I spent the longest part of my career teaching and publishing books relating to the world’s financial systems. In recent years, however, I have come to accept that a lot of the “great economic debates” are more often closer to the millions of words written over “angels on the head of a pin” differences in theologies among the world’s religions.
It has become apparent to me that economic theory is second in its impact on society to political autocracy and how we respond to it. The economic language around each unique manifestation of autocracy is quite malleable and adaptable to whoever is in power. My case is supported by two questions:
- What kind of economic/political system is practiced in China today? Is it still communist? Capitalist? Socialist? These traditional labels have become quite meaningless to anyone dealing with the realities there.
- What is the economic policy of the current in-power Republican Party in the United States? I’m thinking about their position on deficits, free trade and corporate dependency on government subsidies. I see a 180-degree flip on these central positions in just three years, with the party clearly catering to the autocratic wishes of Donald Trump and publicly pretending that these longstanding “capitalist” economic ideologies never existed.
The short version of this story is that China is a political autocracy, and the economic system is now “whatever works to keep the autocracy in power.” In the United States, the Republican Party has seen the demographic writing on the wall and has concluded that a similar autocratic and kleptocratic path is their only hope for continued power. Traditional economic ideology and political democracy be damned.
The current political debates in the U.S. throw out words like “communist” and “socialist” like candy in meaning-free ways. Take for instance the issue of Bernie Sanders’ past expressions of admiration for Cuba’s Castro-era literacy programs. To be clear, I am not a Bernie fan, and Bernie pretty much killed his chances by not accepting the toxicity of his choice of words. However, pundits who “get the vapors” playing “Who is your favorite autocrat?” spout tiring nonsense.
Fidel Castro was a cruel and autocratic tyrant, full stop. And yet, so was his predecessor, Fulgencio Batista, for whom many in the U.S. Cuban community retain strong positive nostalgia, largely because his supporters (and their parents and grandparents) were among the first to leave in the early 1960s, after losing their autocratic power advantage. Two such families and their children were welcomed into my Michigan elementary school around 1960.
Batista was, however, “OUR autocrat,” and nominally used the language of traditional capitalism and his U.S. friends while exercising his own brand of autocratic power, getting rich while screwing over poor people. It is a common formula among autocrats. This flexibility of economic language and practice under autocratic rulers has a long history.
Pepsi and Coca-Cola in “Deep Red” communism
Let’s recall a little of that history to demonstrate that economic ideology has often been secondary to political power. In 1974, as President Mikhail S. Gorbachev was struggling to maintain power over a restive populace, the Soviet Union entered into an agreement with Pepsico to sell its cola drinks in the still-very-communist Soviet Union. Pepsi’s profits (“gasp!”) from the Soviet consumers were repatriated in the form of Stolichnaya vodka and ocean-going ships.
In 1978, with Chairman Mao Zedong now dead, still-very-communist China opened its doors to Pepsi’s competitor Coca-Cola, a major political victory for President Jimmy Carter (not coincidentally from Coke’s home state). The lessons I take from these two events? First, autocrats will bend long-standing economic purity to stay in power. And second, “capitalist” companies like Coke and Pepsi can make money in just about any political system when given the chance, regardless of their public economic stances. The lines between economic and political ideology blur in the presence of cash.
While businesses loudly protest government regulation and intervention, the creative minds in these businesses will find ways to make money even under the strictest of political constraints. The labels of socialism and capitalism are often more “scare words” these days than on-the-ground reality, which is always much messier. Corporations often create their own “mini-autocracies” (cough, cough, Amazon) and are not afraid to wield that political/economic power.
What is China these days, anyway?
Through taking millions of people out of abject poverty into the consuming middle class (“Oh, God, is he is praising those Communist Chinese?”) China’s rulers have stretched traditional economic labels far beyond their 1978 dabble into the cola wars. Today the country defies any traditional economic categories. Some industries, like banking, are heavily controlled by government, while the manufacturing and consumer product sectors have been given the wide economic latitude of private ownership and low regulation.
China has discovered that some economic functions work better when controlled by individual financial motivations while other functions work in their society better as collective operations under a strict governmental thumb. They have at the same time continued to be uneasy enough about that balance that the leaders have laid in concrete both political autocracy and the lifetime leadership of President Xi as their best route to political and personal survival.
