Western Vs. Authoritarian Capitalism

 
 

In 1990, American political commentator, Charles Krauthammer, famously introduced the notion of the ‘unipolar moment’ to denote the age of the triumphant and unchallenged American superpower. Liberal democracy had won and Francis Fukuyama contemplated the ‘end of history’. After 9/11, many placed their bets on the ‘clash of civilisations’ and the battle against Islamists in particular. After America’s 2003 invasion of Iraq, the talk was of American decline and the re-emergence of a multipolar system with Washington, Beijing, Moscow, Tokyo, Brussels and New Delhi as the new centres of power.

Very recently, another paradigm has emerged. Prominent figures such as Robert Kagan have spoken about two competing systems that will define international relations over the next few generations: capitalist authoritarian states with their booming economies will be pitted against liberal-democratic counterparts. But the current economic crisis has already led to the waning of confidence of capitalist authoritarian states.

China and Russia are at the vanguard of this alleged authoritarian bloc. They are the two key members of the Shanghai Cooperation Organisation – referred by many as the authoritarian counterpoint to NATO. In 2005 and again in 2007, China and Russia illustrated their new ‘strategic partnership’ with a series of joint military exercises involving thousands of soldiers, combat vehicles and even long-range strategic bombers.

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China and Russia rank second and third behind the US in the world in terms of military spending, at around US$100 billion and US$50 billion respectively. Significantly, both Beijing and Moscow speak frequently about building cooperative resources to resist the ‘underhanded’ democratising agenda of America and the West.

But thinkers such as Kagan are not just repackaging the old Cold War paradigm in fresh wrapping. The new contest is different and more complicated. During the Cold War, the competition was between capitalism and communism. China and Russia have adopted capitalism in one form or another. They are also participants in the global economic system. The new argument is about which side does capitalism better: liberal-democratic versus authoritarian states.

It is a question worth asking if recent performance is anything to go by. The IMF recently released a study showing that economic growth in ‘capitalist’ authoritarian countries averaged 6.28 per cent over the past 15 years, while liberal democracies only averaged 2.62 per cent. Over the past decade, the Chinese economy has been growing at an average of 10 per cent in real terms each year. Since defaulting on its sovereign debt in 1998, Russia has grown seven per cent in real terms each year. Importantly, over the past 10 years, both countries have become more authoritarian rather than less. Russia under Vladimir Putin is much less liberal and democratic than it was under Boris Yeltsin. Since the Tiananmen protests in 1989, the Chinese Communist Party (CCP) has regrouped, consolidated and enhanced its power for the foreseeable future.

Moreover, in both countries, the state has advanced rather than retreated in terms of its economic role.

Russia is trending towards the Chinese business model

For example, in China the most important and lucrative industries are dominated by enterprises owned or controlled by the state. The banking sector is state dominated, and the state sector receives more than three-quarters of all loans. Genuinely private companies account for fewer than five per cent of all listed companies on the Shanghai and Shenzhen stock exchanges. Russia is trending towards the Chinese model. The most compelling illustration is Russia’s lucrative energy sector. In 2004, private firms accounted for 90 per cent of Russian oil production. The figure is around 50 per cent today.

Many believe that the current global financial crisis is a huge setback for liberal democracies and might even be a turning point. At the very least, many agree that America and Europe will be forced to play a less active role in global affairs than they otherwise would have expected.

Many are also arguing that the crisis that ostensibly began in America has severely dented the reputation of liberal democracies. The Western financial system almost collapsed. Western models of regulation and supervision have patently failed. Liberal-democratic institutions, having boasted of superior standards of prudence and accountability, are just as capable of sleeping on the watch as anybody else. Self-confessed criminal Bernard Madoff’s US$50 billion Ponzi scheme is just the latest in a series of revelations that remind us that corruption is not exclusive to developing countries outside the West.

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