Leading Business Publications Predict that Weakening Democracy and the Rise of State Capitalism Could Weaken World Trade
This week The Economist and Bloomberg Businessweek have chosen to run cover stories about two trends that could pose threats to world trade.
The Economist's cover is about The rise of state capitalism. It refers to a system in which the government shapes free markets to further its own goals. Japan pioneered the approach and it was perfected by Korea, Singapore and China. The Economist warns that while the approach may succeed in the short run, in the long run it can lead to a poor allocation of resources and a lack of innovation. It could also lead to a trade war. Mitt Romney, for example, has stated that if he were elected president he would "crack down on China if they cheat."
At first blush, Businessweek's cover is about a different issue. The cover story is about mismanagement in Iraq as the country turns away from democracy and towards strong-man rule. But the magazine opens with a long essay warning that in spite of "the Arab spring" many countries around the world are turning away from democracy as an ineffective form of government because they have found that it doesn't deliver either political stability or economic prosperity.
The rise of state capitalism and the declining influence of democracy, if they indeed take root, represent significant challenges to western democracies and indeed to the world trade system. As the developing economies of the world grow more powerful, the West is in a weaker position to impose its own vision for the future. How then do we respond to these rising challenges?
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