The liberal democracies have experienced financial shocks and reacted, but not as free market advocates expected. Adam Smith’s name is not being loudly heard in the world’s central banks. Instead we have western governments recommending federal interference in their poorly regulated economies and incorporating methods similar to those that guide New Statist nations, such as China and Russia. This phenomenon reveals that Francis Fukayama, who received commendation for his 1989 philosophical tract, The End of History, might have spoken too fast:
“What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind’s ideological evolution and the universalization of Western liberal democracy as the final form of human government.”
Fukayama repeated a thesis of often maligned Karl Marx that liberal democracy is an integral part of the capitalist system but refuted Marx’s assertion that, “capitalism would inevitably lead to increasing class polarization and class conflict,” and “through its own inherent processes of development it is destined to give rise ultimately to its own dissolution.” It now seems that both of these scholars have erred and the more prescient is Azar Gat, Professor of National Security at Tel Aviv University. In a Foreign Affairs article, “The Return of Authoritarian Great Powers,” Professor Gat argues that Fukuyama has not considered the emergence of imposing authoritarian nations, “which could ‘end the end of history’.” Gat proposes a challenge: “These authoritarian capitalist regimes could inspire other states to follow their model.” (Foreign Affairs, July/Aug 2007)
The New Statism
In a previous article, “The New Statism: The Rise of Corporate States,” Alternative Insight (Oct. 2007), this writer independently outlined a similar concept: “A new statism, in various prescriptions, exercises control over the political, moral, economic and social fabric of several nations and has the potential to control the destiny of the world.”
An earlier article, “The Socialization of America,” Alternative Insight (April 2005), stated: “The global economy has been pioneered by the United States but has not been a perfect fit for new pioneering nations. In order to provide prosperity for its people, the United States must implement policies that offset the deleterious effects of globalization. American history shows that private industry has never been the sole source of solutions to recurrent economic problems.”
The former article described several nations that can be described as “authoritarian capitalist” regimes. China and Russia are the most prominent, but India, Israel, Venezuela, Bolivia and Vietnam , and several autocratic Arab nations can also be considered New Statist. Their institutions include significant New Statist characteristics:
* The government allows free enterprise but might invest in some industries (mixed economy) and control industries related to national defense, natural resources, communications and media. In some cases it also has extensive land ownership.
* The government, by direct or indirect mechanisms, partially regulates international money transfers, international trade, wages, prices, internal investment and segments of the labor market.
* The government promotes nationalism, reinforces chauvinism and allies the education system with these efforts.
* The government exercises powers that lessen opposition and prevent excessive dissent.
The Earlier Challenge to the New Statism
George W. Bush pledged to carry democracy and free market economics throughout the globe. Apart from the new Central European nations established within the framework of the European Community, democracy has not flourished — just the opposite — the Middle East, Latin America and Southeast Asia, have witnessed the expansion of Statism: state interference in economy with trappings of free market economics. This unforeseen trend has occurred for a good reason; emerging nations, which did not experience an early industrial revolution, sought alternative means to overcome the advantages of the established liberal democracies that arrived first with the most.
Competitive advantages for the established free market economies include a lead in advanced technology and well functioning transportation, distribution, sales and financial systems. Unable to readily compete with the global economies of western industrialized nations that, despite their democratic appearances, previously engaged in imperialist adventures to seize resources and markets and utilized slave, immigrant and imported labor to construct efficient and large scale production systems, major developing nations have been forced to control aspects of their economies — labor, finance, foreign trade, currency and prices — in order to effectively compete in a global economy. These New Statists regimes don’t have a defined ideology with fixed rules; just the opposite, each New Statist nation incorporates sufficient controls and authoritarian extensions to offset limitations and satisfy distinct agendas.
New Statism Responds to the Challenge
A mix of components from previous fascist and communist regimes and from present liberal democratic states has guided the New Statist nations to notable successes. Since 1979, China has exhibited uninterrupted growth, multiplied its Gross Domestic product (GDP) by a factor of ten and emerged as a world power with the 4th largest GDP. The other large Statist nation, Putin’s authoritarian Russia, has grown an average of 6% each year since 2001. Previously minuscule contributors to the world market, these two nations now account for about 7% of total world GDP.
Rightfully scorned by liberal and prosperous democracies for political despotism and economic failure, the centralized economies recognized two principal reasons for the failure; an inability to properly allocate resources and to motivate workers. To their credit they adjusted their economies to correct for the strangling lapses. The ‘iron rice bowl’ and guaranteed employment no longer exist in the New Statist nations. State planning has not entirely disappeared, but the overpowering command economies that allocated resources have been eclipsed by a combination of public and state owned enterprises, both of which are market oriented and competitive. Score one advantage for the Statist nations — they can more easily control the recurring problem of over-production, which periodically paralyzes the liberal democracies. Excessive production can be minimized and surplus that can’t be exported can be distributed to more deprived masses. If necessary, the government can subsidize the prices. Although still lacking political and economic democracy, the New Statist nations lifted populations from poverty and constructed impressive economies. Their economic advances pose a challenge to the welfare of the western world.
