Western Vs. Authoritarian Capitalism

June 18, 2009

By John Lee

The Chinese Communist Party and the United Russia Party depend on permanently high rates of economic growth and prosperity to remain exclusively in power. Their situation is precarious because it means these regimes play a high-stakes game with their population where the margin for error is small. For example, even at the height of China’s boom, the latest figures released by Beijing reveal that there were 87,000 instances of mass unrest in 2005 alone.

The fact that the Chinese and Russian economies continue to depend on Western markets and are beneficiaries of the existing Western-led liberal order means that an ‘autocratic bloc’ is in a poor position to launch a formidable challenge against liberal democracies. If Western economies were truly brought to their knees, the legitimacy of ruling regimes in Beijing and Moscow would be severely threatened. A motley crew of autocratic allies consisting of Iran, Myanmar, North Korea, Zimbabwe, Sudan and so on can hardly create an alternative market large enough for China and Russia to grow. Entangling China especially in the global economic system was, of course, a deliberate policy of the West to ‘manage’ China’s rise and limit Beijing’s strategic choices.

China and Russia are still immensely poor

The absolute output of countries with large populations can be impressive but misleading. China and Russia are still immensely poor countries. According to the IMF, they rank 107 and 56 respectively in terms of nominal GDP per capita. They have ‘top heavy’ economies with a small number of state-sponsored businesses dominating the most lucrative sectors, while the bottom-up private sector remains relatively stifled. This is necessary for authoritarian governments because they need to hold on to the levers of economic power to retain political power.

Stable societies and even wealth creation need broad, robust economies. But creating the conditions for good bottom-up economies to evolve is something capitalist authoritarian states continue to struggle with.

Any strong capitalist economy needs strong institutions – particularly a reliable system of property rights, dispute resolution, contract enforcement and ‘rule of law’. In Russia, Putin’s seizure and renationalisation of assets in the energy industry when the political need arises is not encouraging. In China, the absence of clear land rights in rural areas is a huge impediment to improving the lives of the approximately 800 million who still earn less than $2 a day. In these authoritarian systems, courts and tribunals are used as tools by the regime and are less transparent and unpredictable. This is a problem especially in China. For example, there are now laws in place for aggrieved citizens to sue the state. However, a recent study by Professor Yu Jianrong from Beijing’s Academy of Social Sciences indicates that only three out of 10,000 petitions resulted in a resolution.

Not surprisingly, rule of law is difficult to achieve in one-party systems, and corruption serves as a serious impediment to broad-based economic development and building stable civil societies. Transparency International recently ranked Russia 143 out of 180 countries in terms of corruption, while China ranked at 72. In the World Bank’s Ease of Doing Business index, Russia was ranked 106 out of 178, while China came in at 83. Imprecise as these indices are, these figures hardly indicate that the two authoritarian giants are ready to challenge and export their model of doing capitalism to the world.

This lack of stable and independent institutions – political, economic, social and legal – within large authoritarian states is a serious shortcoming. America and Europe might be suffering, but they do not face the possibility of social and political chaos. Liberal democratic systems are frustrating, messy and tedious, but they have huge advantages in finding solutions to problems, and in peaceful and orderly change and adaptation. Authoritarian states might be more efficient at silencing debate and passing ‘emergency’ measures, but they usually lack the same capacity to deal honestly and effectively with crises.

It is true that liberal democracies remain suspicious of authoritarian states such as China and Russia, and vice versa. Political values have strategic significance. But even if these authoritarian powers manage to overcome their daunting domestic weaknesses and continue to rise, they can only still rise within the liberal democratic global system.

Russia, or more likely China, might yet emerge as the primary great power rival to the US, signalling a return to traditional great power rivalry. But it is something else to conclude that authoritarian states have found a better way of ‘doing capitalism’ – and that the rivalry between ‘liberal democratic’ and ‘authoritarian’ capitalists will be the defining contest of our age.

Dr John Lee is a visiting fellow at the Centre for Independent Studies, Sydney. He is the author of ‘Will China Fail?’