Clever Geek Handbook
8 October 2025

Fast Forward

Recommendation

While the science on global warming is clear, its politics are murky. Foreign policy experts William Antholis and Strobe Talbott contend that national affairs of state must take into account ethical global concerns over the Earth’s future. They reach back to the ancient Greeks, the Founding Fathers and the joint US-Russian efforts on nuclear arms control to portray modern climate change as a matter of overarching significance. While their principled arguments may not totally convince opposing sides, what remains, however, is valuable: a journalistic, blow-by-blow chronology of the global warming debate and its diplomatic failures to date. This detailed presentation makes the case – at times ploddingly – that a new way of thinking is necessary to reduce greenhouse gases before the planet suffers irreparable damage. The subject matter occasionally can get eye-glazingly technical, but its consequences are crucial. BooksInShort believes that policy wonks and environmental activists will lap up the book’s points, and recommends it to students of global governance and every other citizen of planet Earth.

Take-Aways

  • Man-made global warming is very close to wreaking irreparable harm on the environment.
  • Just a couple of degrees more will lead to vast humanitarian and ecological disasters.
  • The same moral and political will that world leaders brought to reining in nuclear proliferation should tackle global warming.
  • With 5% of the world’s population, the US produces “20% of the world’s annual greenhouse gas emissions” and more carbon dioxide than any other nation.
  • America should assume a global leadership role in combating climate change, yet it struggles to create meaningful domestic energy legislation.
  • George H. W. Bush was the first president to acknowledge the problem of climate change.
  • Vice President Dick Cheney reversed President George W. Bush’s pro-environment stance and banned White House staff from using the words “global warming.”
  • President Barack Obama crashed a meeting of developing nations in Copenhagen to revive deadlocked negotiations.
  • The EU has made the greatest progress in reducing emissions in the past 20 years.
  • A 2010 poll found that 48% consider the dangers from global warming “generally exaggerated.”

Summary

A Heated Argument

Over the past two centuries, civilization, unwittingly, has conducted a dangerous experiment: heating the Earth’s atmosphere. Today’s global population represents the first generation to bear the burden of this awareness – past generations did not understand the impact their actions had on the planet, and future generations will be powerless to save it. It’s up to contemporary society to take on the challenge of a global rescue.

“Climate change is a test of our scientific and entrepreneurial ingenuity.”

Global warming requires a “fast forward” response that essentially will reorient industries and economies. Climate change will challenge entrepreneurs and scientists to devise new solutions. Nations will have to work together, pushing the limits of sovereignty and national interests. The problem of global warming raises ethical questions, which can serve as the basis for political answers. Human beings must consider their responsibilities for planet Earth as important as their responsibilities for their communities and countries.

“The necessary restructuring of our industries and economy will be possible only if our leaders demonstrate determination, skill and courage in their policies for their own nations and in cooperation with one another.”

The sources of global warming are well-known: Beginning with the Industrial Revolution, factories released carbon dioxide (CO2) and related gases in large enough quantities to change the way the Earth’s atmosphere absorbs and reflects the sun’s rays. By 1910, the Earth’s temperatures were beginning to rise, albeit imperceptibly. The scientific community had recognized that changes were occurring in the environment by 1970, and, in 1988, a worldwide group of meteorologists, working with the United Nations, created the Intergovernmental Panel on Climate Change. More than 1,000 scientists with expertise about the Earth, its oceans and its atmosphere agreed that the planet’s surface temperature had increased 1.3°F [0.7°C] from its 19th century average. The resultant warming has begun melting glaciers in the Andes and Rockies, and thawing the polar ice caps. Less ice on the Earth’s surface means less cooling of temperatures and a reduced capacity to reflect heat back into the atmosphere.

“If we continue with business as usual, the globe could keep warming for millennia.”

While these temperature raises may seem trivial, they have a profound impact on the planet. Twenty thousand years ago, the Earth was 9°F [5°C] colder than today; mile-thick ice blanketed Canada and the northern US. During the next 10 millennia, “natural global warming” melted the ice, made land arable and stabilized fish supplies, supporting human life in the Neolithic period. But modern global warming is “anthropogenic,” or man-made. It is abrupt and swift. Just as the human body is sensitive to fevers, scientists have estimated that an additional future increase of only 2.3°F [1.3°C] would produce global climate disruptions, or “perturbations,” that would flood New York City, freeze Europe and destroy agricultural capacity.

“Even if the human species is biologically resilient enough to survive for centuries, the human enterprise may well be hard to maintain in anything like the current form.”

The same delicate balance exists with carbon emissions. Currently, the atmosphere contains about 385 parts per million (ppm) of CO2, an amount that is increasing by 2 ppm annually. Scientists calculate that if this rate rises and remains above 400 ppm for an extended period of time, temperatures could climb another 2.3°F, tipping the Earth into “not just an environmental and humanitarian disaster, but a geopolitical one” as well.

“In marked contrast to climate change, there was comparatively little debate about the science, facts or consequences of nuclear war.”

