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Why Russia and China will eat West’s lunch

The Western multinationals that have dominated global trade for decades are going to have their lunch eaten in China and elsewhere, and many are unaware it’s about to happen.

india Updated: May 31, 2010 23:04 IST
Herbert Lash

The Western multinationals that have dominated global trade for decades are going to have their lunch eaten in China and elsewhere, and many are unaware it’s about to happen.

That’s the warning in The End of the Free Market, a new book by political risk expert Ian Bremmer.

Bremmer, known for showing the effect of political turmoil on financial markets, argues that China, Russia and other emerging markets have developed a new economic model — state capitalism — that clashes with the free-market system of the West.

State capitalism is not the rebirth of socialist central planning, he writes. It is a system in which authoritarian states dominate markets primarily for political gain. In the process, they favor national enterprises over foreign competition.

A grasp of state capitalism is essential if Western businesses are to understand its potential effect, argues Bremmer, the founder of political risk consultants Eurasia Group.

Many Western corporations — Eurasia counts about 100 of the Fortune 500 as clients — are unprepared for what they face.

“I would say that a quarter of them, max, have China strategies that are sustainable for five years. Of the ones that don’t, maybe half are aware of it, and that’s a serious problem,” Bremmer said in an interview.

“They’re going to get crushed,” he said, noting that the situation is hard to predict beyond five years.

Western multinationals increasingly rely on foreign sales, especially in emerging markets, where state capitalism has many sympathisers. At least half the revenue of companies in S&P’s 500 Index is generated abroad.