Karma: What It Is. What It Isn't. Why It Matters

Book Review: Karma: What It Is. What It Isn’t. Why It Matters – by Traleg Kyabgon (Shambhala, 2015)

This is an important book which considers the idea of karma from the pan-Indian perspective and specifically from the Buddhist perspective which has its own unique features. The late Traleg Kyabgon Rinpoche died in 2012 but was one of the knowledgeable lamas of the Kagyu school of Tibetan Buddhism. Having lived much of his life in Australia and traveled quite a bit he was also dialed in to Western perspectives and studied Western ideas and so was great at bridging East-West gaps. He was also a fluent English speaker. This was his final book. In the introduction by Orgyen Trinley Dorje, the 17^th Karmapa, he notes that:

“It is very important that we understand the intricate, multifaceted relationship between cause and effect. What we do as individuals in daily life will affect not just us but other people, the world at large, and even the universe.”

The author first mentions that the idea of karma is one among many explanations, both religious and secular, that explains both the relationship of the past to the present and human suffering. He notes that Buddhism particularly addresses the issue of human suffering in depth without over-relying on religious faith as most religious explanations do. He notes that in pre-Buddhist India karma was seen more as unchangeable predestination. Buddha taught that karma was changeable and that it involved complex relationships between causes and conditions, each affected by our thoughts, words, and deeds. Buddha’s idea of karma emphasized that we are responsible for our own suffering and we in turn can liberate ourselves from it.  While some may argue that the idea of karma is simply a superstitious remnant Traleg notes that on the contrary it is a central pillar of Buddhist thought. While religionists may perform acts with the idea of improving their karma the whole notion is much more complex than that. He suggests that rights and justice rather than ethics dominate current discussions partly due to the religious dogma that often appears around ethics. He suggests that ethics can transcend religious dogma.

“Basically, the Buddha defined karma as action, in the sense that we ourselves are responsible for our own condition in the world and that our thoughts and actions from here on determine our future. We are a product of causes and conditions – we are what we are due to past actions, simplistically stated.”

Unfortunately, he notes, such views can be used to justify those in poor conditions as deserving them, and although in a sense this can be true those conditions are not unchangeable and with the interdependence of all phenomena can be quite complex and difficult to understand. Throughout our lives we develop habit-patterns, propensities, dispositions, and tendencies that further imprint us. He emphasizes that karmic theory is not predetermination (determinism) but also involves choice. It is both deterministic and choice-based, the determinism having been forged by previous choices that have embedded the patterns and tendencies. The deterministic aspect may be difficult to overcome but the choice aspect makes overcoming it possible. We are conditioned beings and as such we can overcome previous conditioning. We can change the course of our karma. Through mindfulness practice we can peer into our conditioning and begin to change it. He laments that karma is often seen as some natural law that binds us. Hindu ideas of karma may suggest this or ideas of being judged by some external being or order of nature. It is important to note that Buddhist karmic theory is not theistic as previous Brahmanistic and Vedic karmic theory can be.

Considering the history of karmic theory in India he suggests that the idea was native to pre-Vedic India before the arrival of the Aryans and then was incorporated into the Vedas. One’s position and duty within the natural order maintained by a creator likely defined a theistic karmic belief in pre-Buddhist, pre-Hindu India. This can be considered as the Brahmanical belief system that predated later developments of karmic theory. Brahmanical karmic theory emphasized effects of karma on groups: family, tribal society, or cosmic order, over effects on the individual. Thus, notions of collective karma preceded notions of individual karma. Karma as ‘action’ often referred to performing the prescribed sacrifices of Vedic priests so such sacrifices could be called ‘performing karma.’ The priests did the rites to restore cosmic order. At this point there was no morality attached to this idea of karma, not yet concrete notions of good, bad, or neutral personal karma. He suggests that because of the deeper family and clan ties of tribal society, the notion of collective karma was much stronger in the past. Early karmic conceptions were more material and less spiritual than they would later become. Children were seen to suffer the fortunes and misfortunes of their parents and vice versa. Inability to have children, particularly sons, was seen as bad karma. These ideas, he says, predated ideas of rebirth and liberation (moksha). As rebirth entered thought it added much to karma as one’s caste, physical appearance, and tendencies could be attributed to past actions in past lives. Later ideas came of physical immortality through one’s progeny and spiritual immortality through one’s unchanging soul. Such an immortality of the soul does not indicate that it is our personality in any form that is reborn but some higher, more refined, and unchanging aspect of self-soul.

He suggests that at the time the two famous Indian epics: the Mahabharata and the Ramayana, were composed, there was not yet a codified idea of karma but several competing ideas. He explores the idea from the Mahabharata of jiva as essence, ‘divine spark’ or animating principle of man that we get from primal or cosmic man, mahapurusha. In the Ramayana death is explained in Ayurvedic terms as commencing in a disturbance of the wind energy which upsets the balance between wind, phlegm, and bile. The jiva is not affected even by death and exits the body unharmed at death. The Ramayana also suggests that at death all our karmic debts are credits are accounted and we somehow begin anew at the next life. It is different in Buddhism as karmic imbalances from all lives are always still in play.

The Brahmanical Dharmashastras discuss karma as related to one’s caste. The Laws of Manu is such a text. Here are also accounted what acts are virtuous and what are unvirtuous, causing good and bad karma respectively. These are pretty standard designations like killing/injuring, lying, stealing, coveting, idle talk, adultery, etc. and have made their way into the Buddhist tradition (among many others) as well. Also discussed are the three gunas: sattva, rajas, and tamas – revelation/light/lightness, activity/passion/movement, and inertia/darkness/concealment. In guna theory all three of these principles or modes of material nature are in living and non-living matter in different proportions with more sattva and less tamas in more awakened beings. He suggests that sattva is god-like, rajas human-like, and tamas animal-like. The Dharmashastra thus contains information about levels of incarnations of different beings, which forms are preferable and which actions are encouraged or abhorrent. The Mahabharata says that karma is processed within a limited time period and in very specific ways. This is at variance with the Buddhist idea of karma:

“Buddhism, by contrast, strongly stresses the fact that we carry mixed karma and that we process our karma gradually and incrementally.”