To avert this global catastrophe, humankind must halve its CO2 emissions by 2050. This will require changing from “a high-carbon to a low-carbon global economy,” a shift that will demand America’s participation. The US emits more CO2 than any other nation on Earth; with about 5% of the world’s population, the US produces “about 20% of the world’s annual greenhouse gas emissions.”

Nuclear Logic

The first use of nuclear weapons at the end of World War II motivated world leaders to embrace the “existential imperative” of preventing the Earth’s destruction. This “priority that trumps all others” best describes the threat global warming now poses.

“Technological advances have tended to precede and necessitate philosophical, ethical and political advances.”

The technological advances that created atomic power leaped ahead of mankind’s moral capacity to control it. While nations have warred for centuries, the advent of potential nuclear conflict and its mutually assured destruction changed the way countries resolved their differences. Thoughtful world leaders acknowledged the political and moral implications of untamed nuclear capabilities. Today, restricted nuclear proliferation, through arms control and negotiations, provides a model for how to proceed against global warming. The nations with the largest nuclear arsenals – Russia and the US – have taken responsibility for leading the way on nuclear arms control. Similarly, America now must set the pace for tackling global warming.

Failed Diplomacy

While treaties control nuclear weapons, UN attempts to forge binding international agreements on global warming have failed, due in large part to the political and economic conflicts arising among sovereign states. Despite America’s pre-eminence in the science and technology of climate change, three US presidents – George H. W. Bush, Bill Clinton and George W. Bush – failed to conclude such a treaty during their collective 20 years in the White House.

“Diplomacy had to stay in sync with domestic politics, which in turn were heavily influenced by domestic economics.”

George H. W. Bush, the first post-Cold War president, also was the first to acknowledge global warming. He signed the US Global Change Research Act, which funded climate change research, and the Clean Air Act of 1990, which gave large polluters the ability to cap-and-trade their sulfur dioxide emissions, but not their CO2 emissions. As president, Bill Clinton pushed for more environmental regulation, including gasoline tax hikes to compel Americans into more fuel-efficient vehicles.

“Where the United Nations has come up short has been in its effort to convene and guide the negotiation of an energy and climate treaty.”

Those tax increases gave the Republicans control of Congress in 1994. In 1995, the UN held a meeting to discuss greenhouse gas emission cuts, but Clinton was unwilling to commit to specifics before his 1996 re-election campaign. It would not be until the 1997 climate summit in Kyoto that more advanced negotiations could occur. However, the 1995 meeting did introduce distinctions between “developed” and “developing” nations and their relative responsibilities for capping emissions.

“The UN is too large, too inclusive and too limited in its authority to move quickly and decisively.”

While internal political wrangling in the US sidetracked the development of unified environmental legislation, members of the European Union advanced an aggressive CO2 emissions agenda. Their parliamentary, proportional system of representation allowed “green” groups to exercise political influence well beyond their numbers. This was true especially in Germany, the Netherlands and the Scandinavian nations, which leveraged their political strength under the banner of “pooled sovereignty” to advance strong climate policies. In contrast, the US Congress needed a two-thirds “supermajority” to vote on any environmental legislation.

“The situation in the United States is nearly the opposite of that in Europe: For two decades, America has disappointed the world and many of its own citizens in being slow to get its act together on climate.”

When George W. Bush took office, he appointed an Environmental Protection Agency (EPA) head and a Treasury Secretary who both pushed for strong CO2 controls and a cap-and-trade system. But less than two months into his term, Bush empowered his vice president, Dick Cheney, to reverse this policy. Cheney banned the White House staff from using the words “global warming.” Bush later said that he agreed with Cheney’s assessment that the Kyoto Protocol was “fatally flawed.” The US attitude angered the Europeans, who pledged to reduce CO2 reductions of 8% below 1990 levels, while Germany, France and the UK promised 20% cuts.

“Just as wars are too important to leave entirely to generals, creating the necessary national and international ethos is too important, and too difficult, to be left entirely to governments.”

At a 2007 UN climate conference in Bali, Indonesia, developing nations committed to cutting their own emissions in ways that were “measurable, reportable and verifiable,” while leaving specifics intentionally blurry. In 2008, 10 Democratic senators declared that any American climate change legislation would have to protect US jobs.

Serious About Energy

When Barack Obama campaigned for the presidency, he advocated a cap-and-trade program and proposals to cut greenhouse gas emissions by 83% by 2050. After he assumed office in 2009, his administration pushed for clean energy programs, for improved energy efficiency and for new ways to generate electricity. Internationally, Obama concentrated his energy efforts on the G-20 nations, particularly engaging with India and China. At the end of November 2009, India and China each revealed plans to reduce their respective “carbon intensity” – “the amount of carbon emitted per unit of economic output” – by 40% by 2020. But the two countries declared they would resist any imposed “binding targets” in carbon reduction at the December 2009 UN climate meeting in Copenhagen.