A shift of low wage consumer goods production to Statist nations (China, Vietnam) together with western nation reliance on resources from other Statist nations (Russia, Venezuela) stimulated economic expansion throughout the globe, and more notably in the Statist world. Result — capital flowed from the western world to emerging nations. The accumulation of capital and foreign exchange reserves ($1.9 trillion in China and $500B in Russia) has reduced the financial dominance of the western world and placed it on a delicate footing. As the Statist nations increase their economic and financial strength, they translate the strengths into increased political and military power.
The new Russia exemplifies the shifts in power. President Boris Yeltsin inherited a Soviet Union that oversupplied a lacking demand and had inconsistent supply for internal demands. He failed to transform the slim-downed Soviet Union into a nation modeled on free market economics. Vladimir Putin followed Yeltsin and succeeded in establishing a Russia that supplies natural resources for external demands and satisfies internal demands by external supply. Noting the derogatory effects of a previous “wild capitalism,” which included concentrations of production, resources and media in the hands of a relatively few oligarchs, Putin diverted the previous economic concentrations to his own government. The present Russian government overwhelmingly participates in defense industries, controls some banking enterprises, dominates in oil and gas resources, and owns several television stations and print media. Petroleum clout and monetary reserves exceeding $500B have aroused the dormant Bear. Russia displays a fearless nature and independent spirit.
The lack of international challenges to Russia’s invasion of Georgia signified the recognition of a more powerful Russian nation. Feeling powerful, Prime Minister Putin asserted a new role in the World Trade Organization (WTO) by saying that “ Russia should abandon some of the commitments it made during World Trade Organization accession talks.” On the same day, President Dmitry Medvedev “warned that Russia might cut its ties with NATO.” Add another important shift in power: The National Aeronautics and Space Administration (NASA), after 2010, expects to lack flight capacity for sending manpower to its Space Station and might be obliged to purchase seats on Russia’s Soyuz spacecraft.
Putin has stated that U.S. hegemony is being challenged by a reinvigorated Russia and he seems eager to prove his statement. Despite western grumblings, Russia continues supplying Iran with nuclear material and Syria with weapons. Agence France-Presse, Oct. 7, 2008, reported that “A fleet of Russian warships, led by the nuclear-powered missile cruiser Pyotr Veliky, are due to take part in joint exercises next month with the Venezuelan navy near US waters, something which has not been done since the Cold War. The deployment follows the arrival of two Russian Tu-160 nuclear bombers in Venezuela last month also for exercises, an event that Chavez branded a warning to the US empire.”
The Times Online, Oct. 6, has Russia beginning “the most ambitious test of its strategic bomber fleet in almost a quarter of a century today. Up to 20 bombers are being sent into the air with full combat payloads to carry out live firing exercises of their cruise missiles.
President Medevev summed it up: “Russian President Dmitry Medvedev said on Wednesday that Washington had forfeited its place at the heart of the world order and he called on Europe instead to work with Russia on a new security pact.” (Reuters, Oct. 8, 2008)
China is more subtle in flexing muscle. Its superlative architectural constructions for the Beijing Olympics, the quality of the stadiums and swimming pool, the unique and original ceremonies and the giant earthworks completed in a relative short period of time — subways, boulevards, neighborhood renovations, anti-pollution controls, and immense tree plantings — demonstrated the cooperative spirit, innovation and agility of the Sino socio-economic system.
While the western nations are stagnant and remain uncertain about future capital expansion, China prepares a multitude of programs; a bullet train system between Shanghai and Beijing, subways for 15 cities, 97 new airports, 15,000 miles of roads, which includes an expressway over the mountains to Tibet and an undersea tunnel to Taiwan. The latter two projects might seem exaggerated, but the Peoples Republic ’s Transportation Ministry has them on the drawing board.
Coincident with the giant projects is a growing giant financial system that rivals the western world’s banking system. Due to havoc in global financial markets it is difficult to obtain accurate information on bank assets. Nevertheless, the China Banking Regulatory Commission (CRBC) estimated the total foreign and domestic currency assets of Chinese financial institutions at 8.45 trillion U.S. dollars, as of June 2008. Compare that sum with an estimated 2008 Citibank assets of 1.2 trillion U.S. dollars.
The advances of the China and Russia Statist systems don’t convince Fukayama. Still defending his original thesis, the scholar who stopped the world believes that “In lieu of big ideas, Russia and China are driven by nationalism, which takes quite different forms in each country.” He also trusts that “ China ‘s development model works well only in those parts of East Asia that share certain traditional Chinese cultural values.” These statements might be true, but are they the issue? The Industrial Revolution hastened the development of the liberal democracies. The post Industrial Revolution is a reshaped world where New Statism in various forms is covering the globe, in the Indian continent, the Middle East and parts of Latin America.