After the death/paranirvana of the Buddha his teachings were collected in the form of the ‘three baskets:’ the Sutras (Buddha’s discourses), the Vinaya (monastic rules), and the Abhidharma (metaphysics, philosophy, logic, and sciences like medicine). Many scholars believe the Abhidharma was added later. The Sutras were preserved in the earlier Pali language. A new idea of the Buddha was that of the five skandhas, or aggregates: form, feeling, perceptions, dispositions (aka. volition, impulses), and consciousness as composite aspects that we commonly see as aspects that are our ‘selves,’ or rather that we commonly mistake for ‘self.’ He rejected ideas of jiva or atman as an innate divine self. He arrived at the aggregates through meditative observation, through searching for the essence of self while in states of meditative absorption. By thus paying attention to these aspects that seem to be synonymous with self he developed his technique of insight meditation (vipassana). He also noticed that all these aspects, these skandhas, were affecting the others and so they were always changing. Thus, there was no fixed aspects to the skandhas, to any of these components that seem to make up the self and further there could be no fixed self or abiding soul. He called his observation anatman, or ‘no self.’ While he did allow for an operational self, based on the changing skandhas, he rejected the idea of a permanent unchanging fixed self as the Brahmins asserted. The Brahmins analogized the atman as the seed with body and mind being the husk. What creates karma, according to the Buddha, is not some fixed soul or self, but an impermanent and constantly changing set of aggregates (skandhas). He rejected the notions from the Dharmashastra that people born into high-caste or low-caste deserved such fates due to their birth alone. He thought that we become noble through deed rather than through birth into nobility even if such birth was caused by previous good deeds. He allowed for transcendence of initial karmic situation such as birth into low-caste, through good deeds. He spoke in sutras of becoming a ‘true Brahmin’ or noble being by deeds rather than just by birth-right. Buddha was emphatic that good deeds were never truly lost and always led in some way to good results and the same with bad deeds. He often used the analogy of seeds as sprouting under the right conditions of soil, moisture, and sun. However, he also noted that sometimes a seed would not sprout even under ideal conditions so that there is also an aspect of unpredictability. The seed might remain dormant and sprout later. It might sprout a sickly seedling and soon die. The idea is that cause and effect can be quite complicated and unpredictable.

“… two of the Buddha’s principal assertions on karma are that we are personally responsible for our actions in life and that the consequences of these actions are not fixed.”

He also noted that one’s character or karmic disposition inherited from past actions, also affects how results manifest. Acts of selflessness build one’s character. Buddha emphasized personal karma over collective karma, suggests Traleg Rinpoche. Buddha also noted that not all of our experience is due to karma. How we deal with our experiences is what is most important and that is a reflection of our character, our karmic disposition. Thus, true nobility is based on character.

Having a less fixed self also means we can change for better or worse. Buddha was pragmatic in this regard. He rejected the ‘eternalist’ notion of his place and time that the self was fixed and unchanging. Rather than an eternal self, changing costumes with each life, he suggested that the wearer and the costume are the same – the agent and the action are the same. The agent is a product of previous actions. Since we are (or seem to be) a composite of feelings, thoughts, emotions, memories, perceptions, dispositions, and cognitive capacities – all of these have influence on agency – then the whole karmic process is quite complex. Indeed, although Traleg Rinpoche does not mention it in this book, Buddha said in one sutra that the exact mechanisms in determining karmic results are so complex that it is not even worthwhile for an unenlightened being to even ponder them. Thus, the mechanisms of karma are also said to be imponderable. Agent and actions are inseparable but so complex as to be imponderable. However, he did say that we should look closely at our actions and our circumstances. The idea of interconnectivity based on the doctrine of interdependence or dependent arising is one way he explained how things occur. Our actions shape us. Everything is interconnected and affects everything else. Traleg notes that understanding the general framework of karma can allow us to reduce our suffering. Another point/observation is that since we are constantly changing we are never really the same person as our previous or younger self and never reborn as the same person and due to conditions we are much different in subsequent births. He distinguishes between the terms ‘reincarnation’ and ‘rebirth’ with this argument: reincarnation indicates the same person being reborn while rebirth indicates that there is continuity but the new person is much different due to time and to new conditions. The continuity is more in terms of mental dispositions and tendencies that are carried from one life to another. These are also variously called karmic stains and propensities. Thus, we are the same yet different. Buddha referred to those who asserted the existence of an eternal unchanging soul as eternalists and those who refuted any idea of life after death or continuity as nihilists. He proposed a ‘middle way’ between these extremes.

Buddha taught that we are the heirs to our karma and that how karma ripens is variable. It may ripen in individual or collective ways. Some groups have mutual karmic influences and histories. Karma is a complex web or network of actions and reactions. It is sometimes said that we as humans experience reality in more or less the same way due to the similarity of our karmic propensities. Buddha emphasized that we can change our karma and our karmic dispositions. He taught that free will and determinism are not mutually exclusive. Perhaps some neuroscientists and philosophers are also coming to realize this as they continually debate either/or determinism vs. free will questions. While certain things about us are predetermined we also make choices. He says that Buddha distinguished between ‘old karma’ and ‘new karma’ with old karma being that predetermined from our past actions and new karma deriving from the choices we make today. While one may say it’s all free will since the determinism derives from previous choices those choices are quite removed from current situations and in the context of vast amounts of time and changed conditions can be depicted as predetermined. Buddha also allowed for other factors than karma. Adventitiousness, or luck, could apply to some situations, or at least be involved in how karma ripens or is exhausted. Our karma is mixed. Good people do bad things and bad people do good things. If we have no fixed self-identity then the concept of character is more important as a sort of proxy to a self. If two people perform the same action the karmic effects are often different and the main reason for that difference is difference in the character of the two people. Apparently, Buddha noted that the main fruition of karma generally occurs in one’s next life.

An important key to the Buddhist concept of karma is intention. The intention is more important than the act itself. This is a little different than the Jain idea of karma which posits that the intention has nothing to do with consequences, which is why their practice of non-harming, or ahimsa, is done with such extreme measures. If we regret a good deed or rationalize a bad deed, we are in effect negating intention and changing the karmic effect. The Buddha taught that virtue was the result of ethics, meditation, and wisdom. Generosity and patience are also important factors. Gradual, continuous, and determined action to break our bad habits is what erases the effects of bad karma. Through such methods we strengthen our noble character. Simply working authentically on our actions can change our karma and karmic propensities but the change is often slow. The ultimate aim of Buddhism, he says, is to exhaust or transcend karma. He also says while we can demystify karma to some extent by studying it, it remains mysterious by virtue of its complexity and its infinite subtlety.