“Personal as well as communal self-sacrifice has an ancient and noble place in the annals of politics economics, ethics and civics.”

As the Copenhagen sessions began, the Obama administration was mired in the health care debate, which blocked congressional action on any climate bill. Without legislation, US negotiators could not sign a legally binding international agreement in Copenhagen. Secretary of State Hillary Clinton – who later confided to Obama that this was “the worst meeting I’ve been to since eighth-grade student council” – pledged to source about $100 billion annually to the developing nations if they would reduce emissions. But the conference was deadlocked and headed for failure until Obama crashed a gathering of the delegations from China, India, Brazil and South Africa. There, he pushed for – and achieved – consensus on issues related to the “nature and verification” of emission-reduction pledges, and a formal agreement between all nations that global warming could not exceed another 2.3°F.

“Barack Obama...has often said that his presidency coincides with what may be a now-or-never moment because the peril is growing and the opportunity to avert it is shrinking.”

Before Obama left Copenhagen, he gained concurrence from the UK, Germany and France on the agreement. However, nations that had been absent from the talks did not sanction the compromise, dubbed the “Copenhagen Accord.” Global warming still could not generate worldwide harmony. Many of the Copenhagen delegates were looking for a legally binding treaty, which could be presented and ratified by every national legislature. Back in the US, Obama now had to sell the Accord to Congress if he wanted to negotiate from strength at the upcoming Cancun climate summit, one year hence. But US Republicans already were calling the proposal a “national energy tax,” while some Democrats suggested that Obama delay any push for climate legislation due to other priorities. But the president’s impromptu meeting with other key international leaders showed that “minilateralism” – “reaching agreement among the smallest possible number of countries needed to have the largest possible impact on solving a problem” – could produce significant unilateral pledges from nations to reduce their own greenhouse gas emissions.

“The Inner Circle”

As a group, the US, the EU, China and India represent almost half the world’s population and 63% of its GDP. They also emit 60% of the world’s carbon dioxide, so the “Big Four,” working together, could wield tremendous power in lessening global warming. If the US and the EU could reduce emissions by 80%, that would keep global temperatures from entering the danger zone. The EU has made the greatest progress in reducing emissions during the past 20 years. In 2005, the EU appropriated George H. W. Bush’s idea for a cap-and-trade system to cut sulfur dioxide pollution and applied it to reducing carbon emissions. The EU also created a long-term method to effectively price carbon. In contrast, the US has not made progress on enacting effective climate control legislation. While two promising bills have been introduced in Congress, getting 60 Senate votes to enact the legislation has proved difficult for Obama.

The president must work with Congress to forge climate and energy emission laws. It’s a tough challenge: A 2010 Gallup poll found that 48% of respondents considered the dangers from global warming “generally exaggerated.” The scientific community and the president must educate Americans on this issue. To gain their trust, Obama needs to use logic, “personal integrity” and “empathy” to convince them that global warming is real, and that addressing climate change will create new jobs and preserve existing ones.

The president’s economic advisers estimate that $90 billion in stimulus funds for “clean energy” would result in 720,000 new jobs by 2012. Yet while green energy can accrue savings, meeting the climate challenge certainly incurs costs: Current proposed legislation could end up costing American households between $40 and $800 each annually. No one can propose a definitive budget because expenses will be contingent on an uncertain future “temperature curve.”

Enacting a global environmental agreement also will require extraordinary cooperation. Just as the nuclear bomb forced world leaders to act in new ways, the cataclysm of global warming should force today’s leaders to acknowledge their communal connections and mutual national responsibilities. While this issue is laden with uncertainties, the cost of doing nothing is immense – including the possibility of leaving future generations a less-hospitable Earth.

About the Authors

Strobe Talbott heads the Brookings Institution, where William Antholis is managing director and a senior fellow in Governance Studies. Talbott served as US deputy secretary of state in the Clinton administration; Antholis worked on Clinton’s National Security and National Economic Councils.

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Fast Forward

Book Fast Forward

Ethics and Politics in the Age of Global Warming

Brookings Institution Press,
 


8 October 2025

Fault Lines

Recommendation

Dismissing the 2008 recession as an inevitable free market setback might seem simple, but economist Raghuram G. Rajan doesn’t take the easy path. He makes a compelling case that the weak links in the global economy remain both visible and fixable. In a provocative analysis unhindered by ideological boundaries, Rajan argues against such government interventions as propping up the U.S. housing market. Yet he urges Americans to create a more generous safety net for unemployed workers facing a “jobless recovery.” Rajan’s more challenging suggestions, such as rebalancing the international economy or changing global monetary institutions, may not shift policy makers’ actions, but he argues persuasively that failing to do so will mean deeper fault lines in the next crisis. BooksInShort recommends his book to those who want a clear-eyed economic analysis.

