Currency Wars_ The Making of the Next Global Crisis - James Rickards [79]
It was only in the late eighteenth century, with the industrial revolution and the publication of The Wealth of Nations by Adam Smith, that a more modern form of laissez-faire capitalism with private ownership and banking arose. Yet through the twentieth century, despite the success of private enterprise, state-controlled businesses still prevailed in societies dominated by communists, fascists, oligarchs and many other antidemocratic forces.
What we today take for granted as the dominant financial paradigm of private capitalist free enterprise and entrepreneurship is, in fact, exceptional in most times and most places. Private enterprise may have the greatest claim to efficiency and wealth creation, but these are not universally held values. Capitalism’s claim to dominance in the future of global trade, finance and technology would seem to have no stronger historical basis than the claims of monarchy, imperialism, communism and other systems in their day.
Companies that appear private but have nearly unlimited state resources behind them, such as China Petroleum and Chemical Corporation (known as Sinopec), are able to bid on natural resources, buy competitors and invest in equipment without regard to short-run financial impacts. They are able to gain market share by selling below cost. They do not have to worry about losing access to capital markets in times of economic distress. Such entities need not fear investigation by their own government if they bribe dictators and their troops to protect their interests. This neomercantilism is the power of the state dressed up as a modern corporation: old wine in new bottles.
Exemplars of this new breed of enterprise are sovereign wealth funds, national oil companies and other state-owned enterprises. These entities are plentiful in Russia, China, Brazil, Mexico and other emerging markets. Western Europe also has its state-owned megacorporations. EADS, the European aircraft, defense and space giant, has publicly traded shares but is majority owned by a consortium that includes French and Spanish government holding companies, a Russian state-controlled bank and Dubai Holding. The Italian oil company Eni, owned 30 percent by the state, is another example—just one among many. Americans are tempted to throw stones at these state-owned entities and call them unfair competition, only to be reminded that in 2008 the U.S. government bailed out Citibank, GE and Goldman Sachs. The United States has its own state-sponsored enterprises; it is really not that different.
To understand globalization and state capitalism, a different, non-U.S. perspective is needed. Intelligence analysts are trained to avoid “mirror imaging,” which is the tendency to assume that others see the world as we do. In trying to discern the intentions of adversaries, mirror imaging can be a fatal flaw. Threat analysis requires the analyst to put herself in the shoes of Russians, Chinese, Arabs and others to understand not just the differences in language, culture and history but also the differences in motivation and intent. When Russian leaders think of natural gas, they see not only export revenue but also a stranglehold on the industrial economy of Europe. When Chinese strategists consider their holdings of U.S. government bonds, they understand they have a weapon that can either destroy the U.S. economy or blow up in their faces. When Arab rulers move down the path to modernity, they are acutely aware that they are placing themselves in a reactionary and religious vise that can crush them. A twenty-first-century Grand Tour through Dubai, Moscow and Beijing will help us to see ourselves the way billions of Arabs, Asians and Russians see us—and to understand that the dollar’s destiny is not entirely in American hands.