Authoritarian capitalism is now liberal democracy's chief competitor, and if we are to meet its challenges, we have to understand its inner logic.
The power vertical
The Ditchley Foundation 50th Annual Lecture
Ditchley Park, Oxfordshire, England | July 12, 2014
Russia’s annexation of Crimea has shaken our assumptions about the global order that took shape after 1989. We assumed either that Russia was an impotent spoiler in decline or an aspiring partner. We believed Russia and Europe’s shared interests in economic integration would make forcible alteration of European borders a thing of the past. All of these illusions have been shattered…
The re-ordering underway is truly global. In the East Asia, rival naval fleets are circling each other, Chinese oil platforms are drilling in disputed waters and belligerent accusations fly between Asian capitals. China no longer speaks the language of “quiet rise.” Ji Xinping’s muscular foreign policy is alarming Vietnam, Japan, Taiwan, the Philippines and the United States.
We sense that these changes — in Europe, the Middle East and East Asia — are connected to each other. We sense that the tectonic plates are shifting. We question whether anyone in Washington, London, Moscow or Beijing truly grasps what is going on. So this is a good moment to consider what narratives are available to us to make sense of what is happening.
Foreign policy analysts and policy makers may consider “narrative” the province of language scholars or novelists, but narrative — stories about what history means and what it justifies — are the single most decisive mental construct shaping foreign policy.
On June 28, I was in Sarajevo — with Margaret MacMillan and Sir Adam Roberts — to join in a Carnegie Council commemoration of the assassination of the Archduke and the beginning of World War I. Margaret MacMillan spelled out the dire ways in which the wrong narratives drove policy reaction to the crisis. The ruling assumption on all sides was that the risks of ultimata were manageable because war, if it came, would be short. After all, the Balkan war of 1912 had been short; so too the Franco-Prussian war of 1870. Why shouldn’t any confrontation between Austro-Hungary and Serbia be similarly brief and decisive? Sigmund Freud and Adolf Hitler both greeted the Austro-Hungarian ultimatum to Serbia with exultation. Neither wise men nor fanatics understood that the next war would be tragically different. It was Helmuth Von Moltke, the victor at Sedan, who had warned at the end of his life that the next war would not be a “cabinet war” but “a people’s war,” and woe to the person who lit the first spark. Few had listened to his premonition.
The 1914 commemorations should make us aware, once again, of the malign role that false narratives can play in driving policy.
In 1914, policy makers were fighting the last war, not seeking to prevent the next one. In 2014, we should avoid the same mistake by understanding what is genuinely new about the new pattern of international relations.
What is new is the unprecedented degree of global economic and technological integration between rival blocks. Russia supplies Germany its gas, Germany supplies Russia its core industrial and manufactured goods. China buys US treasury debt and Apple makes its Iphones and Ipads in China. This degree of economic integration — which surpasses anything achieved in the first globalization that culminated before 1914 or the second globalization achieved by 1989 — means that “a new Cold War” is the wrong narrative when seeking to understand what is happening today…
The ideological confrontations of the Cold War have vanished, never to return. From the Russian Revolution onwards, millions of Communist true believers fought, and in some cases, died for the belief that there existed a socialist alternative to the capitalist mode of production. This “radiant tomorrow” divided Europe in two and shaped the struggle to decolonize the European empires. Country after newly independent country sought to throw off colonial rule and substitute some variety of “socialism in one country.” By 1989, when the Soviet Empire collapsed, the hopes invested in the “socialist mode of production” and the radiant tomorrow had died with it. While there are many types of capitalist society, there is no workable alternative to capitalism as an economic mode of production. In 1989, that question was settled…
…Twenty five years on, however, from the Polish border to the Pacific, from the Arctic Circle to the Afghan border, a new political competitor to liberal democracy has taken shape that [Francis] Fukuyama did not anticipate: authoritarian in political form, capitalist in economics and nationalist in ideology. Lawrence Summers has called this new form “mercantilist authoritarianism” which certainly captures the central role that the state and state enterprises play in the Russian and Chinese economies. Mercantilism, however, misses the crude element of cronyism that is central to Putin’s economic model and to the Communist Party of China as well.