Take-Aways

  • “Fault lines” mar the U.S. and world economies. These weak spots, or pitfalls, lie hidden below the surface in prosperous times, but become obvious during crises.
  • The U.S. labor market’s wage gap and its shortage of educated workers are fault lines.
  • The export imbalance that mars the economies of China, Japan and Germany also constitutes a fault line.
  • Export nations have high savings rates, but buyer nations suffer huge consumer debt.
  • U.S. workers’ jobless benefits are far stingier than those granted by European nations.
  • Lack of a strong social safety net for the unemployed is a fault line that threatens U.S. economic growth.
  • Propping up the housing market is a fault line that delays the inevitable correction.
  • Cures for U.S. fault lines include reducing government support of housing and markets, and making higher education more available.
  • Regulators should cut deposit insurance so banks don’t become too big to fail.
  • International fault line remedies include rebalancing spending, readjusting exports and reforming international governance agencies.

Summary

The Cracks Beneath the Global Economy

For all its sophistication and complexity, the world economy is filled with weak spots, or “fault lines,” that are invisible in good times but become painfully obvious during a crash, such as the recession of 2007 to 2009. One such fault line is the United State’s growing income disparity, as illustrated by top earners’ widening share of annual earned income. In 1976, the top 1% of households “accounted for only 8.9% of income.” That soared to “23.5% of the total income generated” in the U.S. by 2007. Incomes for median-wage earners, such as factory workers, have stagnated. High wages are not inherently wrong; they’re a powerful economic incentive that pushes talented, enterprising people to take on valuable pursuits. Yet income stratification creates the danger that workers will begin to think that luck or connections, not work, lead to success.

“Deep fault lines...have developed because in an integrated economy and in an integrated world, what is best for the individual actor or institution is not always best for the system.”

Other U.S. fault lines include the weak safety net for the jobless and the government’s insistence on propping up the housing market. These fault lines are more visible in a global, interconnected economy, where central bankers’ decisions in Washington affect Japanese consumers and London markets, and can make or break African economies. The global economic landscape is marred with fault lines, such as China, Japan and Germany’s reliance on exports for growth.

“The consequences of the government’s pressing an agile financial sector to act in certain ways are often unintended and...costly.”

Now, policy makers face the challenge of fixing these fault lines, even if it is politically difficult. The fault lines aren’t endemic to a global economy. They result from reversible policy decisions, though changing these rulings won’t be easy or popular. For instance, the U.S. Federal Reserve softened the blow of the housing market’s collapse based on the rationale that a softer landing would be less painful. But by slowing the pace of the correction, the U.S. is prolonging the recovery and creating inertia among homeowners, lenders and builders. The government also is signaling that profits can stay in private hands, but the public sector will share the losses. This sends a dangerous message that the Fed will ride to the rescue when investors take on too much risk.

America’s Gaps in Incomes and Education

The U.S. education system, which leaves many workers unprepared for high tech jobs, is another fault line. The benefits of a higher education are clear. In 2008, the median wage of a worker with a high school diploma was $27,963, while a worker with a bachelor’s degree made $48,097 and a worker with an advanced professional degree made $87,775. The “college premium” is obvious, yet the U.S. government hasn’t responded by making it possible for more people to earn degrees. College graduation rates have stagnated, so the wage growth of the top 10% of earners has far outpaced that of the lower 50%. The idea that hard work earns rewards is embedded in the American dream, yet many workers are unready to compete in a market that demands fast-changing technological skills.

“Cynical as it may seem, easy credit has been used as a palliative throughout history by governments that are unable to address the deeper anxieties of the middle class directly.”

Politicians have not fixed the educational system or encouraged workers to learn more, both of which would require tough choices and hard work. Instead, policy makers flood the economy with cheap credit that lets low-income earners spend more. The embrace of easy credit crosses party lines. In the 1990s, President Bill Clinton made homeownership a priority. In the next decade, President George W. Bush also extolled homeownership and pushed government-backed lending. Homeownership soared as a sudden glut of subprime loans enabled low-income people to buy houses. But when the housing bubble burst, foreclosures surged, the supply of homes far outpaced demand and financial institutions took huge losses that taxpayers absorbed. Despite this fallout, easy credit maintains its dangerous role as a “political palliative.”

The Dangers of Export-Led Growth

Another precarious fault line for the global economy intersects international trade. Exports drive growth in China, Japan and Germany. Consumers in the U.S., the United Kingdom and Spain – countries that tolerate and even encourage high consumer debt – snap up imported goods.

“Many of today’s wealthy nations are rich...because they grew steadily for a long time, not because they grew particularly fast.”

In the 1800s, when the U.S. was an emerging market, per capita income grew at 1% a year. Industries and firms expanded gradually, over long periods. A century later, emerging economies grow much faster. The economies of South Korea and Japan went on a two-decade romp as per capita income soared 8% a year, and then they slowed. Such quick growth, which China later experienced as well, skews the economies of export-focused nations. In Japan, for instance, hotels still employ “elevator ladies” whose sole function is to point guests to the next available elevator. This small inefficiency illustrates larger problems in the Japanese economy. Instead of creating prosperity at home, export-led economies rely on growth elsewhere. Japan can’t turn to domestic demand for growth. Instead, its culture of thrift and saving forces its factories to rely on foreign buyers. So while Japan is a global manufacturing leader, it lags in such domestic service industries as finance and retail. This imbalance has become clearer in recent decades. A long malaise followed Japan’s 1980s asset bubble. Export growth didn’t pick up until the U.S. stimulated Japan’s economy after the 2001 dot-com bust.