The two main schools of Mahayana are the Madhyamaka, or “Middle Way” school and the Yogacara, sometimes called the Cittamatra, or “Mind Only” school. The Madhyamaka focuses on emptiness. The focus here is the Yogacara school since they had great influence on Buddhist karmic theory. The Yogacarins asserted that our concepts of reality are mental constructs based on our own experience. They were influenced by non-Buddhist Indian schools of thought. They sought to address continuity and since the other Indian schools posited a soul-self they sought to address how there is continuity without such a proposition. The Yogacarins proposed the notion of a “storehouse consciousness,” or alayavijnana, as part of the eight consciousnesses theory. The storehouse consciousness is considered to be latent within so that we can only access it when we are awake or alive, when we are conscious. Here is where our karmic traces or latencies reside, said the Yogacarins. In the contexts of the various yogas these ideas also inform notions of karmic prana that affect dreams and other states of consciousness. It is the storehouse consciousness that enables transmigration from life to life. However, it was not considered a self-identity. They posited the ‘egoic-mind’ (or the klesha consciousness) as the mistaken belief that the storehouse consciousness is self. The eight consciousnesses are the five sense consiousnesses, the thinking mind that processes them, the egoic or klesha consciousness which is deluded, and the storehouse consciousness. How information comes through the first seven consciousness affects how imprints are received by the storehouse consciousness. Even though it retains karmic impressions the storehouse consciousness is not considered a permanent entity. The impressions are stored as ‘psychic energy deposits’ called vasanas. These are the basis of habits according to Yogacarin theory. In some ways the storehouse consciousness is like an unconscious. Most of the time the karmic traces remain dormant but ripen into conscious life when conditions are ideal. The Yogacarins also elucidated the idea of Buddha Nature and the notion that the eight deluded consciousnesses can mimic and transform into wisdom consciousness. These ideas are the basis of Buddhist Tantra. At enlightenment the eight consciousnesses are transformed into the five wisdoms, the five awarenesses (panchajnanas) represented by the five Buddha families.

The bardo teachings mainly about the intermediate state between life and death are distinctly Tibetan, being based on a terma, or discovered treasure text, mainly the one often called the Tibetan Book of the Dead, although The Book of Liberation Through Hearing in the Bardo is a more accurate title. However, it is based on Yogacarin and Madhyamaka ideas. Usually four bardos are recounted: the bardo of life, the bardo of dying, the bardo at the time of death, and the bardo of reality (dharmata). Deity yoga practice is related to the bardo experience which is considered a karmic vision and an impure vision. The practice is transform the impure vision to a pure vision. If we practice the visualization of deities in generation stage and completion stage deity yoga practices we might recognize bardo visions as similar and through our habit then transform the visions. Both the deities and the bardo visions can represent aspects of ourselves. The goal is to recognize “clear light mind.” The bardo body is said to be a kind of subtle body but the being is not considered disembodied. The goal is to travel consciously in the bardo.

Karma is considered to be part of relative reality and is transcended so does not exist in absolute reality. Relative and absolute truth or reality are called the two truths. The Madyhamaka school began by Nagarjuna in the 2^nd century C.E. expounds the idea of the two truths but I think there is evidence that this classification of truths were expounded also in the Vedas. Nagarjuna employed what is called the “Prasangika razor” which refers to cutting away every philosophical position and his successors like Chandrakirti went further by employing a system of ‘reductio ad absurdum’ without taking a final position so that reality came to be defined only by what it is not. All things arise dependent on other things so they have no real inherent existence without reference to those other things. Nagarjuna cautioned that we should not take the negative assertions as a form of nihilism and deny the practical existence of karma (even though he and his fellow Shunyavadins often argued that karma is illusory and there is no action and no (self-existing) agent). His teachings emphasized avoiding fixation and avoiding replacing it with nihilism. Nagarjuna’s logic is less useful than the practice of contemplation but can compliment it. Intellect and logic may support insight, once found, but does not lead directly to it. In contrast, developing loving-kindness and compassion is said to assist the development of insight, and so would be a more useful practice to pursue in that regard. Nagarjuna taught that cause and effect were mutually dependent, that the cause was not more important than the result and that this is due to dependent arising. Thus, it could be said that karma is not ultimately true yet it manifests. From the perspective of reality or ultimate truth karma does not exist but from the perspective of appearance or relative truth it does. Traleg notes that we need to balance these two truths in our experiences. Two of the Buddha’s bodies, the rupakaya, or form body and the dharmakaya, or truth body, represent relative and ultimate truth respectively. The two accumulations: merit and wisdom, lead to these two bodies, respectively.

Traleg Rinpoche makes the point that karma is a philosophy of life and its meaning and rebirth addresses death. The Buddhist point is that a greater degree of consciousness and awareness leads to the (inner) discovery of meaning. The fear of death makes us insecure and to seek out meaning. Religion may allay the fear of death but it can also exacerbate it. The Buddhist view is that we should accept death as an inevitable result of causes and conditions and attempt to come to terms with it. It is simply another aspect of impermanence. Fear of death is all-pervasive among humans and we all experience the death of others although we moderns tend to be removed from it compared to the past. We tend to fear pain and suffering but also extinction or non-existence and separation from our loved ones. Extinction is loss of self. From a karmic perspective death is predetermined in one sense but also the result of recent choices. There is uncertainty about how and when one will die. There is also uncertainty about how one will react to one’s impending death. It may be gentle or harsh. In one sense meditation and spiritual practice in general is preparation for death. Since it is said that at death our mind will be separated from our body then these practices can also be seen as preparation in existing without a body – since the practices often involve disengagement from sensory awareness. In Buddhism there are the three practices: hearing (or reading), reflecting, and meditating. This is a potentially useful way to approach the subject of death and impermanence.

Buddha noted that the nihilists considered death of the body to also be death of consciousness and eternalists considered complete separation of body and an immortal conscious soul so that the soul lives on after death. Traleg compares these two views to the humanist extinctionists and those who follow religious views. Buddhism holds a middle view: the continually changing body and mind (or soul) involve “a collection of psychic materials” that survives death but that collection is always in flux. The individual that is reborn is different than the one that died. There is a continuity but not continuity of identity.

“All physical and mental phenomena are compounded or conditioned, and whatever is conditioned is caused, and whatever is caused is impermanent and subject to change.”

Advaita Vedantists claim that the observer or “witness consciousness” endures after death but the Madhyamakas reject that notion as a mere mental construction based on atman as eternal soul-self. There is a concept of an observer consciousness in Buddhism, just not an eternal and unchanging one. Taken apart through meditative analysis the observer is found to be illusory, a bundle of the five skandhas. Perhaps it is that a bundle of parts intuitively suggests a whole but the whole cannot be found. Consciousness itself is the observer. Observation and construction of a self, he says, is a process rather than a “thing.” The skandhas are more processes than things – thus, this bundle of processes always in flux creates the illusion of self/observer. The impermanence of these processes is precisely what allows us to “become” enlightened.

Karmic theory may become a foundation and inspiration for ethical behavior. So too can religious dogma, philosophy, psychology, science, or other theories. Morality involves choices. The theistic view is that choices are controlled by belief in the religious dogma or even that the mere belief is all that is required to be ethical. Secularists appeal more to ideals of human rights and justice. While we can make our society’s rules, mores, and laws based on such ideals, those ideals can be different for different people and groups. The ideals are not universal enough to pervade all societies. The basis of karmic theory is that moral ideals and values need to come from within to be effective. Karmic theory suggests that it is in our self-interest to behave ethically. In Buddhism it is ignorance rather than sin that leads to unethical actions. We also notice that certain actions lead to certain effects. This is due to interconnectedness and is why we give meaning to things. Thus, cause and effect observation led to the development of karmic theory. He notes that karma is often created by seeing others in an objective manner, subjectively. We see them as separate through the lens of an illusory concept of self. Karma is most often created in our interpersonal relationships so that these ideas of self and other can be key to how it happens. When we judge things by noting them as likes and dislikes we begin to symbolize them in this way which tends toward creating karma. Here we can see that psychology and morality are linked. We assign meaning to things, ideas, events, and experiences. How we do this becomes our own “way” of personal habitual psychology. These assignments lead to emotions. We become mired in habits and create karma.

