Fair Competition in a World of Competing Capitalisms

January 22, 2011
World Economic Forum Sign at Davos

About the Author: Robert D. Hormats serves as Under Secretary of State for Economic, Energy, and Agricultural Affairs.

Next week I will be attending the Davos World Economic Forum, where I expect -- based on recent conversations I have had with business leaders and government officials in the United States and abroad -- that the role of State Owned Enterprises (SOE's) in the global economy will be an important focus of conversation.

During the decade and a half that followed the fall of the Berlin Wall and the creation of the World Trade Organization, the world economy experienced one of its fastest periods of growth. Access to new markets, innovation, and entrepreneurship characterized the strengthening of a "global" economy. During this period, multinational companies prospered, and their success inspired emulation across the globe. A near universal acceptance emerged that free markets and private capital were the key to economic growth and development. Developing and emerging economies alike undertook privatization programs as the state's role in the economy diminished.

We are now seeing a new challenge to this consensus. A new form of "State Capitalism" is emerging where the government's role in the economy is increasing and SOE's, with substantial state support, are beginning to dominate domestic markets and become serious global competitors. Government support through regulatory policies, such as procurement rules, tax policy, and concessionary financing give SOE's or national champions with these benefits an advantage over other international competitors. This trend has accelerated as we have emerged from the global financial crisis and poses challenges not only for the U.S. but more broadly for the international system.

In this changing landscape, we must ensure a level playing field for global competition. We in the State Department are contributing to this effort. At the Organization of Economic Cooperation and Development, we are working with member governments on a concept called "Competitive Neutrality." The goal of this project is to identify policy measures that would put enterprises with extensive state support and other private companies without support on an equal footing. We are hopeful that the OECD will soon adopt best practices in this area.

Access to international markets -- including to those that follow the "State Capitalist" model -- is essential to the competitiveness of American companies and those of our allies, just as access to our markets is essential to the success of foreign companies of all types. This presents an opportunity for U.S. engagement both at the bilateral and multilateral levels with key emerging and developed economies to establish a consensus on norms of behavior that are consistent with our mutual interests, and the global interest, in ensuring robust development, fair competition, a level playing field, job creation and economic growth.



New Mexico, USA
January 23, 2011

Eric in New Mexico writes:

@ Under Secretary Hormats,

If State capitalism is a government's invested monopoly on a sector of industry or finance and as such then competition is therefore is not allowed to prosper, I think there may be a model to draw upon to illuminate for others the mechanisms for an alternative to this.

Remember the break-up of "Ma Bell" the phone company?

Took government legistation to do it did it not? Then you had all these little regional "bells" and eventually as technological competition and development came into play along with new formed companies, we now have a oodles of phone, internet, and communications providers in competition all trying to offer the public a better deal on services.

And I suppose our government is raking in increased tax dollars as well from it.

If governments are going to be willing to privatize and end the role of monopolies within their economies, maybe this will give them something to chew on in that chaos does not have to ensue because of such a decision.

I don't recall service being interupted in any significant way between states, or even locally.

I don't know how this might transpose in all cases, but if you think this serves as fair example in general, please let me know.

Just curious. The more I delve into foreign affairs the more I find myself to be an economic student.

Goes with the territory I guess.



Richard S.
Tennessee, USA
January 23, 2011

Richard S. in Tennessee writes:

I enjoyed reading the blog and comments.

Thank you.

Ronald B.
New York, USA
January 24, 2011

Ronald B. in New York writes:

WEF 2011 Goal.

This time...repatriate $100 billion by WEF 2012.

Rick B.
Virginia, USA
January 25, 2011

Rick B. in Virginia writes:

The U.S. vantage point on top of the economic heap long clouded its vision as to the impacts of capitalism on the world's disadvantaged. But as our lead evaporates and the chickens have come home to roost, we see the ugly side - the social impact of unequal access to services. Witness our own health care debate on what is appropriate for the government to reserve as core service to its population vice what is optional and should be serviced by the marketplace.

So do not decry other countries for doing what they must to preserve tranquility and shared prosperity in their countries; rather protect this country's companies in the domestic market from any unfair advantage. With all of their efforts to avoid taxation, it is right that multinationals should have some greater hurdles to overcome in any national marketplace.


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