In “the export-oriented miracle economies...a superefficient manufacturing sector existed side by side with a moribund services sector.”

These export-oriented economies have transformed themselves into oddities akin to “someone who exercises only the limbs on one side of the body.” China has an even more asymmetrical economy. While its exports have skyrocketed, its consumers are misers, partly because its former government and social safety nets no longer exist. Public sector jobs with generous benefits have disappeared. Population controls mean Chinese elders cannot count on large families to support them, so consumers have a strong incentive to save rather than spend.

Contributing to the World’s Oversupply

The lack of connection between developing countries that want to join the global economy and the nations they emulate is another fault line. In the U.S., transparency and arm’s-length circumspection are the rule in investments and loans. But in developing nations, relationships reign supreme. When developed-world capital flows into a developing country that has a different business culture, painful corrections can follow. In the late 1990s, Indonesia suffered a 25% decline in GDP in a single year – just one of a number of developing countries that followed a policy of easy credit and heavy consumer spending on imports. Investments dried up during the fiscal crisis. Amid riots and political unrest, Indonesia had to ask the International Monetary Fund (IMF) for money at unfavorable terms. Similarly stung, many developing nations retooled from consumption to production, adding to “the global supply glut.”

The Skimpy Safety Net in the U.S.

The U.S.’s lack of a substantial social safety net is also a fault line. The country has long seen itself as nimbler and more efficient than Europe, home to hefty unemployment assistance and health care benefits. By offering few such cushions, the U.S. motivates workers to stay employed, even if they have to move or learn new skills. Yet, as “jobless recoveries” (a recent economic phenomenon in the U.S.) become more common, the lack of a safety net casts many U.S. workers adrift. For the four decades leading up to 1990, U.S. economic recoveries were brisk. But since the 1990-91 recession, the U.S. has seen hiring recover more slowly than other economic activity. After the 2001 recession, U.S. economic output bounced back in three months, but hiring was so sluggish that it took more than three years to recreate lost jobs. Indeed, unemployment rose for two years after the recession ended. U.S. employers use recessions as opportunities to offload unproductive workers and boost productivity through technology rather than new hiring. These jobless recoveries have laid minefields for central bankers. After the 2001 downturn, the Federal Reserve kept priming the pump to encourage job creation and, in doing so, it created the conditions that led to the housing bubble and the subsequent financial meltdown.

At IMF sessions, “The truth was that everyone contributed in some way to the problem, but no one wanted to be part of the solution.”

The U.S. safety net is strikingly smaller than Europe’s. While U.S. unemployment benefits typically end after six months, France extends such help for three years. Germany once paid indefinitely, but has set a term of 18 months. The U.S. system also pays, on average, a smaller amount, replacing half of a worker’s wages, compared to 57% in France and 63% in Germany. Laid-off American workers face a double whammy: They lose their paychecks and their health insurance, which makes their lives particularly precarious.

The nations “did not understand their own responsibility because no one...could really commit to the actions that were needed.”

This situation may encourage U.S. workers to take their skills wherever they’re needed, since they don’t have the luxury of waiting around for job offers that suit them. The relative weakness of labor unions in the U.S. as compared to Europe is one explanation for such insufficient social benefits. The heterogeneity of U.S. society is another. Taxpayers are less willing to pay taxes to benefit people who are unlike themselves, such as minorities and immigrants. While this may suggest that Americans are hard-hearted and stingy, by other indications, they are quite generous. The average American gives 12 times as much to charity as the average European.

“Indeed, these were decisions that even the head of government could not take. For instance, no U.S. president can commit to reining in the deficit: that is a decision that only Congress can take.”

The U.S.’s weak social safety net creates unique challenges for the Federal Reserve, essentially the central bank not just for the U.S., but also for the world. Since high unemployment is politically untenable in tandem with a slim safety net, the Fed kept stimulating the economy well after the 2001 recession. If the Fed had been acting deliberately as the world’s central bank, it would have begun raising interest rates in 2002. Instead, it cut rates well into 2003. This led directly to the 2008 downfall. The Fed is compounding its earlier mistake by supporting U.S. home prices with low interest rates and loans to the housing market. The Fed’s benevolence exacerbated the boom and bust. Bankers and homeowners who knew that the Fed would contain a crisis had an incentive to embrace more risk than they would have without a government backup plan.

