The Distortion of Rose Colored Glasses

 Some political scientists are postulating that authoritarian countries can offer their citizens high incomes by adopting or supporting private enterprise.  Since authoritarians have the power to get things done, authoritarian capitalism could cause democracy to lose its appeal.

Since World War II, the most economically successful countries have been democracies—mainly the US, Western Europe, Japan, Canada, and South Korea. Two political scientists, Roberto Fao, University of Melbourne, and Yascha Mounk, Johns Hopkins University, recently wrote that “sometime in the next five years, the total GDP of countries rated “ not free” …will surpass that of Western democracies.” They include in the “not free” Russia, China, Turkey, and Saudi Arabia. They believe that a growing number of countries are learning to combine autocratic rule with market oriented institutions.  To bolster their case, they point out that 60 years ago, western democracies accounted for two-thirds of global GDP while today it is one-third.  This is a non-sequitur.  It was western democracies and their capital investments that promoted the globalization that led to the wider distribution of global wealth.

Authoritarian capitalism is characterized by enforcing strict control by the state while the means of production is controlled by private owners  for their profit.  The benefits of capitalism come at the expense of personal freedom. There is an explicit partnership between government and big business and a willingness by the government to support capitalists at the expense of citizens and consumers.  China’s President Xi’s hostility to the private economy is evident by his state first philosophy and by favoring government connected enterprises.

There is no doubt that authoritarian governments can channel investments into favored industries and eliminate obstacles that could hinder their performance.  Turkey is a country that has gone through rapid industrialization that now has the world’s 17thlargest GDP.  And China has experienced double digit economic growth for the better part of three decades, at least that is what has been reported.  Authoritarian capitalist countries have out performed the US and other democratic capitalistic countries over the past decade and that has led to questions about the staying power of democratic capitalism.

But Turkey, China, and Russia are experiencing economic problems that raise questions about how well they can maintain private capitalism while repressing human rights and personal freedom.  While high rates of economic growth are the price of maintaining political power, political interference in economic decision making can lead to misallocation of resources because decision making is concentrated and not dispersed.  High rates of growth are also necessary to keep their populations sullen but not mutinous. The quality of life in these countries is not good.  In a mathematical quality of life calculation, the US was number 5 while Russia, China, and Turkey ranged from 73 to 81.  So, while the economic performance of these three authoritarian capitalist countries might seem impressive it comes at a very high price for their citizens.

The notion that authoritarian capitalism might replace democratic capitalism would turn on its head the belief that top down centralized economic direction will prove more lasting and superior to the benefits of dispersed economic decision making that characterizes democratic capitalism and its ability to respond quickly and accurately to consumer tastes and shifts in demand.  Freidrich Hayek’s Road to Serfdom made the convincing case of why democratic capitalism is superior.  

Democratic capitalism in the US is beset with a number of challenges which are giving socialism its recent appeal.  Some of our problems are the consequence of the influence of big companies on laws and regulations which distorts market forces and breeds crony capitalism.  The increasing power of Congress over how companies and industries act is what promotes crony capitalism and creates the view that the system is rigged.

Author: billo38@icloud.com

Founder and president of Solutions Consulting which focuses on public policy issues, strategic planning, and strategic communications.

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