This “authoritarian capitalism” — first pioneered by Augusto Pinochet in Chile in the 1970’s is now liberal democracy’s chief competitor, and if we are to meet the challenge it presents, we will have to understand its inner logic.
Putin uses his power as President to reward those entrepreneurs who can best manage — and exploit — the integration of Russia into the global market for primary commodities, chiefly oil, gas and minerals. The prices for these commodities are set on the global market and so the Russian economy is no longer autarchic. It is open to the competitive pressures of global price systems, but the allocation of economic reward in the Russian system — who gets rich and who stays poor — is determined by a state apparatus centralized in the hands of the President and his cronies. The new Russia — and China too — are, to use Acemogulu and Robinson’s term, “extractive” oligarchies. They exclude all but a few insiders from the exercise of economic and political power. There are no institutional checks and balances on the President’s power in Russia. In China, the President has to balance against the military and competing members of the Politburo. But in both societies, rule of law and an independent judiciary exist in theory, not in practice. Oligarchs know, therefore, that if they mount any political challenge to either regime, the law will not protect them…
In both societies, people are free to travel, to holiday where they like and to emigrate. They are also free to grumble in private, but anyone who mounts a collective challenge, whether it be a virtual meeting in a chat room or a street demonstration, can be met with force if the challenge is serious enough.
Both the Putin and Xi Jinping regimes have grasped the paradox that the more private freedom their citizens enjoy the less they will demand the exercise of public liberty. Private liberty acts as a safety valve to contain any discontent about the denial of democratic freedom. Moreover, private liberty makes possible efficient market performance.
When Putin and Xi Jinping met recently, they signed a multi-year energy and infrastructure deal that sealed a long-term strategic alliance. Their long-standing border disputes have been placed in abeyance, and their rivalry as regional powers in Asia has been tamped down. What makes their alliance stable over the longer term is that China is so clearly predominant. Any challenge by Russia to China’s dominance in Asia would be futile. In the medium term, what unites them, of course, is a shared hostility to what John Ikenberry has called “the liberal leviathan,” the United States and its global web of encircling alliances. So far, the two authoritarians have few friends, but their model is attractive. For corrupt elites in Africa and Latin America, China and Russia offer a model that allows them to continue extractive development…
China’s new assertiveness in Asia is driven by many factors — including the need to find energy supplies in the seas off its shores — but also by a desire to rally its rising middle classes around an assertive vision of what Xi Jinping calls the “China Dream,” in which China becomes a global power, not just a regional hegemon.
In the Russian case, the strategic dilemmas are similar: legitimizing extractive rule to a brittle and discontented middle class at home while meeting the challenge of American alliance encirclement on its frontiers. Putin’s response to these challenges has been similar to China’s but has to take into account a weaker economic position.
We should, however, beware of exaggerating these weaknesses. The conventional view about Putin’s regime is that he is perched atop a society in demographic and economic decline, with decaying infrastructure and weak health care and social protection. This is wishful thinking, a false narrative that continues, in essence, the Cold War view that the Soviet Union was “Upper Volta with rockets.” On the contrary, Russia’s natural resource wealth gives it a certain source of state revenue throughout the 21st century, while its limited regime of private freedom creates a safety valve that allows the regime to contain democratic discontent. For millions of Russians, the freedom to travel, to emigrate, to save and invest more than compensate for the occasional brutality the regime displays towards the brave minority who continue to demand an end to authoritarian rule.