Repairing the Fault Lines

How can policy makers fix these fault lines? Here are some ideas for the U.S.:

  • Pay bankers’ bonuses a little at a time – Wall Street’s compensation plans encouraged bankers to take big risks during the mortgage securitization boom. A banker could place a risky bet, collect his bonus at year’s end and not worry about the outcome. Instead, banks should pay bonuses a bit at a time. Putting a bonus in escrow and reclaiming it if an investment tanks would give bankers an incentive to take risk responsibly, not recklessly.
  • Reduce government support of markets – While Americans see themselves as scions of free market capitalism, government intervention plays a huge role in private markets. Government-backed lenders dominate the mortgage market, and tax policy favors home ownership. Government must not be a “soft touch” for foolish industries and institutions.
  • Rein in deposit insurance – Keep insuring deposits at small and medium banks, but phase out deposit insurance at large banks to avoid creating too-big-to-fail institutions.
  • Increase unemployment compensation – Amid jobless recoveries, paying job seekers more, for longer, makes sense. The formula for calculating benefits should consider the severity of job loss, the pace of job creation and the time span since the recession started.
  • Expand health coverage – Congress passed a bill in 2010 to make health insurance available to all Americans, but opposition remains strong, some provisions don’t take effect for years, and some states already question the plan’s wisdom and even its legality.
  • Make professional certifications more mobile – To encourage mobility, regulations should not force professionals to re-earn credentials when they move to another state.
  • Make college education a lifelong endeavor – Offer education on demand.
“Change, whether attempting to enforce global discipline with a stick or encouraging citizens to push for it from below, will not come easily for the multilateral organizations.”

Ways to address international fault lines include:

  • Rebalance spending – Countries with mounting deficits should spend less and save more; countries with “trade surpluses” should encourage spending.
  • Waste less, conserve more – For economic and environmental sustainability, the world’s population must lessen waste and practice conservation.
  • Readjust exports – Major exporting countries, such as China, should “wean themselves off dependence on global demand,” encourage domestic spending and import more. China and its cohorts should “move to a more balanced growth path.”
  • Reform international agencies – Countries must avoid dangerous, “opportunistic nationalism” and foster economic cooperation. That means changes in international structures, from the IMF to the G-20, to enable and nurture global economic cooperation.

About the Author

Raghuram G. Rajan teaches finance at the University of Chicago Booth School of Business. The former chief economist at the IMF, he won the 2003 Fischer Black Prize.

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Fault Lines

Book Fault Lines

How Hidden Fractures Still Threaten the World Economy

Princeton UP,
 


8 October 2025

The End of the Free Market

Recommendation

No truce appears on the horizon in the battle between government control and free markets, a conflict that has intensified in the aftermath of the 2008-2009 recession. Political strategist Ian Bremmer examines the differing models of “state capitalism” that have gained ground in emerging economies around the world. Using varying levels of political control, countries such as China, Russia and Saudi Arabia are adapting the capitalist scenario to their particular situations and needs, thereby presenting obstacles to a fair fight with Western businesses. While decrying the unfair advantage governments bring to successful emerging economies, Bremmer concedes that free markets alone can’t solve all society’s issues, and he advocates for “better government, not less government.” BooksInShort recommends this thorough, cogent study to global business executives looking to understand and compete in state-capitalist countries.

Take-Aways

  • The 2008 financial crisis succeeded in reviving “state capitalism” around the world.
  • All nations use varying levels of state involvement to help their economies and citizens.
  • Emerging markets have grown by using government ownership and influence to gain business, often at the expense of privately held Western companies.
  • State-owned or -allied companies such as Mexico’s Cemex and Brazil’s Petrobras are climbing up the lists of the world’s biggest, most valuable companies.
  • Free-market countries’ default position calls for minimal state intervention.
  • State capitalists believe the interests of “ruling elites” override those of their citizens.
  • Saudi Arabia’s monarchy ensures its political continuity through its oil wealth.
  • The Russian state applies its muscle to keep private business owners in line.
  • To remain in power, China’s leaders must “create millions of new jobs each year.”
  • Private Western companies should exploit their greater agility and innovation to compete with their state-controlled rivals.

Summary

Back to the Future

Public ownership of private enterprise had a dramatic resurgence in the first decade of the 21st century. Despite the widespread belief that state-controlled economies were on their way out with the fall of communism in the late 1980s, the 2008 financial crisis has resulted in a revival of government intervention, investment and financing in many of the world’s banking and industrial sectors. In addition, the blossoming of the G7 bloc into the G20 group means that what was once a coalition of firm “champions of free-market capitalism” has morphed to include “relative free-market skeptics” such as Russia, China and India.

“Globalization, like capitalism, is powered by the individual impulses of billions of people. It...can’t be reversed by decree.”

What does this mean for Western capitalism? Other nations see the US as the origin of the 2008 crisis and the ensuing recession, which quickly moved worldwide. The US and Europe had to intervene rapidly and massively to protect their financial systems from collapse. Western nations bailed out and effectively nationalized banks, insurance companies and car manufacturers. The huge infusion of public money into private companies gave free-market skeptics an opening to question the viability of US and European capitalist hegemony; they blame free markets for the crash and point to the West’s inability to right its economies and prevent panic.

