Capitalism is defined as an economic and political system in which a country’s trade and industry are controlled by private owners for profit rather than by state. Authoritarianism, on the other hand, is defined as the strict obedience to the authority at the expense of personal freedom. These two polar ideas appear to be incongruent with each other, yet we see the likes of China, Singapore and Chile merge authoritarianism and capitalism in their various models of authoritarian capitalism.
So, what is authoritarian capitalism? This term refers to a situation where the economic model is one of capitalism, characterized by private ownership and free markets, but the political system is authoritarian, where there is a centralized power controlling and limiting media, political expression and opposition.
While this economic model has risen to prominence since the late 20th century, there have been less sophisticated models in history such as the engagement of monarchies in colonial trade and mercantilism. Mercantilism, coined in 1763 and popularised by Adam Smith in 1766, featured between the 16th and 18th centuries. At the core of mercantilism is the idea that the measure of a country’s wealth is essentially determined by the quantity of gold that it possessed. This resulted in the development of economic policies that prioritised trade surpluses and the protection of traders, in order to accumulate as much gold as possible. During this period, trade was highly encouraged, but there were also many policies put into place by the ruling powers. In England, for example, fiscal policies were established to incentivise colonists to only buy British goods. The nationalist nature of mercantilism reflects modern day authoritarianism as mercantilist governments manipulated a nation’s economy, in order to create a favourable trade balance, while also allowing private ownership. This took the form of citizens investing money into corporations in exchange for part ownership.
Following the period of mercantilism, capitalism and free markets came to be the dominant economic school of thought. Capitalism has led to rapid economic growth, resulting in communist regimes adopting the model as well, however they have managed to mould it so that they can further establish the legitimacy of the leading power of that nation. Arguably authoritarianism and capitalism go hand in hand, as capitalism can increase the authority of the ruling power. As the economy of a country grows, there is an increase in the satisfaction and trust of the public, which can result in less opposition and demand for political freedom. Additionally, by maintaining political control, the wealth brought by capitalism can be utilised for investing in desired sectors, progressing with complex infrastructure projects and attracting foreign investment. By eliminating political freedom, authoritarian powers are able to reap the economic benefits of capitalism while avoiding the complications that may be brought by a democratic approach as to how and where investments should go.
The most prominent example of the application of authoritarian capitalism is China. Despite China being a communist country, approximately 70% of the economy is accounted for by private activity. From the perspective of those having grown up in China, it may appear that the planned economy is absent, however while industries such as music, education, retail and e-commerce are primarily in the private sector, we see that the more important industries such as telecommunications, energy and transportation are state owned. Even if an industry is not an SOE (state owned enterprise), it can still be state connected. An analysis of the top 1000 private owners in China’s firms, shows that 65% of them have equity ties to state owners. Moreover, these private owners also hold significant stakes in smaller firms, resulting in 18% of state owners being indirectly connected to private owners. Another way that the state and private companies are connected is through financial aid provided by the government. Admis fears of a microchip shortage, the Chinese government stepped in, working alongside semiconductor companies that were mainly privately owned. By providing funds to these companies, they aided innovation and boosted capacity.
The Chinese communist government also plays a crucial role in the direction China’s economy is going in. They play a significant part in directing investment, allowing them to control what sectors grow in a way that reflect the wishes of the communist party. Moreover, instruments such as the five-year plan, a series of social and economic development initiatives, also serve a similar purpose. By utilising these initiatives, they can influence what is produced in the country and capitalise on both private and state resources in order to achieve their desired outcomes.
While China utilises global trade, they do so by a mix of market liberalisation and control. China operates within the global economy using a framework, that uses market principles and encourages foreign investment and trade, however, is still tightly controlled by the government. This refers to their Special Economic Zones (SEZs); these are areas which have been granted permission to conduct both domestic and foreign investment and trade, without the authorisation of the Chinese central government. Initially there appears to be no authoritarian involvement here however each SEZ had to comply by a strict and comprehensive opening policy. Once again, the government has employed the SEZ to align with their goals and beliefs. Additionally, the government is able to regulate, intervene and redirect economic activity as they deem necessary.
Evidently, it is possible to merge authoritarianism and capitalism however it is often difficult to decide whether a country is employing this model or not. Currently there is no consensus on what authoritarian capitalism is as there are a variety of interpretation of the concept. Moreover, even if there was a universally accepted definition, regimes are never static, and the constant changes and evolutions of regimes arguably means we can never perfectly categorise them under one model.
Sanuya Johnpetter
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