The Agenda

How State Capitalism and Illiberal Democracy Will Shape the Global Economy

Ian Bremmer and Nouriel Roubini have written an absolutely terrifying essay for Institutional Investor magazine, which resonates with Stephen S. Cohen and Brad DeLong’s arguments in their excellent book The End of Influence. Bremmer and Roubini carefully explain why the rise of beggar-thy-neighbor state capitalism will result in “an extended period of anemic, subpar growth.” 

Part of the problem, if you can call it that, was anticipated by the much-maligned and badly misunderstood Samuel P. Huntington in The Clash of Civilizations and the Remaking of World Order. Modernization does not necessarily mean westernization. It often means “indigenization,” or the reinvention of indigenous cultural forms to suit increasingly prosperous urban societies. The rise of Hindutva and the assertion of linguistic minorities in India is one example of this phenomenon, and the advent of a uniquely Turkish political Islam that places heavy emphasis on small-scale entrepreneurship and a vision of a broader Turkic cultural space is another. This introduces a level of normative diversity that will make the multilateral process of managing the global economy all but impossible:

The financial crisis and global market meltdown have created conditions for a “nonpolar” order — one in which America’s chief competitors remain much too busy with problems at home and along their borders to bear heavy international burdens. 

 

This trend is most clearly visible in the transition of the past two years, hastened by political and economic upheaval, from a G-7 to a Group of 20 model of international decision making that provides the governments of increasingly influential and deep-pocketed developing countries like Brazil, China, India, Saudi Arabia and the United Arab Emirates with seats at today’s most important international bargaining table. Without these countries, multilateral efforts to solve pressing transnational problems wouldn’t have much credibility. But getting this varied group to agree on anything beyond declarations of vaguely worded principle will be profoundly difficult. And countries like China continue to seek a free ride, not realizing that sitting at the table of global economic and financial governance implies both rights and duties. As the artificial unity imposed in 2008–’09 by a shared sense of crisis continues to erode, this problem will grow. 

But the rise of state capitalism is the more pressing problem. Rather than excerpt more from Bremmer and Roubini’s excellent essay, let’s just say that the authors place heavy emphasis on state-owned enterprises in authoritarian states and emerging markets, yet they could just as easily draw attention to lemon socialism in the developed economies and the zombie-like reawakening of “national champions,” domestic firms that are cosseted and subsidized in defiance of the logic of free trade. 

For me, an important takeaway from the essay is that a more democratic world is likely to have downsides as well as upsides. The upsides include, one hopes, less inter-state aggression. It is true that democratizing states are more bellicose than mature democracies, but we’re well into the so-called Third Wave of Democratization and the peaceful transfer of power is entrenched across much of Latin America and Asia. The downsides include populist excess and counterproductive economic nationalism. Would I rather the world be less democratic? Of course not. But the pathologies we’re seeing are pathologies of democratic societies. It’s a package deal. 

I’m reminded of Fareed Zakaria on “The Rise of Illiberal Democracy,” an argument that’s looking more prescient. 

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