Not surprisingly, it was the failure of the Soviet Union’s consumer products industries that likely contributed the most to that system’s downfall. It has been said that the near-overnight demise of East Germany’s rigid communist regime happened because East Berliners “just wanted to shop.” They could watch a completely different world only yards away across the Berlin Wall, and the other side of that wall looked far better than the one they lived in.
At the same time, this Eastern part of the now consolidated Federal Republic of Germany is today the center of violent right-wing groups. Those who have nostalgia for the “high” that autocratic power, nationalism and ethnic bring (not coincidentally also the demographic of the NRA in the U.S.) would gladly turn over their expanded political freedom to an autocrat in exchange for national “purity.”
The Arab Gulf states are another example of these new “mixed economies.” Each one, including Saudi Arabia under “MBS,” is playing with the mix of collective versus individual economic activity in order to maintain the power of their dynastic autocracies.
People want to consume, and the form of political power is often secondary if the consumption opportunities are good. We are seeing this happening in the U.S. Many people will willingly give up political and personal freedom if the internet is working well.
A political compass
This diagram has appeared in many variations with different labels, but here is my favored version:
The horizontal axis indicates the traditional economic left-right spectrum, while the vertical axis indicates the degree of personal freedom versus authoritarian rule in the country. Americans on the economic right have been especially prone to label any politician to the left of themselves as “communist,” but they are confusing economic theory with degrees of political autocracy. Sweden and North Korea are not socialist in nearly the same way, a distinction largely lost on Fox News pundits.
And self-described “socialists” themselves, including Bernie Sanders, have turned the word socialist, as I have written in the past, into a “Humpty Dumpty” mishmash of “whatever I want the word to mean.” Originally the focus of the word was more on state ownership of the means of production. But in common use on the political left, it usually just means that the bottom socioeconomic groups in society have a basic economic floor of protections and societal benefits that is better than the current U.S. system. I see that as a good thing, by the way, except that I would just call this “human decency” and avoid the “S word.”
Going back to China, that country has clearly moved into some unique combination of classical communism and state capitalism. In short, the autocracy itself is the key differentiating factor, with economic theory, as noted above, a lot more “pick and choose” and “whatever works.”
Sweden and Norway are usually seen as being in the lower left quadrant, but in reality, they are close to the midpoint on the horizontal axis as well. Occasionally, right-wing “social purity” groups surface, but usually “the people” of the Nordic lands have made their own “whatever works” choices between what gets state control and what lets a freer hand. It becomes a negotiation of the “returns to labor” versus “returns to capital” in tenuous balance. In the U.S., on the other hand, “capital” has clearly been winning this arm-wrestle.
One less-recognized benefit of the Nordic countries guaranteeing their citizens access to education, childcare services and healthcare is that it enables natural entrepreneurial tendencies in people. In the U.S. I am less likely to start that new venture for fear of its downside effects on my family’s health and security. But small business entrepreneurship in those countries remains strong, perhaps even healthier than in the U.S.
Moving up into state capitalism
The bottom-right quadrant should probably be labeled as “small d” democratic capitalism in order to distinguish it from the Democratic Party. Unfortunately, Republicans have largely lost that distinction. A relentless focus on voting restrictions aimed at left-leaning voters plus the opening up of the financial floodgates in political advertising to the advantage of the über-rich have clearly dampened the “power of the people” characterizing small-d democracy in the U.S.
In addition, Republicans have been masters of the tools of hidden forms of state capitalism. Tax policy, especially the use of “tax expenditures” to hide direct subsidies in the form of specific industry-directed tax relief, has created behemoth “corporate persons” who are not taxed like persons, indeed if they are taxed at all.  And now, due to a “Bear” market caused in part by the Coronavirus, the “free market capitalist” Republicans will be first in line to advocate taxpayer funds to protect highly-leveraged capital owners and their businesses from recession-caused losses.
The real political race in 2020 has less to do with economics than it does with whether we allow a small cadre of authoritarians and kleptocrats to expand their power. This is the short reason why Bernie Sanders’ campaign has flagged. Ironically, the country is much more likely to move into a “progressive” direction with a broad-based, Biden-led Democratic/Independent/anti-Trump-Republican coalition seizing control over Congress and the Presidency.
- For more on the power of corporate “tax expenditures” to re-distribute wealth, see this post from last year.