He notes that the idea of a ‘law of karma’ is mostly a Western notion. He thinks this derives from Thomism, the thought of Christian philosopher Thomas Aquinas based on Ancient Greek philosophy, that seeks to find laws of morality and justice. Such ideas of universal laws lend themselves to dogmatism, moral obsessions, and even puritanism, he notes. However, I have noted that even Tibetan monks are not immune to moral obsessions, even though moral obsessions are mostly the result of following dogmas very strictly. He also notes that it is the effect of an action that determines whether it is good or bad, rather than the action itself. Whether an action is right or wrong is defined more flexibly as whether it is beneficial or detrimental in its net effect. Of course, our self-interest may be short-sighted and based on immediate self-gratification or we may take a longer view and delay gratification for a more genuine benefit. Cultivating equanimity is helpful in this regard as it can lead us to control our impetus toward immediate gratification. The emphasis on mental cultivation in Buddhist practice also leads to what is called good karma which is still karma but can lead to liberation, including liberation from karma itself. He suggests that negative thought, word, and deed is more habit-forming than positive thought, word, and deed. The negative is contractive while the positive is expansive.

“We need to use karma to free ourselves from karma, …”

It is also said that karmic imprints may be stored in the body and this is the basis for some tantric practices. One might see this as how various emotions affect our bodily processes. Another reason for cultivating these body purification practices in Tantra is to reduce the distractions from the body and these karmic effects it displays. We create karma through the three gates of body, speech, and mind. When we develop insight we can be able to practice ‘skillful means’ and this is a result of habit reorientation.

Traleg presents karmic theory as part metaphysical and part empirical. Dissociation from the body in phenomena like near-death experiences suggest that mind-body separation is possible and the materialistic view is incomplete. Cases of spontaneous recall of past lives also suggest we have an incomplete picture. In some cases the veracity of claims can and should be tested scientifically, he suggests. While some may see ideas like karma and rebirth as scientifically impossible there is enough uncertainty to hold off on purely materialistic approaches. While most religions seem to like joining their metaphysical dogmas to science in various dubious ways he suggests that Buddhism is unique in that some of its ideas can be tested empirically and have yet to be satisfactorily disproven. He reiterates that in Buddhist karmic theory it is not really “you” that returns in the next life but simply a continually changing psychic collection of propensities. Only faint traces of the previous entity remain. Rebirth theory suggests that consciousness attaches to a new body and the features of that body will dictate how bright the light of consciousness shines. Back to the notion of the three gunas, the more refined or sattvic the being the lighter and brighter will be its consciousness. It seems reasonable to conclude that humans have a more refined or higher level of consciousness than animals. “It animates whatever is there.” Consciousness is often compared to a stream or to electricity, both of which depend on what is conducting it. Buddhist rebirth theory suggests we can be born in any of the six realms of gods, demi-gods, humans, animals, hungry ghosts, or hell-beings. Each “realm” involves a shared karmic vision by beings in that realm. It is said that humans are ruled mainly by the mental poison of desire and thus our realm is considered to be part of the desire realm.

The author notes that we can work with our karma in several ways including training and through recognizing what are our latent influences. Karmic propensities propel us and until we can propel our own rebirthing through the enlightened powers of compassion and wisdom we will continue to go where the winds of karma blow us.

The priority in working with karma is to reduce the production of negative karma. Positivity is expansive and negativity is confining, he says, and negative actions are more predictable and more habit-forming.

He notes that a sense of enrichment, not just material enrichment but the enrichment that comes from positive action and disciplined conduct, is also depicted in the ornaments of the Vajrayana yidams and bodhisattvas. Feeling enriched we are less needy. Reminds me a bit of Maslow’s hierarchy of needs – when basic needs are met and poverty is eliminated we can work on higher order needs. When we feel enriched we tend to grasp less. We are less desperate. Buddha avoided giving any kind of mechanical interpretation to karmic theory and emphasized its complexity. How it manifests is difficult to discern in detail. Buddha advocated using will to create favorable conditions by acting virtuously and avoiding non-virtue. Cultivation through practice is a means to add to our merit rather than spend it away on negative habits. Often it is hard to know whether the implications of our actions are good or bad, there is a huge gray area with mixed karma.

The goal of Buddhist practice is liberation from cyclic existence and its fetters. The methods are ethical conduct, meditation, and the cultivation of wisdom. Wisdom in this sense is not intellectual but the wisdom gathered through direct experience and mental and physical cultivation. Freedom from fixation is another way to state the goal. Even if one does not believe in Buddhist karmic theory the teachers still suggest we act is if it were true. Traleg suggests a kind of secular belief in the efficacy of karmic theory – that we need not lump it too much with religious dogma. Simple meditation, contemplation, mindful behavior, and inner examination and observation are ways we work with our karma. We observe to try and discover what are our karmic propensities to some degree. We explore and work with our habits.

Again, this is an important book on a subject that is often misunderstood, considering that karma is defined and elaborated differently by different spiritual traditions. This work explores and explains some of those differences and also includes modern ideas and approaches.

The End of the Free Market: Who Wins the War Between States and Corporations?

Book Review: The End of the Free Market: Who Wins the War Between States and Corporations? – by Ian Bremmer (Portfolio/Penguin 2010)

This is an interesting book much about state capitalism – capitalism assisted and otherwise propped up by states through nationalized industries, sovereign wealth funds, and other mechanisms. The strong influence of these state capitalisms on the global free market show that the concept of a global free market is illusory or at best only partial. The Global Recession of 2008 precipitated by actions in free market countries was widely seen among communistic champions and other state-empowered countries as a failure of the free market and proof of its inherent weakness. The response to the global crash was invariably state intervention by countries throughout the world including and especially free market countries. Shortly thereafter Bremmer was in a meeting led by a Chinese businessman to determine what should be the role of the state in economies. He answered that they should stabilize the economies and then fall back. He argued that the role of the state was simply to stabilize through temporary stimulation. That is what happened in many countries in multiple pulses then they backed off and let the economy catch back up. It seems to have worked out fine although anti-capitalists may still see it as proof of fundamental flaws in capitalism.

Bremmer first notes that the G7 nations are now less relevant than the G20 which include free market skeptics like Russia, China, Saudi Arabia, and to a lesser extent India. When the Soviet Union collapsed and opened up to free markets one result was massive corruption where certain people got wealthy at the expense of others. The transition from a command economy to a free market proved difficult and chaotic and was only partially made. Putin and his faction entered to restore order to the chaos and a return to some level of authoritarianism and state control.

