The state capitalist model will be an attractive one for other developing economies. Rising neighbors in Asia, Africa, and Latin America may seek to engage with the global markets but, rather than opening everything overnight and letting Westerners conquer their entire economies, protect and grow domestic firms that can compete internationally and will funnel money back into development. But the West can learn as well. As free markets -- especially financial markets -- fail and fluctuate, free marketeers in Washington and London and elsewhere may want to ask if a bit more state intervention and regulation is worth considering.
(4) CORRUPTION IS THE KILLER
Think about how much of a problem corporate and industrial influence over politics has become in the U.S. Now imagine the companies are bigger, politicians face little or no public accountability, and there's often not a clear line between CEOs and the government bureaucrats who regulate them, who might even share an office or a boss. Add in billions of dollars in exploding growth and you'll get a sense of why corruption could be one of the biggest problems facing BRICs and other developing economies.
State capitalism doesn't always work, and sometimes can fail badly. Politicians and party officials aren't always motivated by the selfless devotion to national well-being that is supposed to guide their management of markets and firms. Cronyism, corruption, and industrial capture are always big risks, but they seem to become more likely and more dangerous as the economies grow. After all, it's one thing for a Chinese Communist Party official to remain dispassionate and fair-minded when managing, say, a local bank. But it can't be as easy for the officials who guide the Industrial and Commercial Bank of China, which has $1.9 trillion in assets and a significant interest in guiding public policy.
This means more than just free-riders leaching off the system. Growing economies sometimes have to make major changes to domestic industries to keep growth from stalling, but the private citizens and state officials who got rich and powerful off those domestic industries will want to resist changes that could hurt them. In China, for example, some analysts wonder if the Communist Party will be able to push through some overdue reforms that would boost domestic consumption but weaken state-controlled exporters, who are entrenched in the economy and political system. In Russia, the needs of Gazprom can seem to occasionally foreign policy, sometimes to the detriment of Russia and even its neighbors, as when Moscow cut off all natural gas to Ukraine as punishment for siphoning some off. Ukrainian officials fessed up and Gazprom got its money, but Russia's relationship with Europe was badly damaged.
Free-market India is not immune from corruption's terrible effects, either. As investment money rushes in, politicians who feel little-constrained by the country's weak oversight and legal system are cashing in. In 2008, Indian government officials were bribed to sell cellphone bandwidth rights for far below market rates, effectively robbing the state of the $40 billion dollars by which it under-sold to telecom companies. A national protest movement, led in part by activist Anna Hazare, is channeling the country's collective outrage at corruption. But the movement has so far achieved little.