THE ISSUE OF STATE CAPITALISM

Across the United States, Europe, and much of the rest of the developed world, the state interventionism is meant to lessen the pain of the current global recession and restore ailing economies to health. For the most part, the governments of developed countries do not intend to manage these economies indefinitely. However, an opposing intention lies behind similar interventions in the developing world: there the state's heavy hand in the economy - State capitalism - is signaling a strategic rejection of free-market doctrine. State capitalism is not simply an economic system. It is a political invention designed to ensure that market activity and wealth serve the interests of the state and those who run it. In times of crisis, state officials will use state-run companies and investment vehicles to defend state interests even at the expense of their economic performance.

What about the long-term viability of state capitalism in those places where they are exists? Are Russian, Chinese, or Gulf Arab state-owned enterprises becoming more competitive as part of some sort of "State Capitalism? There is no question that a growing number of these companies are competing with the world's largest multinationals. Some of them are winning. Yet, if they are truly becoming more competitive, why do they still need the financial and political backing of their home governments? Could they compete as effectively without these advantages? If they are outgrowing the need for state support, does that not imply that this form of state capitalism is not sustainable and therefore not a viable long-term alternative?

In fact, if state capitalism is merely a developmental stage on a company's path towards self-sustaining dynamism, what happens when powerful officials with a direct personal stake in their success resist the push to privatize them? State-owned companies are not known as leaders in innovation. Some of them become dinosaurs. But if they still generate revenue for powerful state officials or politically connected business leaders, they are unlikely to become extinct, even when they should. Policymakers in the era of globalization have tended to focus on facilitating greater integration while ignoring critical vulnerabilities and risks in the global system. A noted economist, Ian Goldin, at Oxford University writes, if we do not take steps to address these weaknesses, we risk a backlash of protectionism, xenophobia and nationalism. Globalization remains at the center of today's debates. Yet, despite much research and commentary, vital dimensions remain poorly understood. Recent decades of globalization have created a more interconnected, interdependent and complex world than ever witnessed before. While global policy has focused on facilitating integration, the implications of growing interdependence have been largely ignored. The acceleration in global integration has brought many benefits, but it also has created fragility through increased vulnerability and exposure to global shocks, such as today's financial crisis.

The biggest challenge for politicians and policy makers is the need to balance the enormous benefits that global openness and connectivity brings with national politics and priorities. It also is a major concern for citizens, who are torn between the benefits of imported goods and services, and their worries about local jobs, the dangers associated with illicit flows, and other implications of more open borders. These concerns are universal and affect all societies.

The benefits of global integration have been associated with unprecedented leaps in human development indicators. Technological innovation has accelerated integration both virtually, through the development of fiber optics, the internet and mobile telephone, as well as physically with vast improvements in transport and infrastructure. The spread of people, ideas, trade and the inspiring education revolution has and will continue to offer enormous potential for poverty alleviation and economic opportunity.

Yet the downside to globalization is that of increased inequality between and within countries. And the second "side effect" is that the likelihood of increasing numbers of global shocks and crises is growing, as is the people vulnerability to them. Little is understood about the risks associated with large-scale system interdependencies. Well beyond purely the financial arena, new systemic risks loom large in areas such as climate change, water and food insecurity, pandemics, resource scarcity, antibiotic resistance, bioterrorism, cyber security and supply chain vulnerability which are the few among the many. The fragility of the system as a result of these new vulnerabilities now challenges the very core of the benefits that globalization has produced and is a fundamental challenge to national governments, business leaders and global institutions. Unless the world can find an appropriate balance, there is a significant risk that the failure to manage globalization will lead to a backlash of protectionism, xenophobia and nationalism.

This crisis requires an extraordinarily deep level of reflection by global leaders and by society at large. To turn our backs on globalization would severely undermine economic growth, poverty reduction and global cooperation.

If the benefits of globalization are to continue to outweigh the risks that rapid integration exacerbates, understanding systemic interconnections and building multi-stakeholder responses are vital. Redesigning global risk governance mechanisms to take these interconnections into account and to enable cooperation is a major but necessary undertaking.

The bad news is that the tidal wave of globalization has brought unprecedented and new systemic risks. The good news is that this phase of globalization has brought the means to meet the downsides by raising levels of wealth and opportunity, and vitally increasing the collective knowledge and connectivity. The opportunities for cooperative solutions have never been greater, particularly if we are to address the major challenges of the 21st century. Yet to harness these opportunities, what is needed is an intellectual revolution, a citizens' mobilization, and a fundamental leadership and institutional shift. Politicians and policymakers are right to worry about today's significant economic woes. But if we ignore the bigger crisis emerging at the core of globalization, and jump from one crisis management to the next, we do so at our peril.