This unique combination of private liberty and public despotism separates the new authoritarianism from its Soviet and Maoist past and probably guarantees the long-term stability of both regimes. To be sure, this new form of rule has little outward ideological appeal. Europe and the United States continue to attract immigrants from all corners of the globe, drawn by a freedom that is both private and public. No one is migrating to Russia — or China for that matter. They are out-migration countries. But the fact that their authoritarian capitalism does not appeal to outsiders does not mean it lacks internal legitimacy or support…
The authoritarian apologetics of both Russia and China may not be appealing, but they are not ideologically aggressive. They make a national claim to legitimacy, not a universal one. Chinese rulers may believe in China’s civilizational superiority, but they have not embarked upon a civilizing mission for the whole world. Mao may have encouraged Maoists from Peru to Paris, but the current regime has no such ambitions. It may want global power but it does not seek global hegemony. The same is true of Russia. Unlike Stalin, Putin will never claim that his country is the universal home of all those seeking emancipation from the capitalist yoke.
In the absence of a universalizing ideology, therefore, the new authoritarian states may be aggressive and nationalist in rhetoric, but they are unlikely to be expansionist. Chinese rulers know they still have several hundred million poor peasants to integrate into a modern economy. It will be decades before their per capita income comes close to Western levels. As for Putin, he cannot afford fantasies of global power. His basic concern is to defend entirely traditional Russian state concerns, and this defines the content of his nationalism. His annexation of Crimea is, in essence, the return of Russia to a frontier on the Black Sea first established by Catherine the Great…
The American stake in the Ukraine crisis is somewhat larger. What matters to the United States is the confrontation with two authoritarian capitalist regimes that offer a systemic challenge to the liberal democratic capitalist order. This order, as Sir Adam Roberts reminded the audience at Sarajevo, has been pluralist, as any liberal order must be. That is, it must not face the resurgent authoritarianism of Russia and China with the moral claim that liberal democracy is the only acceptable way to order political relations. A liberal order must accept fundamental differences of moral views and political organization because only a pluralist order can guarantee peace. It is worth remembering that containment, however much contemporary Chinese and Russian policy-makers may hate the word, did not seek to roll back the authoritarianism of the day or challenge its zones of influence. George Kennan’s doctrine did not preach liberal democracy as a virtue that should be imposed on others. His was a doctrine to avoid war in a pluralist world.
The new authoritarians cannot be changed, but they can be contained and they can be waited out. To that end, the United States should do what it can to keep the two authoritarians apart, to build relationships with each that offer them alternatives to greater integration with each other. It’s obvious too that the United States will have to provide credible deterrence by land, sea and air to any authoritarian threat to the territorial integrity of allied states from the Baltic to the China Sea. But strategic balancing will hardly be enough, for the battle of ideas needs to be won, not on the high seas of East Asia, the desert borderlands of Iraq and Syria, or the bloodlands of Ukraine. The real battle lies at home.
If authoritarian capitalism is the emerging challenge to liberal order in the 21st century, the needed response is to reform liberal democracy at home. What alarms America’s allies is not weakening credibility of its strategic guarantees. American power remains overwhelmingly credible when used with discrimination and care. The real problem is democratic dysfunction at home: the 20 year impasse between Congress and the executive branch, the reality-fleeing polarization of political argument, the gross failure to control the invidious power of money in politics, weakening domestic infrastructure and public disillusion with democracy itself…
But America remains the democracy whose state of health determines the credibility of the liberal capitalist model itself in the world at large. There are many reasons why the advance of liberal democracy since 1989 has been checked — why there are fewer democracies today than there were in 2000 — but one of them may be the declining attractiveness of the American model to peoples seeking a solution to their problems of political order…
…The challenge of the new authoritarianism is to put America’s own house in order, to revive among its own people the faith that liberal democracy can reform itself and rise to the challenges of the hour. If democratic dysfunction continues, the risk is not just domestic decline, but ugly adventurism abroad, since it is not just authoritarians who find it tempting to distract discontented domestic audiences with overseas adventures. After Crimea, after the bloody caliphate rising on the banks of the Tigris, after the rising tension in the China Sea, we do not need further foolish adventures abroad, still less words that are not backed up with deeds. We need a Europe and a United States whose people believe, once again, in their own institutions and relish the chance to prove, in peaceful competition, that they can meet the challenge of the new authoritarianism.