“State Capitalism”

While the second half of the 20th century saw the rise of a multinational challenge to the sovereignty of the nation-state, subsequent events have turbocharged an old economic player: businesses “owned or closely aligned with their home governments.” State-owned or -allied companies such as Mexico’s Cemex – the world’s third-largest cement manufacturer, equivalent in value to Coca-Cola – are rising on the lists of the world’s biggest, most valuable organizations. Brazil’s Petrobras and Russia’s Gazprom are among the planet’s largest firms. Government-owned China Mobile boasts the world’s greatest number of cellphone users – 488 million. China controls three of the globe’s four biggest banks and three of its five largest corporations.

“Forced to choose between protection of the rights of the individual, economic productivity and the principle of consumer choice, on the one hand, and the achievement of political goals, on the other, state capitalists will choose the latter every time.”

Mexico, Brazil, Russia and China follow state capitalism, a variant of commercial enterprise that maintains political control over some or all parts of the economy. This “form of bureaucratically engineered capitalism” is “particular to each government that practices it.” Resource-rich countries such as oil producers tend to retain economic and political control of their strategically important assets. Other states, including China and Russia, over time have adapted centrally planned economies to incorporate some capitalist methods and motivations.

“The fall of communism did not mark the triumph of free-market capitalism because it did not put an end to authoritarian government.”

In reality, no country practices unfettered capitalism; most Western nations – even the US, a bastion of free markets – have “‘mixed’ capitalist economies.” These states recognize that private interests alone cannot provide for all of society’s needs. In the aftermaths of wars and financial crises, developed nations’ governments tend to take a more active, albeit usually temporary, economic role. Yet these countries’ default position is that open markets are the best way to “generate long-term prosperity” and that state intervention in economic operations should remain minimal. In comparison, the leaders of state-capitalist nations see government economic involvement as “a strategic long-term policy choice” that advances the interests of the state’s “ruling elites” over those of individual citizens. This intervention creates inefficiencies and distortions that manifest as a disadvantage for the rest of the world.

The State-Capitalist Apparatus

Nations use “a variety of intermediary institutions” to manage aspects of their economies and to administer their holdings. Structurally, state capitalism uses four significant tools:

  1. “National oil (and gas) corporations” (NOCs) – Some state-controlled NOCs are among the world’s biggest energy firms, notably Aramco (Saudi Arabia), Petronas (Malaysia) and China National Petroleum Corporation. These three giants and the NOCs owned by Russia, Iran, Venezuela, Brazil, Abu Dhabi and Kuwait lay claim to 75% of the Earth’s oil. While the degree of direct political influence that governs them varies, NOCs enjoy competitive advantages over private energy companies: They receive “aggressive” government support, they’re allowed to work with “repressive regimes” that private firms must avoid, and they obtain generous funding, enabling them to outbid multinational corporations. Their goal is not to make a profit, but to maintain their nations’ political power.
  2. “State-owned enterprises” (SOEs) – Governments also own firms that manage non-petroleum resources or provide crucial products and services, such as the US’s Postal Service, China’s State Grid Corporation, which supplies electricity, and Angola’s Endiama, which mines diamonds.
  3. “Privately owned national champions” – Governments spin off these strategically pivotal companies from state-owned enterprises or retain minority ownership in the larger entity. These intertwined relationships remain powerful, and these champions continue to enjoy government support, though it is often covert. Historic examples include Japan’s post-World War II keiretsu, which spawned Mitsubishi and Toyota. Major national champions include China’s computer firm Lenovo and India’s Tata Group conglomerate.
  4. “Sovereign wealth funds” (SWFs) – Monies generated through states’ sale of natural resources, via international trade or other government transfers, can funnel into SWFs. These funds invest in strategically pivotal assets, operate largely in secret and answer only to their state handlers. The best-known of today’s 50 SWFs include the Kuwait Investment Authority and the extremely large Abu Dhabi Investment Authority. China Investment Corporation recycles foreign exchange earnings into overseas investments, such as its $5 billion stake in Morgan Stanley and its $3 billion stake in the private equity Blackstone Group. Alaska, Alabama, New Mexico and Wyoming have state sovereign wealth funds; the US government does not.
“The use of oil, gas and other commodities as political tools and strategic assets, a practice known as resource nationalism, can be an essential part of state capitalism.”

Taking advantage of all four tools generally means that a country is exercising state capitalism, though “it’s not the tools that count; it’s how they’re used.”

The State Capitalists

State capitalism reached its current level of resurgence in “four waves.” The first began in 1960 with the creation of OPEC. Oil exporters concentrated their power over the oil-importing West, thus massively increasing their wealth. The rising emerging markets of China, Brazil, India, Russia and their ilk in the 1980s and early 1990s formed the second wave. Paradoxically, though these countries took bold steps to privatize their markets, their embrace of full capitalism remained cautious. This economic liberalization, coupled with growing commodity prices, “lifted all boats” in the third wave. The fourth wave came with the 2008 financial meltdown: While it pummeled state capitalists at first, their economies quickly rebounded because of their relative insulation from “toxic bank assets.” Free markets’ failure to save the world from near economic annihilation provides fodder for those espousing state capitalism as the way forward.