“Authoritarian governments everywhere have learned to compete internationally by embracing market-driven capitalism.”

Of course, they do it with a huge caveat that preserves state power. This is what has come to be known as state capitalism. He notes that the apparent success of state capitalisms like Russia, China, and the Arab Gulf state monarchies have attracted imitators in the developing world.

Communism is pretty much dead, he proclaims, although many hybrid and authoritarian governments remain. His evidence? Post-2008 global crash there was no resurgence of communism anywhere as one might expect from a breakdown of free market functioning. All countries now embrace free market capitalism to some degree. Even the so-called ‘socialist revolutions’ of Venezuela and Ecuador have been partial, mainly through nationalization of industries. Francis Fukuyama in his book The End of History, predicted that consensus would bring all world governments into the Western liberal democracy model but 2008 analysis declared only 18% of countries as full democracies, 30% as flawed democracies, and 52% as either hybrid democracies or authoritarian states. Another analysis rated 63% of countries as electoral democracies but only 47% as “free countries.” The prediction that globalization, of transportation, communications, and business, would homogenize the world and effectively dilute hybrid, authoritarian states, and dictatorships has not rung true. These states, manipulative of free markets and often with poor free speech and human rights records have adapted and persisted. Globalization has resulted in less decision-making power by individual countries and more by organizations: International Monetary Fund, International Criminal Court, UN, World Bank, or regional orgs like EU, etc. The EU, though the most successful multinational organization, still retains significant power for each nation-state. Nation-states remain the unified unit that is most functional, providing order and assuring rights. They are the basis for national pride and are the recognition sought by those ethnic groups who fall under larger powers such as the Kurds.

Well-funded multinational corporations also wield considerable power. These companies can site in different countries to lower their tax burdens and increase profit margins. Some multinationals have economies bigger than countries: a 2000 study concluded that 51 of the world’s biggest economies were corporations. Since around 1990 a growing percentage of multinational corporations, of investment, has come from developing countries, many from Southeast Asia. These ‘emerging markets’ have been steadily gaining investment market share. The privatization of previous very inefficient state monopolies in Europe and among developed countries has made them more profitable and their products cheaper for consumers, especially in combination with freer trade policies. These policies led to more free flow of goods. These liberal economic policies ruled the day from the 1990’s until the late 2000’s when the power of state capitalisms waned due to the financial crisis. State-owned companies have emerged as significant players in the global economy with some among the world’s largest companies. Government bail-outs of large companies considered “too big to fail” is also a form of state capitalism, but one of temporary stimulus rather than being propped up and controlled by governments. Thus, he argues, market power has been transferred from financial centers to political centers. He notes that:

“State capitalism is not the reemergence of socialist central planning in a twenty-first-century package. It is a form of bureaucratically engineered capitalism particular to each government that practices it.”

It is a recipe for a distorted global economy, he thinks. He asks whether it will undermine economic growth and globalization, both of which have lifted hundreds of millions out of poverty.

He offers a chapter of a brief history of capitalism. The functional definition here is that capitalism is simply “the use of wealth to create more wealth.” Private ownership and trading of land, labor, and capital is inherent in most capitalist systems until the advent of state capitalisms. Advocates of pure capitalism, or laissez-faire capitalism, want the state to stay out of business and let Adam Smith’s “invisible hand” work its magic. However, even in the U.S. the state is expected to be referee and some services are expected to be provided by the state: national defense, criminal justice, disaster relief, health insurance for the vulnerable, to name a few. This makes even the countries most invested in free market advocation economies of “mixed” capitalism. This is the dominant post-WWII economy.

Free markets lead to prosperity which leads to middles classes which demand better government which implies better transparency and accountability of government, which in turn makes free markets function better. However, state capitalisms differ in that they see a much larger government role and more government control. While the term “state capitalism” has meant several different things through the years its definition is fairly clear these days.

Continuing with the history he considers mercantilism which he defines as: “economic nationalism for the purpose of building a wealthy and powerful state.” The establishment of trade monopolies by early colonialists is mercantilism and this led to conflicts. The British and Dutch East India companies became powerful merchants/mercantilists, backed by governments and monarchies. These were arguably the first “national champions,” or nationalized companies. The mercantilists and their governments were arguably the first state capitalists. Increased ease of oceanic transport and subsequent increased ease of smuggling as well as more political influence by a wider number of citizens and groups precipitated the downfall of mercantilism. Adam Smith complained that a system that cheated consumers by limiting their choices could not be relied upon. Mercantilism also manifested protectionism. Britain was the first to drop it in favor of free markets. The U.S. did not follow fully until the late 19^th and early 20^th centuries. Since then the U.S. has been firmly on the laissez-faire end of capitalism. Of course, the Great Depression of 1929 and the Great Recession of 2008 saw significant state intervention in the U.S.

Few doubt that free trade fuels prosperity. “Mercantilism is dead, but its influence continues.” Protectionism has become subtler. He mentions agricultural subsidies and tariffs in Europe. In other cases, state capitalists often choose consolidation of state power over full free trade, competition, and unfortunately human rights.

The division between the free market and state capitalism is not always clear. Government regulation of and participation in economic activity varies among countries. Bremmer gives a graphic of the market spectrum from utopian communism to command economies to state capitalism on one end to free market capitalism to utopian libertarianism at the other end.

The 2008 recession originated in the U.S. as a result of poor credit regulation, poor regulation of speculative leveraging of borrowed capital, and nonregulation of the so-called shadow banking system – mainly hedge funds and private equity firms. Thus the U.S. was very far to the right on the spectrum of poorly regulated capitalism, he argues. The resulting bubble is largely seen as a huge failure of government oversight. Before the 2008 recession many governments were steadily moving toward the right of the spectrum but after the recession there has been considerable retreat back toward the left of the spectrum, he argues. The early part of this was meant to correct immediate problems.

The Scandinavian countries – Sweden, Norway, Finland, Denmark, and Iceland, have managed to develop high living standards and small gaps between rich and poor. They did it through social welfare, high taxes, and income redistribution. They have some state-owned companies but most are privatized. They have globally successful private companies. He mentions France having much of its industry damaged in WWII, having moved left on the spectrum (apparently partly due to a nationalistic desire to be opposite Anglo-Saxon trends), and added state ownership of several industries.

State capitalism: 1) long-term policy to prioritize political power 2) markets seen to serve national interests. It’s not ideological. It’s not socialism. It can enable autocracy as in Arab monarchies and some authoritarian energy-rich states.