End of the liberal state
From a speech given at the Bálványos Free Summer University and Youth Camp
Băile Tușnad, Romania (translated by the Budapest Beacon) | July 26, 2014
n the 20th century there have been three major world-regime changes. At the end of World War I, at the end of World War II, and in 1990. The common points in these were…that when the changes manifested it was clear for all of us that we are going to live in a different world overnight. Let’s say it was very clear here after Trianon, just as it was in Budapest after World War II as well. If the people looked around and saw the invading Soviet troops they knew that a new world was about to begin. In ’90 when we succeeded in breaking and displacing the communists, it was clear after the first parliamentary elections that a new world had arrived for us: the wall in Berlin collapsed, elections were held and this is another future…
The changes in the world nowadays have the similar value and weight. We can identify its manifestation — that point when it became clear — as the financial crisis of 2008 or rather the Western financial crisis. And the importance of this change is less obvious because people sense it in a different way as the previous three. It was unclear in 2008 during the huge Western financial collapse that we are going to live in a different world from now on. The shift is not that sharp as in the case of the three previous world regime changes and it somehow slowly resolved in our minds, as the fog sets on the land. If we look around and analyze the things happening around us, for six years this has been a different world from the one we lived in. And if we project the processes for the future — which always has a risk — it is a reasonable intellectual exercise, and we see well that the changes will only have a bigger impact.
Well, Honorable Ladies and Gentlemen, for the sake of illustrating the deepness of this change, without any particular order, I assembled a few sentences, ideas from the Western World, as well as one or two from the Eastern World, too, that are stunning. If we assessed them through the lens of the pre-2008 liberal worldview, we would be shocked. Yet if we do not view it that way but understand from these sentences how long a way we have gone in terms of public speech, topics and their articulations in these last six years, then these sentences to be quoted will help us understand how profound the change is that is taking place in the world today.
Very briefly: In America, the President of the US has made numerous and repeated statements regarding how America has been engulfed by cynicism, and the task for American society and the American government is to declare war on cynicism originating from the financial sector. Before 2008, such a statement would have resulted in exclusion from gentlemanlike international discourse, additionally because of the characteristics of the financial system, it would probably have even been tainted with as being sinister, making any utterance of such sentences extremely perilous. Contrary to this, these ideas constantly appear in the American press as of late…
According to a well-recognized analyst, the strength of American “soft power” is deteriorating, because liberal values today incorporate corruption, sex and violence and with this liberal values discredit America and American modernization. Also, the Open Society Foundation published a study not long ago analyzing Western Europe. In this, we could read a sentence which says that Western Europe was so preoccupied with solving the situation of immigrants that it forgot about white working class. Or the British prime minister said that as a consequence of the changes happening in Europe, many became freeloaders on the back of the welfare systems. One of the richest Americans, who was one of the first investors in the company Amazon, stated that we are living in a society that is less and less capitalist and more and more feudal, and if the economic system does not reform itself then middle class will disappear, and, as he puts it, “the rich will be attacked by pitchforks.” Therefore, he thinks a middle-up economic model is needed instead of a top-down model.
It is not my intention to interpret these sentences, simply to cite them here in order to show the novelty of these ideas that were impossible to talk about only six years ago. Or, similarly from America, the number of unemployed youth has drastically risen, and in the case of the most promising career options, children from families with affluent families receive a far greater advantage — this is said in the homeland of social mobility. Or to cite something else: another respected analyst said that the internet, understood by the liberal world as the greatest symbol of freedom for many long years, is being colonized by big corporations. His statement suggests that the big question is whether great capitalist companies, meaning international corporations, would be successful in doing away with the neutrality of the internet. Going forward, to quote a development that is both dear and unexpected for us, the English prime minister, who awkwardly avoids his party being identified as Christian Democratic, stands up before the public stating that Christianity is a core principle of British values, and despite multiculturalism, Great Britain is a Christian country in heart, and this is a fact to be proud of…
In my opinion, the most provocative and exciting question surfacing in the Western world during the last year can be summarized as follows, applying necessary simplification: competition existing among nations in the world, competition existing among alliances, and forces of the world has been supplemented by a new element…I would articulate this as a race to invent a state that is most capable of making a nation successful. As the state is nothing else but a method of organizing a community, a community that in our case sometimes coincides with our country’s borders, sometimes not, but I will get back to that, the defining aspect of today’s world can be articulated as a race to figure out a way of organizing communities, a state that is most capable of making a nation competitive.