Look at India. A May 2006 World Bank report states:
“In India, there are 240 Public Sector Enterprises outside the financial sector. These enterprises produce 95 percent of India ’s coal, 66 percent of its refined oil, 83 percent of its natural gas, 32 percent of its finished steel, 35 percent of its aluminum, and 27 percent of its nitrogenous fertilizer. Indian Railways alone employs 1.6 million people, making it the world’s largest commercial employer. Financial sector SOEs account for 75 percent of India’s banking assets.” Although India is not an economic powerhouse, it is a nuclear equipped nation. Everyone wants India on its side.
The United Arab Emirates and Saudi Arabia, despite some parliamentary governing, are principally autocratic nations with mixed economies. Oil wealth goes to ruling families and supports a plethora of private enterprises, government welfare and massive internal and external investments. The words ‘Sovereign Wealth Fund,” which are government investment funded by foreign currency reserves but managed separately from official currency reserves, are closely linked to the oil rich nations. According to Morgan Stanley Investments, Sept. 2008, The Abu Dhabi Investment Authority leads all Sovereign Wealth Funds with a worth of $875B. Saudi Arabia has a comfortable $300B and Kuwait’s Investment Authority pools $250B. All this translates into economic clout and political power. Investments have been directed to Third World nations who have found a more cooperative source for their capital needs. In a reverse twist, economically troubled western investment bankers, Citigroup and Merrill Lynch as examples, have had equity injections from the Middle East sovereign funds, which are now perceived as stabilizers for the disturbed liberal market economies.
In Latin America, Venezuela, Bolivia and Ecuador wave the Statist banner.
Venezuela President Hugo Chavez failed to acquire dictatorial powers, but has nationalized oil, telephone and electric companies. By using Venezuela ‘s vast oil reserves to increase his regional influence, the Venezuelan president expects to diminish U.S. influence. As noted before, Chavez is willing to team with Russia and participate in challenging U.S. world hegemony
Bolivia’s President Evo Morales is more cautious than Chavez and doesn’t have the resources the Venezuelan manages. Nevertheless, the Bolivian President nationalized Bolivia ‘s gas reserves and is prepared to do more. Morale’s demonstrates his new found boldness in words and deeds: “We don’t have to be afraid of an economic blockade by the United States against the Bolivian people,” Morales said when he politely asked the U.S. ambassador to leave because of U.S. support for government opposition groups.
Ecuador President Rafael Correa, after being elected president in January 2006, informed the national assembly he will pave the way for socialism. The Ecuador President has threatened to expel foreign oil companies if they fail to lift dwindling output in the OPEC nation.
The Challenge of the New Statism
A case can be made that it wasn’t the U.S. economic engine, but China’s economy that fueled the American and other national economies during the last decade. Export of high priced industrial goods and commodities to China provided huge markets for Western and Asian surplus. The People’s Republic’s massive production and exports of low priced goods to leading industrial countries contained inflation. Currency flows from trade with China served to increase trade between all nations. Increased resource and material demands reopened mines, pumped oil, and enriched the Third World nations that were rich in natural resources. China became the new engine in the world’s economic system.
And that is from where the challenge of the New Statism begins.
The emerging nations were previously dependent upon the industrialized western world for products and capital. Now, the industrialized western world finds itself reliant upon the New Statist nations for raw materials and natural resources, whose prices the western democracies can no longer control, dependent upon imports of inexpensive goods, in competition with several new nations for markets and seeking capital from resource rich nations. The previous competitive advantages of the industrialized world have been severely reduced in the more controlled Statist environment.
A greater challenge by the Statist nations lies in their becoming less reliant on the western democracies and more cooperative with one another. With Russia supplying the material resources and China supplying the labor for manufacturing, the emerging Statist nations have the capability to control resource distribution and value added manufacture.
The democratic capitalist nations previously extracted the material resources and inexpensive labor of a Third World for benefit of the western societies and domestic oligarchs. The developed world guided the destiny of the lesser-developed world. Third World nations now extract capital from the developed nations and use their own material resources and inexpensive labor for either direct or indirect benefit for their own peoples. The New Statist nations can guide the destinies of all nations, and this is happening.
China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan and Uzbekistan compose the Shanghai Cooperation in Central Asia (SCO), a mutual-security organization launched in 2001. India could soon be included. Trilateral summits of Russia, China and India predict a strategic alliance between these large and growing nations. A joint communiqué by the foreign ministers of three countries in New Delhi on February 14, 2007 “expressed their conviction that democratization of international relations is the key to building an increasingly multipolar world order.”
With the liberal political and economic world suffering from an economic downfall, emerging nations might be less likely to adopt the free market model and more likely to consideration the autocratic Statist paradigm as an attractive alternative to liberal democracy. Even the free marketers are shelving their concepts and applying Statist solutions for private problems. Rather than an end to history, the liberal democracy movement has become only a stage in history. As predicted by rejected and non-conventional economists, a new stage of history is unfolding.