore longer-term risks" (p. 17).

So far so good. Bremmer also surveys the relative strength of markets versus politicians and bureaucrats in many countries, focusing on the BRICs, OPEC and those in the USA and other OECD countries. His main fear is the growth of state capitalism, particularly as evidenced by the pervasive new clout wielded by 50 sovereign wealth funds (SWFs) -- from the benign, well-managed SWF of Norway to the more politically motivated SWFs in Russia, China, Kuwait, Singapore, Qatar, Australia, South Korea, Vietnam, Libya, Dubai and others forming in Brazil, and expected in India, Angola, Bolivia and Thailand. SWFs are, of course, a direct challenge to the free market view which prefers relying on shareholders and private financiers to guide investment and R&D decisions.

Bremmer's assumption, still leaning to the Chicago School, is that politicians usually make worse investment decisions than professional asset managers working for private and institutional investors. Yet today, the key assumptions of "efficient markets" and "rational investors" are widely de-bunked since the financial crises of 2008-9 which still simmer. Instead of "modern portfolio theory," increasing numbers of institutional investors are demanding that their portfolio managers and consultants adopt ESG (environment, social, governance factors) triple bottom line asset valuation models.

Even if governments stated goals for public investments are to create jobs or widen access to opportunities for their citizens, Bremmer is suspicious. Even if the "bolsa familia" contingent cash transfers (CCTs) that President Lula established in Brazil and have brought millions out of poverty? These income transfer programs have been equally successful in Mexico and praised by London's The Economist.

Bremmer is also worried (as am I and most people!) about the size and purposes of all the bailouts made in 2008-9 by US European and other countries including China, South Korea and Brazil. Nevertheless, Bremmer is hopeful that markets will eventually triumph over the state capitalism he sees in China, Russia and the Gulf states. He feels they have too many domestic headaches to seek global domination beyond their resource-nationalism.

However, Bremmer points out correctly that state capitalism received a worldwide boost from the financial crises of 2008-9, which discredited the free market and financial models and US credibility – especially in the new G-20. He also acknowledges that the new state capitalism in the USA, Europe and worldwide is nothing like socialism or communism.

Instead, each country has their own "mixed-economy," a potage of markets and regulations fitted to its unique culture and value system, i.e., it's "cultural DNA code" (see my Politics of the Solar Age, 1981, 1988).

What Bremmer overlooks is the current dysfunctions of our global financial casino: from bloated size to excessive leverage, high-frequency algorithmic trading, mixing proprietary trading with government guaranteed retail deposit taking, excessive greed, fraudulent credit ratings and securitization, naked short-selling, credit default swaps – need I go on? All these failures of our financialized global economy are given short shrift as "massive failures of regulation" – without acknowledging that the lobbying power of these financial sectors took over the power of governments and succeeded in this massive deregulation since the Reagan and Thatcher eras.

The End of the Free Market will be welcomed by the current global elites and those inside-the-box players and scribes who are acknowledged by Bremmer. For an outside-the-box view we need to go beyond the G-20 (which Bremmer thinks is too big!) to democratize finance and the global economy with more feedback and multi-stakeholder input – not less.

Disclosure: No positions

Source: Book Review: The End of the Free Market