The liberal democracies have experienced financial shocks and reacted, but not as free market advocates expected. Adam Smith's name is not being loudly heard in the world's central banks. Instead we have western governments recommending federal interference in their poorly regulated economies and incorporating methods similar to those that guide New Statist nations, such as China and Russia. This phenomenon reveals that Francis Fukayama, who received commendation for his 1989 philosophical tract: The End of History, might have spoken too fast.
"What we may be witnessing is not just the end of the Cold War, or the passing of a particular period of post-war history, but the end of history as such: that is, the end point of mankind's ideological evolution and the universalization of Western liberal democracy as the final form of human government."
Fukayama repeated a thesis of often maligned Karl Marx that liberal democracy is an integral part of the capitalist system but refuted Marx's assertion that "capitalism would inevitably lead to increasing class polarization and class conflict," and "through its own inherent processes of development it is destined to give rise ultimately to its own dissolution." It now seems that both of these scholars have erred and the more prescient is Azar Gat, Professor of National Security at Tel Aviv University. In a Foreign Affairs article: The Return of Authoritarian Great Powers, July/Aug 2007, Professor Gat argues that Fukuyama has not considered the emergence of imposing authoritarian nations, "which could 'end the end of history'." Gat proposes a challenge: "These authoritarian capitalist regimes could inspire other states to follow their model."
The New Statism
In a previous article, The New Statism, The Rise of Corporate States, Alternative Insight, Oct. 2007, the writer independently outlined a similar concept: "A new statism, in various prescriptions, exercises control over the political, moral, economic and social fabric of several nations and has the potential to control the destiny of the world."
An earlier article, The Socialization of America, Alternative Insight, April 2005, stated: "The global economy has been pioneered by the United States but has not been a perfect fit for new pioneering nations. In order to provide prosperity for its people, the United States must implement policies that offset the deleterious effects of globalization. American history shows that private industry has never been the sole source of solutions to recurrent economic problems."
The former article described several nations that can be described as "authoritarian capitalist" regimes. China and Russia are the most prominent, but India, Israel, Venezuela, Bolivia and Vietnam, and several autocratic Arab nations can also be considered New Statist. Their institutions include significant New Statist characteristics:
The government allows free enterprise but might invest in some industries (mixed economy) and control industries related to national defense, natural resources, communications and media. In some cases it also has extensive land ownership.
The government, by direct or indirect mechanisms, partially regulates international money transfers, international trade, wages, prices, internal investment and segments of the labor market.
The government promotes nationalism, reinforces chauvinism and allies the education system with these efforts.
The government exercises powers that lessen opposition and prevent excessive dissent.
The Earlier Challenge to the New Statism
George W. Bush pledged to carry democracy and free market economics throughout the globe. Apart from the new Central European nations established within the framework of the European Community, democracy has not flourished - just the opposite - the Middle East, Latin America and Southeast Asia, have witnessed the expansion of New Statism; state interference in economy with trappings of free market economics. This unforeseen trend has occurred for a good reason; emerging nations, which did not experience an early industrial revolution, sought alternative means to overcome the advantages of the established liberal democracies that arrived first with the most.
Competitive advantages for the established free market economies include a lead in advanced technology and well functioning transportation, distribution, sales and financial systems. Unable to readily compete with the global economies of western industrialized nations that, despite their democratic appearances, previously engaged in imperialist adventures to seize resources and markets and utilized slave, immigrant and imported labor to construct efficient and large scale production systems, major developing nations have been forced to control aspects of their economies - labor, finance, foreign trade, currency and prices - in order to effectively compete in a global economy. These New Statists regimes don't have a defined ideology with fixed rules; just the opposite, each New Statist nation incorporates sufficient controls and authoritarian extensions to offset limitations and satisfy distinct agendas.
New Statism Responds to the Challenge
A mix of components from previous fascist and communist regimes and from present liberal democratic states has guided the New Statist nations to notable successes. Since 1979, China has exhibited uninterrupted growth, multiplied its Gross Domestic product (GDP) by a factor of ten and emerged as a world power with the 4th largest GDP. The other large Statist nation, Putin's authoritarian Russia, has grown an average of 6% each year since 2001. Previously miniscule contributors to the world market, these two nations now account for about 7 % of total world GDP.
Rightfully scorned by liberal and prosperous democracies for political despotism and economic failure, the centralized economies recognized two principal reasons for the failure; an inability to properly allocate resources and to motivate workers. To their credit they adjusted their economies to correct for the strangling lapses. The "iron rice bowl' and guaranteed employment no longer exist in the New Statist nations. State planning has not entirely disappeared, but the overpowering command economies that allocated resources have been eclipsed by a combination of public and state owned enterprises, both of which are market oriented and competitive. Score one advantage for the Statist nations--they can more easily control the recurring problem of over-production, which periodically paralyzes the liberal democracies. Excessive production can be minimized and surplus that can't be exported can be distributed to more deprived masses. If necessary, the government can subsidize the prices. Although still lacking political and economic democracy, the New Statist nations lifted populations from poverty and constructed impressive economies. Their economic advances pose a challenge to the welfare of the western world.
A shift of low wage consumer goods production to New Statist nations (China, Vietnam) together with western nation reliance on resources from other New Statist nations (Russia, Venezuela) stimulated economic expansion throughout the globe, and more notably in the New Statist world. Result - capital flowed from the western world to emerging nations. The accumulation of capital and foreign exchange reserves (1.9 trillion dollars in China and $500B in Russia) has reduced the financial dominance of the western world and placed it on a delicate footing. As the New Statist nations increase their economic and financial strength, they translate the strengths into increased political and military power.