There are three main tools of state capitalism: national oil (and gas) companies (NOCs), other state-owned enterprises (SOEs), and sovereign wealth funds (SWFs). NOCs began with one goal of hedging against rising oil prices by acquiring supply. He notes that three quarters of oil reserves are now owned by national oil companies (this may have dropped a bit since publication). These companies are some of the largest energy companies. In contrast the largest multinational companies (like Exxon, Shell, Chevron, and BP) own just 10% of global production and 3% of reserves. They do, however, have much greater technical knowledge and efficiency than the NOCs. They have been basically selling this technology to the NOCs. Some of the NOCs are only partially state-owned (like Norway’s Statoil which is 60+% state-owned). Some have suffered from inefficiencies like Mexico’s Pemex which recently was privatized. Saudi Aramco is also expected to be at least partially privatized in the near future. Iran, Venezuela, Algeria, the Arab Gulf states, Brazil, China, Russia, Malaysia, and others all have different NOC models. All are managed and propped by the state in various ways. In some countries like Venezuela they are by far the main source of the country’s revenue. Such countries are very susceptible to oil price drops. China has three NOCs active throughout the world competing for reserves and supply contracts. One advantage of NOCs is that they don’t have shareholders and can negotiate better with repressive regimes that have supply. Supply acquisition is primary and profit is secondary. Russia’s gas monopoly Gazprom has leveraged supply and used dependence geopolitically to threaten its neighbors, threatening to cut off supply for Ukraine (which has had to find other sources of gas) and charge different prices to end users often as a form of punishment for ex-Soviet bloc countries. In any case, the motives for running NOCs are most often political. Thus, this ‘resource nationalism’ which can include minerals and other resources is a key tool for state capitalisms. Russia is king in resource nationalism and has caused some grief with their multinational company partners. The inefficiencies, lower wages, and lower experience of NOCs tends to make oil prices rise although the recent gluts may indicate that this is changing.

Every country has some state-owned enterprises. These SOEs may include things like Amtrak, Center for Public Broadcasting, and the postal service in the U.S. In state capitalisms like China there are many of these SOEs, some quite large. There are electric utilities, banks, and auto companies in China that are state-owned. Angola has a national diamond company, Kazakhstan one for uranium, and Morocco one for phosphates. Brazil’s Lula da Silva pressed private mining giant Vale, formerly state-owned, to return to favor a political approach of providing jobs over profits. Such companies Bremmer calls ‘privately owned national champions.’ These companies share some political goals with the state and balance that with their need for sufficient profit. Governments may own large stakes too so they grade into SOEs. Governments can use taxes as leverage and offer contracting and bid rigging to the companies, essentially guaranteed contracts. He mentions the economic rise of post-WWII Japan, a planned model of integrated companies or subsidiaries with state goals in mind. The model was efficient as businesses complimented each other. South Korea followed a similar path. These national champions also buy and invest in projects in developed countries.

Sovereign wealth funds are “state-managed pools of excess cash that can be invested strategically.” SWFs are also used by countries that are not state capitalisms. There are three main sources of income for SWFs: resource export income from state-owned companies, excess cash from a positive trade balance including profits and taxes, and transfers from a federal budget or foreign-exchange reserves. Like stock funds they are designed to maximize returns. SWFs have been around since the 1950’s with Kuwait’s 1953 Investment Authority created by British administrators. Brazil, India, Angola, Bolivia, and Thailand are the latest to join this type of funding. There are now (2010) 50 SWFs with half created since 2000. These funds took a big hit during the global recession. The funds can help countries survive commodity price drops and they can hedge against inflation. They can also hedge against having to seek help from entities like the IMF. Some are transparent like Norway’s fund or those of Chile or South Korea and others more secretive as in the more authoritarian states generally. Some U.S. states: Alaska, Wyoming, New Mexico, and Alabama have similar type funds. China’s funds are the most secretive but one could counter that U.S. hedge funds and private equity in the private sector can also be also quite secretive. Authoritarian state capitalists, however, have the largest SWFs, China with three of the eleven largest. Bremmer thinks that the role of SWFs will grow in the future.

Emerging markets: China, Russia, India, Brazil, South Korea, Mexico, Turkey, Thailand, Malaysia, and others have also spurred more state involvement in national economies. The 1980s and 90s saw these markets rise as they were liberalized. In countries like India sufficient government involvement in the economy was a hedge against colonial influence and exploitation by free market countries. Some countries have even been grouped together as new sources of multinational companies – like BRIC (Brazil, Russia, India, China). Brazil and India are the two that are more likely to keep free market commitments. Emerging market countries have been growing their middle classes the most, increasing demand and continuing fair to robust growth even after the recession. China’s phenomenal growth is just beginning to slow. China had less exposure to the recession than other state capitalisms.

Authoritarian governments are more suited to state capitalism simply because state power and authoritarianism are complementary. Bremmer goes through state capitalism country by country. Saudi Arabia benefits from massive revenues, enough to buy the loyalty of its citizens through state capitalist spending projects. The average person in the other Gulf state monarchies benefits even more from oil wealth due to smaller populations than Saudi Arabia. The Saudi’s have been working to diversify away from oil. The recent downturn in oil prices hurt countries over-reliant on oil, particularly Venezuela. Oil, petrochemical industry, media, banking, and construction companies are nationalized in Saudi Arabia. They have eased their protectionism of late and made some effort at privatization of late.

The United Arab Emirates consists of seven semi-autonomous emirates, each with a ruling family, with Dubai and Abu Dhabi being the most powerful. Dubai diversified successfully away from oil long ago and has become a major international business hub. Abu Dhabi has the most oil wealth. Dubai has had financial problems since the global recession and has been accused of over-embracing free markets. Abu Dhabi benefits from sovereign wealth funds. UAE companies are dominated by companies owned by the seven royal families. They have free market zones in the country but also practice protectionism and human rights and censorship issues have been raised.

He goes through Egypt and its history of state involvement. This is pre-Arab Spring so Mubarek was still around and his son who was his likely successor was selling off state assets and welcoming foreign investment in the country. After the global financial crisis they reaffirmed commitment to free market policies. There are still many state-owned companies.

In Algeria the state has a firm grip on economic policy. They use Soviet-style five-year plans. They have been proud of their stance against globalization and predatory foreign investment. They are socialistic and statist. Algeria has more than a thousand state-owned companies but only one private sector national champion. Foreign investment in the country is very small due to excessive state controls.

Ukraine has been struggling away from communism and more recently from Russian influence. The Orange Revolution in 2005 was followed by further revolution a few years ago to court more Western influence and shun excessive Russian influence which has resulted in the conflict there with many in the Russian-speaking east of the country favoring Russian influence. Agricultural land is state-owned. There is also considerable corruption as the country continues to shed its communistic past.   

