The Joys of Autocratic Economic Orders

  

China was making such an interesting and democracy-challenging point with a wildly successful, centrally directed economic policy that, within 30 years, took one billion people out of poverty. It started in the 1980s with Deng Xiaoping, who led China away from the mega-destructive policies of Mao Zedong. Mao misled the nation he founded with an economy-killing spate of political purifications – the Great Leap Forward of the early 1960s and the Cultural Revolution that ended in 1976 – leaving his impoverished country without modern infrastructure, his education system in tatters, farms unproductive and poverty everywhere. Deng applied Leninist-Marxist principles to argue that Mao’s vision of “communism” missed a necessary step – capitalism from which the proletariat would then rise to the communist ideal. “Some must get rich first,” he noted as he introduced government-driven banking, finance and manufacturing to a country mired in an entirely different era.

Wink. Wink. Even as today’s PRC President, Xi Jinping, is imposing an older form of Maoist dominated economic control... without undoing the giant “it sure looks like capitalism” Chinese industrial machine, the notion of government totally replacing private production and ownership appears to be singularly unlikely. China looked so much like a freewheeling capitalist country, with Armani clothes in ultramodern malls under looming testaments to cutting-edge architecture that when Jiang Zemin, Deng’s successor, answered the question of exactly what PRC “communism” was, he answered, “Communism is what we say it is.”

I’ve been to the People’s Republic dozens of times, all before the Trump era, which pretty much changed our relationship with the most populous country on earth. Xi has crushed dissent, instilled repressive policies everywhere, reigned in the powerful billionaires who believed their wealth and power ensured their incumbent power, pushed China to reach into the world to increase his political power, expand China’s military footprint and challenge the United States for economic supremacy. It was going so well… until COVID. Whether or not China was the intentional or accidental source of the virus, the explosion of the pandemic in China was an embarrassment to Xi. The Russian failures in Ukraine also reminded Xi that perhaps his coveted annexation of “always a part of China” Taiwan was not necessarily doable.

Xi became obsessed with containing COVID, and as surge after surge exploded, Xi’s central control, allowing him to impose heavily enforced lockdowns at will, became an economy-killer far beyond the new American tariff structure that actual hurt American consumers (now facing soaring inflation) worse than local Chinese. Xi imposed a zero-tolerance policy for COVID infections. A few cases in city… and a lockdown was implemented. Factories shuttered. People were confined to their apartments. And the economy in those cities was placed on hold. After years of 6%-7% GDP growth, China was now projecting annualized growth rates at half or lower that rate for at least the near term.

Xi cemented his dictatorial rule, erased term limits (previously one 10-year term) to ensure his continued and uninterrupted control, purged all opposing forces, and made a big show of arresting dissidents at will, extracting the last vestiges of democracy from Hong Kong, cruelly squeezing Muslim Uighurs from their cultural traditions… and punishing billionaires who gained too public prominence. Everything important in China was “all Xi, all the time.” The zero-COVID-tolerance policy became illusive, amplified by a combination ineffective vaccines and rapidly genetic variants of the virus that kept one giant step ahead of any notion of possible containment.

Indeed, China began with older, slow to develop COVID vaccine formula, refusing out of pride to deploy the highly effective mRNA BioNTech-Pfizer or Moderna versions, waiting to develop internally what eventually turned out to be a less effective mRNA version for its own people. Xi failed to recognize that beyond the Delta, Omicron (the many versions thereof) variants, some version of the virus was here to stay for the foreseeable future. Near-term zero-tolerance was simply not achievable, but Xi refused to accept that transition from pandemic to epidemic. The recent closure of Shanghai, its harbors devoid of ships, is a case in point, as the May 28th The Economist points out:

“Shanghai’s strict lockdown to curb an outbreak of covid is finally easing. But China is far from reaching its zero-covid goals. Fresh outbreaks are reported in Beijing and Tianjin. [A dedicated detailed story from The Economist] explains how President Xi Jinping is damaging China’s prosperity, partly through his insistence on eradicating an ineradicable virus. But even as tensions mount over his covid policies, there is little sign of real challenges to Mr Xi’s rule…

“Over the past 20 years China has been the biggest and most reliable source of growth in the world economy. It contributed a quarter of the rise in global GDP over that period and expanded in 79 of 80 quarters. For most of the period since China opened up after Mao’s death, the Communist Party has taken a practical approach to making the country richer, mixing market reforms with state control. Now, however, China’s economy is in danger. The immediate issue is its zero-covid campaign, which has caused a slump and may condemn the economy to a stop-start pattern. That is compounding a bigger problem: President Xi Jinping’s ideological struggle to remake state capitalism. If it stays on this path China will grow more slowly and be less predictable, with big consequences for it and the world.” China’s problems are and will be our problems as well; the fall of their manufacturing domination will keep many consumer prices high for a very long time. How about Putin’s economy?

Ah Russia, another autocrat’s economic backyard. After the fall of communism three decades ago, the nation had no real idea how to move into a modern world, democracy or otherwise. Highly ranked military officers, government apparatchiks and KGB principals (like Putin) simply stole equipment, factories, land, residences and even military hardware to create the world’s biggest kleptocracy masquerading under a democratic label. To Russians, freedom was more about consumer goods – which they had jealously watched in the Western world – than individual liberties.

But Russia was little more than a third world resources extractor (oil, coal and gas), agricultural seller and a very limited-value manufacturer of military hardware. Except for the big cities, where at least a modicum of wealth was required, Russia is and remains a very backward country with an economy that simply doesn’t make anything. Oh, Russia has gobs of oil and gas (on par with Saudi Arabia), but with a large population, it seems pretty clear that a fossil-fuel-one-trick-pony is not appropriately geared going forward for economic power through modern technology.

Add the continuing impact COVID (fewer than a third of Russians are even vaccinated with its marginally effective “Sputnik V” vaccine), the sanctions and hard costs from Putin’s Ukraine war, the departures of Western industrial and retail investors… well Russia’s economy simply crumbles. The two-plus decade Putin’s autocracy has done little to create an economy that services a modern nation. Oil and gas extraction, the biggest market sectors, look more like Saudi Arabia than the manufacturing/ technology giants like the United States, Germany, Japan or China. Putin’s exploits even pushed much of the world to be less dependent on fossil fuels.

So, what are the lessons in all this? Not that autocratic leadership cannot create a strong economy. Until Xi’s failures with COVID, China had done very well in the post-Mao era. But Russia’s post-Soviet era has failed to create a sustainable modern economy, which could elevate all Russians. With little more than a fossil fuel-based economy, Putin’s raw and deranged ambitions have taken Russia down a rabbit hole that will take decades to repair. Democracy has had its own share of failures, particularly where political divisiveness – which purged bona fide accountability from so much of elected leadership – that began in the Trump era has aligned a whole pile of global economic power to build defenses against American and its potential to go rogue. Are we shooting ourselves in the national foot that will hurt our future economy? Hmmm.

I’m Peter Dekom, and the answer lies in having effective fact-driven economic leadership, and democracy’s saving grace is the ability to push failure out at the next election… at least so far.