Authoritarian Model Will Dominate the Twenty-First Century focuses on Chinas external influence, while here Id like to consider the prior question: is there some alternative model for achieving prosperity
Something clearly worked well. I would highlight two underlying features of recent phases, both involving a strong and relatively independent state (linked, of course, to the communist party). First, an effective pact has been achieved between the state and emerging capitalist interests: enough support in the business environment, infrastructure and protection of investor property rights to spur dynamism, but enough checks to hold predation and extreme rent-seeking at bay. Second, the state has delivered rising economic welfare to middle and poorer groups, in no small part because of the growth generated by the first pact. Delivering on growth is a necessity for stability and the regimes legitimacy. A growth crisis in China would be a big problem. This necessity to deliver also engendered another feature of Chinas development pathcommitment to pragmatic experimentation.
Authoritarianism has indeed been a feature of Chinas polity, but there is not a new model of authoritarian capitalism here. A number of countries have had phases of rapid growth in which some form of oligarchic capitalism has been balanced by an authoritarian stateBrazil, Korea and Mexico, for example. In each case the state could credibly commit to support high levels of investment and innovation and to constrain extremes of influence. Korea was also successful at broad-based social provisioning and maintaining low levels of income inequality. All three of these transitioned to democracy, though only Korea was able to sustain rapid growth to a position of genuine prosperityher per capita income is now $28,000 (at PPP levels). Brazil and Mexico suffered long periods of slow growth and intermittent crisis, in part associated with failings in the management of the pacts with capital and social groups.
China has a long way to go: income per capita was some $6,000 in 2008, where Korea was three decades ago, and Mexico over four decades ago. Growth could get tougher in the absence of the development of institutionalised checks and balances. This is in the context of the growing power of private interests and risks of corruption of the state. The view that China will need to face a political and institutional transition has not been disproved by past success.
Is this good news for Indias long-run prospects, given her consolidated democracy and modernising corporate structures That depends. For the Indian state faces the same two challenges: getting the balance right in the relationship with capital, and delivering to middle and poorer groups. Democracy can help, but is no guarantee. We need look no further than the resistance to modest proposed reforms of financial regulations in the US this week: these are being obfuscated and held up by an alliance between Wall Street interests and Republican politicians.
Korea also illustrates that the path to building institutions for capitalism is complex. In 1998, a decade after democratisation, the East Asian crisis spread to Korea. This was largely because of over-borrowing by the chaebol (Korean conglomerates): their rising economic power had allowed them to escape the outmoded controls of the state banks and bureaucracy, but their organisational structures remained murky. The crisis ushered in a reforming President and corporate reforms.
What does this imply Getting the right balance, the right social contracts between both state and capital, and state and society, is an essential part of the development process. The issue is not the particular organisational model, though some form of institutional deepening and political openness is the only path that has worked for the full transition to prosperity. Simple-minded applications of the Washington Consensus paid insufficient attention to the role of the state. The Chinese state looks too strong for the long term. The Indian state looks too weak. Getting the right kind of state and functioning social contracts is the big challenge of development; it is both a political and economic project.
The author is at the Harvard Kennedy School and the Centre for Policy Research