The economic and military armament of the big illiberal powers – Russia and China, in particular – was achieved with capital originating in liberal countries. The capital’s unscrupulous pursuit of globalization opportunities after the fall of communism thinned the middle class “at home” and created in autocratic countries economies so strong that the capitalist society became dependent on them. We are faced with a paradox: the capital of democratic Western countries finances the weakening of the democracy in these societies.
Chasing opportunities has always been instrumental in the efficient allocation of capital, but…
As subjects of the experiment called “communism”, our regional neighbors and us are probably best suited to call the failure of this system and recognize the main causes for its malfunction. To all of us having experienced that era, it is obvious that the key issue with the communist ideology was the illusion that the heavily advertised well-being of the people could be reached as a goal per se through highly centralized and politically targeted the economic decisions. Furthermore, egalitarianism was the safe way to destroy the motivation of individuals to self-develop and thus help the society grow.
In fact, the only way to improve the well-being of the people is through the economy. And not just any economy. It must be one that is sufficiently free to produce prosperity, one that focuses not only on quantity, but on quality first. In the end, the added value is a product of innovation and quality. Obviously, the focus of the communist regime on quantity alone was not enough. And the failure can be explained by the way in which resources were allocated, namely on political and ideological criteria, not on economic opportunity criteria.
Which takes us to the key-word “opportunity” and the role that seizing such opportunity plays in the optimal allocation of capital. Such allocation is virtually impossible in societies governed by interventionist forces, basing their decisions on non-economic criteria. The communist regime is an extreme example, but, eventually, such anomalies are a reality in most autocratic regimes, where one person or a limited group of people take decisions that are not meant to maximize the efficient use of the capital, but to serve the interest of a small group of privileged people.
A short remark for those who are quick to find a counterargument in the example of China. I think that, in fact, it may stand as an eloquent example of the lottery that an autocratic regime represents. Is the despot enlightened or not? Because China’s burgeoning economic growth, despite the autocratic regime, was due to the one or two “enlightened despots” who employed the political levers at hand to promote an economic growth based on private initiatives and on massively raising foreign capital, cleverly utilized. But the map is home to many other countries run by autocratic regimes in Asia, Africa or Latin America, deprived of enlightened despots, hence struggling in poverty or in the middle-income trap.
…the pursuit of opportunities alone would not have sufficed for the post-war development of the Western middle class
What I mean to say is that capitalism alone, namely allowing the capital to seize the opportunities, would not have produced the well-being of the people living in developed countries. Having liberal societies capable of ensuring the checks and balances was key to the distribution of power and wealth within the society.
But we would be naive to imagine that capitalism and liberal regimes alone were enough to bring about considerable prosperity to the Western population by creating a strong middle class. After the war, economies would largely depend on the internal markets, so having a population with sufficiently high purchase power to generate demand was essential. Moreover, I think one should not overlook the role of ideological competition in promoting a balanced distribution of the wealth between capital and labor.
The emergence of the communist block ruled by the Soviet Union meant that every ideology, whether capitalist or communist, had to demonstrate its superiority to their own population. What better way to foster an ideology than proving it can provide to the population much more prosperity than the one created by the opposing ideology? Western Germany and Eastern Germany were the “displays” of the competition between the two ideological blocks. Each of the two countries received massive funding from their sponsors, meaning the US and the Soviet Union, respectively, enabling them to rebuild remarkably fast after the devastation suffered during WW2. Thus, they eventually became the most prosperous countries in Europe’s Capitalist West and Communist East, respectively.
The dismantling of the communist block and the globalization race caused a profound change to the consequences of unscrupulously chasing any opportunities
With the dismantlement of the communist block, however, the ideological competition vanished into thin air, the capitalism had won and was left with nothing else to prove. Furthermore, the emergence of the globalization unlocked the gates to capital migration towards the many opportunities that the world had to offer. It didn’t really matter who exactly was offering them. The investments did not discriminate between democratic and non-democratic countries, which was not necessarily unusual. In its search for opportunities, over time, the capital was rather unscrupulous in trading with or investing in countries with autocratic or dictatorial regimes, whether it was Africa, South America or Asia.
However, by the end of the 1990s, this type of economic relations with non-democratic countries turned problematic and was usually challenged on ethical principles, first and foremost. Otherwise, the dictatorial or autocratic countries in Asia, Africa or Latin America were too small, undeveloped and poorly managed to become major geopolitical rivals for Western countries and particularly for the US.
Meanwhile, the great geopolitical rival, the Soviet Union, was an economic bunker and ideologically unapproachable, so it was circumvented by the foreign capital. China, in turn, despite being the most populous country, was economically so weak and irrelevant that it could not aspire to become a big power.
