Writing in the February 2009 issue of Harvard Business Review, political scientistIan Bremmer and Global Leader of Advisory Services for PricewaterhouseCoopers Juan Pujadas argue that we are in the midst of a significant reversal—from a period of market liberalization around the world, to the re-emergence of state-controlled enterprises.

Most of us took the failure of the Soviet Union’s Marxist bureaucracies as proof that governments are no good at creating economic growth. But today, Bremmer and Pujadas worry that state-controlled enterprises are ascending, and that the (often authoritarian) governments at the helm will be tempted to take dangerous foreign policy gambles, confident that their clout in the market will limit the response of concerned countries. Here are some of the critical sectors where state capitalism is on the rise:

Asset management
Ask the average financial professional to name the top asset managers, and you’re likely to hear names like The Blackstone Group, The Carlyle Group, Bain Capital, and Kohlberg Kravis Roberts. But the truth is, sovereign wealth funds and pension funds are the biggest players on the planet. The Abu Dhabi Investment Authority alone manages more wealth than all the aforementioned private firms combined. Investment funds managed by Norway, Saudi Arabia, Singapore, Kuwait, China, Hong Kong, Russia, and Australia are also massive by comparison.

Energy
Here again, the names we’re all familiar with—Exxon Mobil, BP, ConocoPhillips, and Royal Dutch Shell—are small-time compared to their wholly or partially state-owned counterparts, such as Saudi Aramco (Saudi Arabia), NIOC (Iran), PDV (Venezuela), CNPC (China), Pemex (Mexico), and Russia’s fastgrowing Gazprom. The energy sector is where it is feared commercial interests may clash with issues of national security and foreign policy, introducing risks to the supply chain that could send ripples across the global economy.

Shipping
Shipping remains largely a private-sector industry, with European names such as A.P. Moller-Maersk (Denmark), Mediterranean Shipping (Switzerland), and CMA CGM Group (France) accounting for the bulk of the world’s shipping capacity. However, it should come as no surprise that, given the explosion in Chinese exports over the past decade, two state-owned Chinese shipping companies now rank among the largest worldwide.

Telecommunications
China is also making its mark on the telecommunications industry. As of March 2008, China Mobile, which is partly owned by the Chinese government, had a market value that represented close to 40% of the total value of the top 10 firms in the global mobile telecom sector.

Our view
Shifting public sentiment coupled with massive stimulus programs will see the trend towards state capitalism persist—at least for now. However, we believe that free markets will continue to drive growth, innovation, and improvements in the global standard of living over the long term. //