Russia is state capitalist but also has massive corruption, propaganda, and influence of politicians and key businesspeople. While Putin has embraced capitalism as the means to help Russia, it is Russian style crony capitalism. Russia has used its energy leverage considerably to influence other countries. State-controlled companies like Gazprom (natural gas) and Rosneft (oil) totally dominate energy. Russia finds it more useful to control powerful politicians and businesspeople which discourages dissent and pluralism in politics. While they do allow significant foreign investment in some sectors they are quite dependent on their oil and gas wealth and thus vulnerable to the global prices of those commodities. Oligarchs have been essentially forced to spend money on losing ventures in order to increase employment and stop layoffs. If they didn’t the state would intervene, sometimes Putin himself. They have manipulated markets in other “persuasive” ways too. Basically, when there are problems with maintaining profit at the expense of workers and low prices the government will step in and order the companies to keep workers and prices low, giving them money to do so if needed. Thus, Russian-style state capitalism has been more aggressive. They tried to exhibit strong state control but also to make it look like that is not the case. President Medvedev, however, has signaled that strong state-control is a simply a phase in Russian economics that will eventually fade.

India is not an authoritarian government but a strong democracy. However, they do exhibit some considerable state capitalist tendencies and had much state control in their early decades after independence. State monopolies were broken up and free markets embraced in the early 1990’s. That continues but there is still some state control. They still have an influential communist party in their politics. Private companies are now generating significant wealth in India. State and local-government-owned companies were responsible for 13% GDP in 2007, down from 17.4% in 1994. Foreign trade only accounts for 25% of GDP, the lowest of any of the world’s largest economies, so their embrace of free markets and globalization has room to grow and it is growing.

In Africa there are some state capitalists but most are pretty open to foreign investment, especially South Africa. South Africa’s state policies have been informed by a need to equalize opportunity for post-apartheid blacks. Nigeria’s policies have sought to maintain a delicate balance between Muslim majority in the north and Christian majority in the south. Nigeria is oil-rich and has a state-owned oil company. Corruption and neglected needs of the poor in the Niger Delta region have hampered the country.

Elements of state capitalism occur in several countries in Latin America: Venezuela, Ecuador, Bolivia, and to a lesser extent Argentina. Market-friendly Mexico has had their highly inefficient state-owned oil company Pemex privatized recently and is currently welcoming significant foreign investment in its oil and gas sector, both onshore and offshore. They have been importing large amounts of natural gas from the U.S. via new pipelines as their own production drops and their manufacturing economy booms. They have benefitted from free trade via NAFTA but they also have significant import/export relationships with other countries and that is being stepped up in retaliation for Trump’s protectionist policies which seeks to make the U.S-Mexico relationship more favorable to the U.S.

Brazil is a large emerging market. Foreign trade increased from 10% to 25% of the economy from 2000 to 2010 and is likely continuing to grow. Lula de Silva tried to make some reforms increasing state-control in order to help the poor as in Venezuela and Bolivia but did not do much along those lines. They still have state-owned oil company Petrobras, some of whose officials were recently implicated in serious corruption schemes. They have other state-owned companies but are likely to remain devoted to free markets.

In Southeast Asia there is Indonesia which endured 31 years of authoritarian rule by Suharto until 1998 with state-owned firms that still stifle competition by opposing free market reforms. The 1997 Asian financial crisis reinforced protectionism in Southeast Asia. Free markets have been embraced by Indonesia since then with some state capitalism retained. Malaysia has long practiced state capitalism in part to empower ethnic Malays who compete against wealthy Chinese and Indian minorities. Thus, ethnic identity politics motivate their state capitalism. Petronas is the national oil & gas company with total control of hydrocarbons in the country.

In China premier Wen Jiabao gave a statement in a 2008 CNN interview that Bremmer says amounts to a definition of Chinese state capitalism: “The complete formulation of our economic policy is to give full play to the basic role of market forces in allocating resources under the macroeconomic guidance and regulation of the government.” He also talked about giving full play in markets to both the ‘invisible hand’ and the ‘visible hand.’ The Chinese opening to capitalism began with Deng Xiaoping and Zhao Ziyang. The opening happened deliberately gradual and slow. Of course, state influence as a guiding principle was always a part of the plan. China joined the World Trade Organization in 2001. Fear of anarchy (possibly actually reinforced by Tiananmen Square), he notes, may prevent China from fully embracing free markets. Of course, their success with them guarantees they won’t abandon free markets either.

China is focused on providing jobs and supplying oil, gas, and other commodities. They are busy with both importing and exporting. They embrace macroeconomic planning and strongly control the banks and have long been accused of currency manipulation, although the banks are more market-driven than before after reforms. State-backed companies have bought into energy and mining ventures across the globe paying high costs and putting upward pressure on some prices. China was then (2010) supplying 90-95% of rare earth elements to the market in operations that were environmentally questionable. They may supply less now as new supplies could weaken their monopoly. Although foreign investment in China has skyrocketed he suggests China’s statism could shrink that as state-owned companies become more efficient and learn to compete better. Cheap Chinese labor has benefited many multinationals and China needed that investment and the jobs. Certain industries, however, have been closed to foreign investment. Economic success and growing middle classes has also stoked Chinese national pride. This makes foreign investment success less certain. Bush treasury secretary Henry Paulson went to China to convince them to open up more industries to foreign investment but then the financial meltdown hit and likely convinced them that their state influence and protectionism were smart hedges against the volatility of free markets. They, like many others, blamed the meltdown on failure to properly regulate. China’s exposure to the free market during the crisis was minimal and their losses small, with exports facing the biggest loss due to lowered demand in the U.S., Europe, and Japan. There was some reversal as large state-owned companies began buying smaller private companies. China became the world’s largest exporter in 2009. Thus, they will still have to balance the efficiency and other benefits of free markets with the safety and control of state-ownership.

China and Russia built up hundreds of billions (or a few trillion in China’s case) of foreign-exchange reserves and this is economic power and safety. Bremmer thinks the biggest threat is that Western companies have become dependent on the Chinese remaining open to free markets and if they retreat too much those multinationals could lose out. However, that has not happened in the seven years since this book was published. State capitalism does distort free markets, he notes. Some stress that free markets thrive on what’s called “consumer sovereignty,” where producers compete to satisfy consumers with quality products at the lowest possible cost which benefits society. When states limit competition, these benefits decrease. Maximizing shareholder value became the rally cry of public corporations since the 1980’s when GE CEO Jack Welch began emphasizing it. Of course, problems arose when companies began over-emphasizing short-term (quarterly) shareholder value over long-term value and it became more of a game to influence stock prices in the near-term, often through deception and unnecessary risk-taking. The financial crisis in the U.S. led to the phrase; “too big to fail,” when a handful of troubled companies were “bailed out.” However, in state capitalisms such bailouts are common – in China and Russia for both private and less efficient state-owned companies. During the financial crisis even Jack Welch reversed his praise of shareholder value as the sole goal of business.