The introduction of the Chinese economic reforms, followed by the fall of the communism and the “iron curtain” in Eastern Europe, the acceleration of the globalization provided unprecedented opportunities for the capital. As the globalization pervaded the world economy, the capital had unlimited access to a skilled workforce that was much cheaper than in the countries of origin, as well as to outlets made of billions of people whose purchase power was about to expand.
As for the capital, it steadily kept on chasing opportunities starting from the idea that it was the safe bet for capital owners to multiply their wealth. And now, it got even better than before, given that, with the communist block gone, the capital had fewer reasons to strike a balance between the allocation of economic benefits and the workforce from Western countries. As a result, the middle class from the Western countries stopped expanding and even suffered a setback, the winner here being the emerging countries that were thriving.
But in this new context, with the capital chasing any opportunities and turning a blind eye to the democratic standards of the recipients, the consequences would be extremely significant, beyond the economic effects. Because this time, it was longer about countries in Africa or Latin America.
The economic and military armament of the big illiberal powers was achieved with capital originating in liberal countries
By opening up to foreign investors, both Russia and China have started to become increasingly significant economic players in the global supply chains: Russia – as a producer of hydrocarbons and other raw materials and China as processor and manufacturer of goods for the major developed countries. Over the years, the economic relations between the developed countries holding the capital and the two countries with autocratic regimes have constantly strengthened to eventually result in a remarkable dependence of developed economies on Russian energy resources, on the goods manufactured in China or on the Chinese market. As the capital tapped into the opportunities provided by the collaboration with such countries, the politicians justified their actions saying that the economic integration of the two countries in the developed and liberal world and the creation of strong inter-dependencies would be a warrant of global geopolitical stability and, why not, also result in democratic developments in these countries.
The reality revealed, in the end, the naivety or hypocrisy of such political considerations, as the only goal to be reached was the profitability. The hydrocarbons obtained from Russia helped transform Western Europe and mainly Germany into an “engine of exports”. At the same time, the money arriving in Russia enabled, on the one hand, the re-balancing of the country’s economy, the financing of the army, and on the other hand, an excessive social polarization by creating an ultra-wealthy elite. Yet, when it came to democracy, Russia made no progress whatsoever.
As for China, the cheap and educated labor force was a magnet for capital. Unlike Russia, which used the considerable sums of hard currency for consumption, army and the enrichment of the few, China used the money towards development through massive investments. These contrasting strategic directions of the two countries impacted strongly the historical evolution: Russia’s economy became less and less competitive, while China’s economy soared, to become the world’s biggest economy by GDP and, most importantly, an emerging challenger of the American supremacy.
The economic evolution based on different models of the two big powers entailed the economic dependence of the Western capital on them. Chasing opportunities and nothing but opportunities was the cause of this. The problem is that, like I said earlier, the big issue with autocracies is that they depend on the chance of having an enlightened despot. The moment he gets “darkened”, we see emerging the serious questions about the contribution of the liberal world’s capital to the expansion of the economic and military power of the two largest autocratic regimes. Which, in turn, use their newly-acquired power to destabilize and limit the influence of the very liberal societies that enabled the capital to thrive for decades and support even the autocratic regimes. If you feel like it all looks increasingly nonsensical, you are not mistaken.
The paradox of the Western capitalism financing the weakening of the Western democratic societies calls for a reconsideration of priorities
In this context, the Western capital must answer some highly important questions. Will it keep on contributing, through economic relations and investments, to the economic growth of the illiberal powers seeking, through any means available, political or economic, to overturn the liberal order? Meaning precisely that order that allowed for the capitalist development of the West? Are there viable alternatives to the existing situation? Unfortunately, the reality is anything but reassuring.
Let us remember the lack of any major change in the attitude of the capital following Crimea’s invasion. Moreover, according to the international press, 10 EU countries exported EUR 350 million worth of weaponry to Russia, despite the embargo imposed after the annexation of Crimea. 78% of the sales were made by France and Germany. It was an opportunity, right?
In parallel, China’s threatening attitude in South China Sea towards its neighbors and Taiwan is taken lightly, in economic terms. Everything is “business as usual”, and the real reason for questioning the global supply chains was actually the pandemic, not China’s regional aggressiveness.
The terrible sluggishness in cutting the economic ties with the aggressor from Ukraine, the fact that the Western capital is practically financing the war today through a development model based mainly on Russia’s natural resources, the fact that the European economy over-expanded to become dependent on export opportunities from China and on the cheap imports from this country, this entire economic mechanism which blows the wind in the sails of the illiberal club and starts to be apparent in the very countries of the capital’s origin brings its owners face to face with extremely serious decisions: how long will they continue, just for the sake of pursuing opportunities at any cost, to finance the attackers of the system that enabled their wealth by the generation and accumulation of capital?
And the most worrying of it all is the feeling that some of the capital is far from having learned its lesson and that it is looking forward to an end of the war – whatever this end may look like – so it can go back to “business as usual” in the very place it was forced to leave.
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