This is why, Honorable Ladies and Gentlemen, a trending topic in thinking is understanding systems that are not Western, not liberal, not liberal democracies, maybe not even democracies, and yet making nations successful. Today, the stars of international analyses are Singapore, China, India, Turkey, Russia. And I believe that our political community rightly anticipated this challenge, and if we think back on what we did in the last four years, and what we are going to do in the following four years, then it really can be interpreted from this angle. We are searching for and we are doing our best to find — parting ways with Western European dogmas, making ourselves independent from them — the form of organizing a community, that is capable of making us competitive in this great world-race…
In order to be able to do this…we needed to courageously state a sentence, a sentence that similarly to the ones enumerated here was considered to be a sacrilege in the liberal world order. We needed to state that a democracy is not necessarily liberal. Just because something is not liberal, it still can be a democracy. Moreover, it could be and needed to be expressed, that probably societies founded upon the principle of the liberal way to organize a state will not be able to sustain their world-competitiveness in the following years, and more likely they will suffer a setback, unless they will be able to substantially reform themselves…
[T]he question is, what is coming up next? The Hungarian answer is that the era of a workfare state could be next. [W]e want to organize a workfare state…that in character it is not of liberal nature…We have to abandon liberal methods and principles of organizing a society, as well as the liberal way to look at the world…
In the past 20 years the established Hungarian liberal democracy could not achieve a number of objectives…Liberal democracy was not capable of openly declaring, or even obliging, governments with constitutional power to declare that they should serve national interests. Moreover, it even questioned the existence of national interests. It did not oblige subsequent governments to recognize that Hungarian diaspora around the world belongs to our nation and to try and make this sense of belonging stronger with their work. Liberal democracy, the liberal Hungarian state, did not protect public wealth…
[I]n the great world race that is a race to come up with the most competitive way of organizing state and society, Hungarian voters expect from their leaders to figure out, forge and work out a new form of state-organization that will make the community of Hungarians competitive once again after the era of liberal state and liberal democracy, one that will of course still respect values of Christianity, freedom and human rights…
Consequently, what is happening today in Hungary can be interpreted as an attempt of the respective political leadership to harmonize relationship between the interests and achievement of individuals — that needs to be acknowledged — with interests and achievements of the community, and the nation. Meaning that Hungarian nation is not a simple sum of individuals, but a community that needs to be organized, strengthened and developed, and in this sense, the new state that we are building is an illiberal state, a non-liberal state. It does not deny foundational values of liberalism, as freedom, etc. But it does not make this ideology a central element of state organization but applies a specific, national, particular approach in its stead.
The dangers in Asia
From an address at the International Institute for Strategic Studies
Singapore | August 3, 2014
In the coming years it will be a constant challenge for Asia to keep its balance in an increasingly unstable world. I won’t go through all of the global trends and crises, which an audience of this quality is more than familiar with, but I think it is becoming a fact of life. When we met last week, my Chinese counterpart said he believed the world is now systemically unstable — and he was quoting from our former British counterpart William Hague…
“Stability” has in the past been a watchword for autocrats who seek to justify their top-down control. But we know that this is a superficial stability, certainly in the medium to long term. My friend the foreign policy commentator Ian Bremmer describes this well with the “J-curve” concept that the most stable countries are those that are open and democratic.
I have to say, after the seemingly inevitable march of democracy in the later decades of the last century, it often feels like progress has stalled over the past decade.
Fortunately, some of the great democracy success stories of the last generation are found right here in Asia: Korea, Japan, Indonesia and Mongolia. I am optimistic about a fresh era in Indonesia following its historic elections last month…India’s recent election was also breath-taking in its sheer size, scope and complexity.