Authoritarian states have a lot to fear from their own people so they tend to be strongly protectionist when it comes to trade and economics. Imposition of quotas and tariffs encourage people to buy domestic over foreign goods but it also stifles competition, innovation, and tends to raise prices for goods. He notes that protectionism is a remnant of mercentalism. He notes that much of the economic growth since 1950 was a direct result of the easing of protectionism by governments. The WTO, created in 1995, also worked to limit protectionism and establish trade rules. As of this book there were 153 WTO member countries that represent about 95% of world trade. Russia and Algeria are not among them. WTO was designed to aid companies rather than governments. State capitalist responses to the 2008 financial meltdown occurred in free market countries all over the world, as temporary prop measures. State capitalist countries favor protectionism for three reasons: it is a common recognized policy of sate capitalists, state-owned companies are more domestically oriented and so do not benefit as much from free market reforms as do multinational companies, and state capitalist countries are often authoritarian and so rules favoring free trade are often not in vogue and they can also practice subtle and secret forms of protectionism. Washington and Wall Street were largely blamed for the global financial crisis and while it reinforced the centrality of the U.S. in global business it also showed its weakness. The slowdown in economic activity in the U.S. affected China since the U.S. was its best customer and many factories were closed down. China did, however, rebound quickly back into high growth.

He explores the threats of state capitalism beginning with the tendency to favor domestic economics at the expense of international opinion. Here he gives an example of the 2008 military coup in the West African country of Guinea which involved hundreds of deaths of pro-democracy protestors. Just a couple weeks later the new government announced a $7 billion deal with a Chinese mining company. Other risks are involved with the secrecy in which state-owned companies and sovereign wealth funds operate. The IMF has sought to make SWFs more transparent. The three biggest pure state capitalist players are China, Russia, and the Arab monarchies, all countries that have been adversaries of free market countries in cold wars, oil embargos, and gas supply manipulations, showing that they can tie their economics to purely political goals. On the other hand, sovereign wealth funds from Asia and the Middle East helped with financial market bailouts by investing, although one might conclude they were bargain hunting by buying low.

Bremmer thinks that state capitalism will eventually fade away but he is not entirely convinced. Ideologically approaches like communism have faded and so too might resources nationalism which is partly based on such ideologies. He calls state capitalism more a set of management techniques than a coherent political philosophy. As such they are isolated relative to free market countries and they don’t seamlessly interact in the world economy as free market countries do – there is mistrust and reluctance to enter into agreements. The nature of state capitalism is exclusionary, with each country having their own motives. Even state capitalist countries compete with one another. While Russia and China have cooperative agreements, they are also rivals who compete, for instance, for influence in the Central Asian countries between them. When the Eastern European countries were freed from communism as Soviet bloc countries there was massive relinquishing of state control. Relinquishing state control is the main thing that allows countries to become emerging markets.

“The Great Depression of the 1930’s did not destroy free market capitalism, even as communist and fascist alternatives captured imaginations around the world. Free market capitalism defeated fascism, shed colonialism, and outlasted communism’”

Far and away the private sector is the main driver of growth, almost the sole driver. Foreign trade and investment also offer the best means to alleviate poverty around the world. This includes access to free markets rather than just financial aid which is inadequate in comparison. There are of course downsides to growth: environmental issues, climate issues, and resource over-exploitation are some.

He suggests that the recent financial downturn has revived state capitalism and assured its continued existence in the near-term. Again, he notes the G7 free market nations is no longer representative of the global economy but the G20 group which includes several state capitalists probably is. Free markets function better in open societies which is another reason authoritarian governments turn to state control. He mentions different models of free market capitalism:

“The U.S./Anglo-Saxon model grew from mistrust of any system that gives government too much power. The European social-democratic model relies more on the state as guardian of the rights of the individual. Relatively speaking, it favors safeguards for workers over protections for employers. This can slow growth rates over time, but it provides a wider safety net when things go wrong.”

State capitalism limits free market systems and they are growing in terms of influence, particularly China since it has such a huge population with ever growing production and consumption. Bremmer laments growing state capitalist influence as it stifles the full flowering potential of a global free market. For China, state capitalism has become a way to salvage the remnants of communism by keeping a firm hold on state power while also participating in the free market. He thinks that over time China will be less dependent on exporting and diversify their investments away from the dollar. One problem China faces is creating enough jobs and since free markets mean faster and more assured growth they are likely to dip into it more as time goes on. He predicts multinational companies will lose market share (as they have) in places like China as domestic companies gain it. He favors active promotion of the virtues of free markets to counter doubts about them enhanced by the financial crisis. Companies like Exxon-Mobil have essentially sold technological support in mutually beneficial joint projects. They and others have become rather indispensable to various national oil companies and that remains the case in the near-term. He also notes that free-market companies are generally much more flexible in adapting to fluctuating markets. State capitalisms, entwined with nationalism, are bounded by the nation’s boundaries while multinational free market companies that may have branched around the world have much more flexibility buying and selling in various local markets so they can better optimize. It has been well-established that “entrepreneurs outperform political bureaucrats.” While state capitalism can stimulate short-term growth (which is why free market countries adopted economic stimulus packages after the financial meltdown) open, free, and fair markets are superior for long-term growth. He suggests those on the political left who may seem to be pro-state and con-business relative to those on the right, should point out that the vast part of the political left also favors free markets. He suggests that a flourishing private sector is a core American value across the political spectrum. He also suggests that in most free industrial/developed economies governments seem to alternate between center-left and center-right (as maybe they should say some). Europe, although favoring more government interaction than the U.S., also has strong belief in free markets, despite being depicted as socialistic by some.

Bremmer recommends keeping foreign trade and investment robust and holding protectionism at bay. Robust trade and investment will help the global economy thrive. Of course, no one wants too much foreign investment and influence in their home country so some deals could be deemed too risky for political reasons. He also recommends keeping immigration robust, although this was before mass migration from Syria and other mostly Muslim countries which also carry the real threat of ISIS-style terrorism. Otherwise, immigration has proved generally beneficial for both host and donor countries, he suggests. Many immigrants in the U.S. are Ph.D. scientists and engineers so that is huge plus to the host country.

China has been accused of currency manipulation to boost its exports and limit its imports but have pulled back some and in some ways that has allowed them to invest more in free markets so it’s not all bad news. He says that the bilateral commercial relationship between China and the U.S. is the world’s most important. China has apparently cooperated well with WTO rules and so is coming to be seen as a more reliable economic partner.

Next he mentions Joseph Nye’s concepts of ‘hard power’ and ‘soft power.’ Hard power refers to “the coercive potential of U.S. military and economic might.” Soft power refers to the power of American ideas, values, and culture to “entice and attract.”” Increasing market share and development by competitor countries erodes the U.S.’s economic hard power so we need to keep investing in it, he says.

As reflected in the book’s subtitle there is currently significant competition between free market players and state capitalist players. The biggest players and the biggest relationship is China and the U.S. He sees it as a kind of metaphorical Cold War. Observation of reactions to economic cycles, he suggests, could be key to determining who is “winning” the cold war.

Great book on economic strategy. I think the title is a bit misleading since there is no indication at all that the free market will end. Perhaps a better title would have been – Distortion of the Free Market by State Capitalist Countries.