There's been a lot of chatter in the past year month
week about the rise of authoritarian capitalism. How warranted is it?
Consider last Friday's Brad Setser post
Not only do we live in a new “age of authoritarianism,” but we live in a world where autocratic governments increasingly finance democratic governments....
One thing is clear: the world’s biggest financial powers are no longer the world’s large democracies. A gathering of the countries that matter for global economic coordination will no longer be a gathering of the leaders of the world’s big democracies. Coordination among the large democracies was never easy — and likely will only get harder as additional countries have to be brought in.
Then there's the New York Times' Jad Mouawad on national oil companies
-- most of which are based in non-democratic countries:
Oil production has begun falling at all of the major Western oil companies, and they are finding it harder than ever to find new prospects even though they are awash in profits and eager to expand.
Part of the reason is political. From the Caspian Sea to South America, Western oil companies are being squeezed out of resource-rich provinces. They are being forced to renegotiate contracts on less-favorable terms and are fighting losing battles with assertive state-owned oil companies.
And much of their production is in mature regions that are declining, like the North Sea.
The reality, experts say, is that the oil giants that once dominated the global market have lost much of their influence — and with it, their ability to increase supplies....
As late as the 1970s, Western corporations controlled well over half of the world’s oil production. These companies — Exxon Mobil, BP, Royal Dutch Shell, Chevron, ConocoPhillips, Total of France and Eni of Italy — now produce just 13 percent.
Today’s 10 largest holders of petroleum reserves are state-owned companies, like Russia’s Gazprom and Iran’s national oil company....
Western companies are far better than most national oil companies at finding and extracting petroleum, experts say. They have developed advanced exploration technologies and can muster significant financing to develop new fields. Many of the world’s exporting states, however, have spurned their expertise.
Oil company executives see a straightforward explanation: a trend known as resource nationalism. They contend that they have been shut out of promising regions by a rising assertiveness in the Middle East, in Russia, in South America and elsewhere by governments determined to keep full control of their oil.
Even in places where they are allowed to operate, the Western oil companies face growing problems. Countries like Russia, Algeria, Nigeria and Angola have recently sought to renegotiate their contracts with foreign investors to capture a bigger share of the profits.
“The problem with the supply side of the equation is a problem of accessing the resources in the ground so they can be explored and developed,” Rex W. Tillerson, the chairman of Exxon, said in a recent interview. “That’s a political question where governments have made choices.”
And oil is not the only area of resource nationalism and nationalization. There's cement
. And, potentially, food
While Saudi Arabia sets up its first sovereign wealth fund, ordinary Saudis are more preoccupied with the rising price of food. This is prompting the Saudi government to consider a new direction for foreign investment: buying farms in the poorer parts of the world....
Saudis are thinking of buying rice farms in Thailand, the world’s biggest rice exporter. Rice prices are climbing especially fast, as several rice-producing countries have restricted exports, fearing domestic shortages. Thailand has even flirted with the idea of an OPEC-style rice cartel.
Investors from elsewhere in the Gulf, including Qatar and Abu Dhabi, are scouring the world for undeveloped farmland to buy, especially in Pakistan and Sudan. Libyans and other Arabs have been checking out Ukraine. Kuwaitis have been looking in Myanmar, Cambodia and Laos.
A few thoughts on all of this:
- There's no question that there's either been a shift in the distribution of power -- or a shift in norms. Fifty years ago, there's just no way the United States tolerates this kind of nationalization in Venezuela, for example.
- The rise of authoritarian capitalism still seems a bit overstated to me. Setser, for example, makes his point by looking at the size of official reserves in democratic vs. authoritarian countries. And, sure enough the latter now dawrfs the former. Except this is a bit deceptive, since I'm willing to bet that the distribution of privately-held assets looks much more like the traditional distribution of power. Even in an area like oil wealth, OECD governments still hold a lot of leverage, as Daryl Press and Eugene Gholz point out in today's New York Times.
- I don't doubt that authoritarian capitalism can thrive in the short to medium term, but I'm still unconvinced that it can outperform the more liberal varieties of capitalism in the long term. Centralized governments do pretty badly once they are done with technological catch-up. And I'm very fond of this Ken Rogoff quote: "Governments have a long tradition of losing massive amounts of money in financial markets. This tradition is not likely to end anytime soon."
- I could be wrong about point #3. Maybe Rogoff was talking about the U.S. Trasury rather than China's State Administration of Foreign Exchange.
- Really, this all boils down to China. Every other "rising power" in today's economy is either a democracy or sitting on natural resources that will eventually decline in value.
This is the $64 billion RMB question of the day -- can China convert itself into a billion person version of Singapore?