But there are clearly also continuing challenges in the region. In some cases, democratic practices are sliding backwards and reforms are stalling.
Vietnam’s restrictions on bloggers. Thailand’s military coup. Sri Lanka’s oppression of its Tamil minority. Pakistan’s vibrant civil society under assault by extremists, sometimes with the support of deep state actors.
And probably worst of all, North Korea’s insistence on remaining in its democratic and moral darkness…
Societies that fail to develop democratic checks and balances, transparency and accountability, and freedom of expression, contribute to instability and risks of conflict.
Just look at Russia.
The decline of the Russian Federation’s democratic space in recent years has contributed to a leader who is increasingly insulated from reality, and isolated from his own people.
This has resulted in an aggressive foreign policy, reckless actions, delusional justifications, and an economy in a tailspin.
Russia’s illegal annexation of Crimea was a reversion to 19th-century practices. And its dangerous provocations in eastern Ukraine resulted in the shocking downing of Malaysia Airlines flight MH17.
Successful and enduring societies of the 21st century are not built on strongmen and secrecy. They are rooted in democratic norms and standards, independent institutions, the rule of law and accountable, representative governments.
Democracy is not just about elections. And democracy takes work — from those governing as well as from the governed. It is a journey, not a destination…
The number of security fault lines and trip wires in Asia are multiplying. They are also becoming more dangerous and unpredictable.
It’s becoming widely recognized that more must be done through institutions in the region to deter, manage and respond to these security tensions.
The world’s prosperity now depends on stability in Asia at least as much as it does on a peaceful and responsibly governed Europe or North America.
The world’s most active shipping lanes are in Asia. Two-thirds of the world’s container traffic comes from here. It is difficult to overstate the importance of Asian seas to global prosperity.
Canada is, naturally, deeply concerned by the rise in tensions surrounding maritime boundary disputes. We don’t choose sides in maritime boundary disputes. We even have a couple of our own, and we deal with these peacefully.
We do, however, call on nations in the region to refrain from provocative actions, to commit to peaceful solutions, and to strengthen the institutions and norms that can underpin regional stability.
The stakes are too high to fail.
Canada is prepared to do its part to help strengthen peace, security and stability in Asia. And we are well positioned to do so. We are a founding member of regional institutions, such as APEC and the ASEAN Regional Forum.
Canada has a long and proud tradition of involvement in Asian security.
Whether serving in India, Burma and Hong Kong during WWII, or in the more than 60 missions in the region since 1947 — including, of course, the Korean War, and most recently in Afghanistan. We have stood with our allies and friends in Asia. And we are not turning our backs on Asian security now, nor will we in the future.
I believe that Canada can continue to make a difference in areas of defence and security of priority to the region, and where Canada can really add value — not just maritime security, but in areas like cyber security, military medicine, and counterterrorism capacity building.
A key vehicle for our support is ASEAN. We see ASEAN as a vitally important institution in the region, and welcome its work with China toward establishing a code of conduct for the South China Sea. We urge all countries in the region to embrace such a code…
If we get them right, increased democratic development, energy security, and security cooperation can be pillars of stability in this region.
A secure, stable world is something we should all care about as a value in itself, but seeking it isn’t just about liberal internationalism or being an altruistic global citizen. The cold hard economic facts demand it too. Prosperity is inextricable from stability and security.
You can’t maximize the potential of a country when its people’s needs are not being satisfied by responsible, responsive governance.
You can’t have a free flow of crucial resources like LNG [liquefied natural gas] when a key maritime area like the South China Sea is bubbling with tensions.
You can’t have a sustainable reliance on certain Middle Eastern sources when a clerical regime in Iran threatens to start a nuclear arms race.
You can’t have open trade when it is necessary to take actions like sanctioning Russia over its provocations in Ukraine.
And frankly, you can’t have a prosperous air industry bringing the world together when planes are being shot out of the sky.