By: Joshua Kurlantzick

Over the past two decades, a renewed economic phenomenon has taken the global stage – state capitalism, in which sovereign countries pour huge resources into companies that come to dominate the fields they enter. It is particularly prevalent in Asia. Joshua Kurlantzick, a Senior Fellow at the Council on Foreign Relations, has written State Capitalism: How the Return of Statism is Transforming the World, a timely look at the phenomenon and its dangers to democracy and the economic order. Asia Sentinel is privileged to print this excerpt from the book, which is to be published by Oxford University Press in April.

State capitalism poses five types of threats to democracy, global security, and the global economy.

One of the fears about state capitalism is that the state’s control of the economy, in democratic nations, will inexorably lead to state control of politics and a reduction in democratic freedoms. These fears are not totally misplaced. But when Western writers, politicians and other opinion leaders examine state capitalism, they tend to take an undifferentiated approach, treating all state capitalists alike, rather than examining each country in some more detail.

In Ian Bremmer’s work on state capitalism, such as his book The End of the Free Market and his subsequent articles on state capitalism, he, like most Western analysts, tends to fall into this undifferentiated approach. He and others often suggest that state capitalism will inevitably erode a country’s democratic freedoms or prevent a country from becoming democratic.

It is true that in state capitalist nations, leaders often have greater access to state funds, more potential largesse to hand out to supporters, and wider leverage over some of the most important companies in their countries. In part, maintaining democracy as state capitalism becomes entrenched depends, in some countries, on the commitment of individual political leaders to democratic norms even as they gain control of more economic tools—potentially too thin a reed upon which to base democracy.

Of course, presidents, prime ministers, and other politicians in new democracies always have a potentially larger role to play in democracy’s survival than in more established democracies. More established democracies do not have to contend with the public’s memory of—and possible nostalgia for—an authoritarian period. Additionally, they have the benefit of institutions like the judiciary, the civil service, the press, and others to mediate political tensions and prevent political rollback.

For example, Corazon Aquino and Fidel Ramos’ personal commitment to democratic norms in the face of multiple coup plots and other threats helped entrench democracy in the Philippines. Whether or not nations are state capitalist or free market, leaders in young democracies often display some of the same traits as autocrats who came before them; the democratic leaders may come from longtime opposition parties and have all the paranoia and, sometimes, almost-autocratic instincts, born of trying to keep their parties alive in the past.

And emerging democracies’ weak institutions naturally may offer more possible opportunities than developed democracies for elected leaders to use aspects of the state’s economy to entrench their political power.

Still, in democratic state capitalists the government’s control of so many major companies offers politicians much more potential power than in non-state capitalist young democracies. The state’s control of so many companies vastly increases the potential for politicians’ abuse of economic tools.

As we have seen, though some leaders such as Brazilian leader Lula de Silva could boost state economic intervention while holding back their own instincts for using state companies to amass personal power, others could not resist the temptation to seize more political control as they gained power over the economy.

Thailand is a prime example of the potentially corrosive impact of state capitalism on democracy. In Thailand in the early 2000s, former Prime Minister Thaksin Shinawatra coupled interventionist economics with an increasingly autocratic political style that only became more authoritarian as Thaksin directed the Thai economy. Like many other state capitalists, he seemed to believe that as long as he delivered strong growth, he and his party would remain popular, and he should be able to use economic institutions to bolster his party and his own personal power.

Indeed, as the Thai government under Thaksin took back more and more influence over the economy, Thaksin had increasing leverage over the largest banking, agricultural, cement, and construction companies. He pushed those companies over which he had control to use their advertising budgets, which were critical to Thailand’s print media, only on those newspapers, magazines, and websites that backed him and his party.

Songpol Kaoputumtip, a former top editor at the Bangkok Post, one of the two leading English-language newspapers in Thailand, said that the few reporters at the Post who were writing articles investigating Thaksin’s family business, or his dictatorial control of his party, soon were told by top editors to move on to other subjects, lest the Post lose critical advertisers. It was a more delicate means of controlling the paper’s coverage than the tactics once adopted by Thai military juntas, which would simply close newspapers down or force the media – at gunpoint – run flattering articles.

Nevertheless, the leverage of advertising dollars was powerful, and for much of Thaksin’s time as prime minister, the Bangkok Post’s normally vocal political reporters and columnists remained docile. Most other Thai-language and English-language media outlets became even tamer on Thaksin’s watch, with only a small number of elite outlets, with low readerships, continuing to seriously investigate his administration.

Similarly, Thaksin used his government’s control of the economy to reward allies in the judiciary and the civil service. Traditionally, the Thai judiciary and civil service had maintained a degree of independence from political leaders, even during periods of military rule. But when Thaksin was charged early in his tenure with concealing his assets, he was acquitted by Thailand’s top court in a very close decision. Following the verdict, several of the justices alleged that they had faced intense pressure from Thaksin’s allies to acquit him, and promises of rewards such as jobs at state companies.

Later, as Thaksin became more entrenched, he began purging formerly independent government agencies. The government, which had increased state spending and taken control of many of the largest companies, would dangle the possibility of cushy, retirement-age jobs at state-owned or state-linked companies for civil servants, as long as they supported whatever policies Thaksin promoted.