“Any Russian who doesn’t regret the disintegration of the Soviet Union has no heart, but one who wants to revive it has no head.” (Vladimir Putin)

State capitalist countries exist worldwide, but the size and scope of Saudi Arabia’s, Russia’s and China’s state economies pose the greatest “fundamental challenge to the future of free markets.”

Saudi Arabia

The Saudi monarchy ensures its political continuity by spending its oil wealth carefully on civic projects that will deter threats to the ruling family. For example, its “grand-scale capitalism” encompasses building “six megacities” in a 150-square-mile area to house, employ and educate some two million people. Recent attempts to open Saudi Arabia’s national companies to global competition ended in government rescues. People in a rich society where citizens pay no taxes and firms can rely on government aid have little motivation to cast aside state support in exchange for competitive free-market capitalism.

“Every country...features both direct government involvement in regulating economic activity and some market exchange that exists beyond the state’s reach.”

Saudi rulers tightly hold their oil industries. Saudi Aramco, the kingdom’s NOC, manages “the world’s largest oil company” with top direction from Saudi royals and administrative guidance from externally recruited energy professionals. An SOE – the Saudi Basic Industries Corporation – works, somewhat opaquely, in the petrochemical industry. It withheld promotions and bonuses in 2009, in the wake of oil price drops, raising great internal concern. Saudi national champions include many privately held but family-run businesses, such as the Bin Laden Group. The Saudi Arabian Monetary Agency is both the nation’s central bank and its SWF.

Russia

Russia reeled in the 1990s, whipsawing from the strictures of a Soviet centrally planned economy to laissez-faire markets that enriched greedy oligarchs. Vladimir Putin’s ascension to the presidency in 2000 ended the no-holds-barred economy. He retook state control over most of the energy industry and pushed for reforms to protect 42 “‘strategic’ economic sectors.” The government applies its muscle to persuade business owners to follow its objectives. In fact, “public officials have found it’s better to control those who run a company than to accept direct and public responsibility for its performance.” The government does not interfere in most “consumer-driven sectors,” such as “retail, construction, real estate, automotive and wireless telecoms.” Russia’s state capitalism includes mandating “acceptable” bank interest rates and prohibiting bankers from taking time off until they’ve “loaned out all the state funds” assigned to them. The state depends on its oil revenues to sustain its political control over the economy.

China

China relies on the “visible hand” of state control to manage the “invisible hand” of the market. China’s move from a rigidly controlled socialist economy to one of capitalist experimentation began in the 1980s. Deng Xiaoping, China’s prime proponent of reform, likened the phased changes to “feeling for rocks while crossing a river.” Starting with agricultural liberalization and “special economic zones,” China unleashed the latent power of its workforce to create a manufacturing and exporting juggernaut.

“For the next several years, a global economic meltdown widely blamed on free-market capitalism will undermine the arguments of those who believe that intelligently regulated private-sector competition is essential for long-term growth.”

For China to remain in power and accommodate its huge population, its rulers must facilitate the creation of “millions of new jobs each year.” The country gingerly approaches freeing up some particular aspects of the economy, such as banking. It monitors its energy companies but allows managers a certain amount of discretion in investments and administration.

“The lesson that many emerging-market governments took from the crisis is that free-market capitalism had ignited a wildfire and that those who had depended on it most had suffered the worst burns.”

The 2008-2009 global recession highlighted the weakness of China’s reliance on exports as multinational clients drastically cut back their orders, closing numerous small Chinese firms. The government moved quickly to keep order by allocating hundreds of billions of dollars’ worth of stimulus spending for job-creating infrastructure investments. China’s SOEs used much of the money to swallow private firms, reinforcing the state’s grip on its internal economy.

Responding to the Challenge of State Capitalism

How can free-market participants compete against state capitalism? Private companies should exploit their advantages: greater agility in responding to market conditions and more innovation in marketing than their state-controlled rivals. At the political level, Western leaders should:

  • Advocate for free markets – US and European politicians should trumpet the long-term returns of truly free enterprise that benefit all people in society.
  • Support open trade – Western governments must remain committed to “active trade promotion” to continue to work with state-capitalist nations.
  • Consider broader investment – Legislators should allow long-term business relations to temper their concerns about national security when they weigh foreign investment offers.
  • Admit immigrants – Free markets and the prosperity they ensure depend on access to the best labor available. “America needs a global talent pool.”
  • “Pick the right fights” – US politicians should limit haranguing China about currency manipulations. China reinvests the revenue it earns in US Treasury securities.
  • “Keep investing in hard power” – America needs to maintain its global competitive advantage by spending on its “military and economic might.”

About the Author

Ian Bremmer is president of Eurasia Group, a political-risk consulting company.

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