The durability of free-market democracy’s global appeal is “the biggest known unknown” about the next generation global economy, says a prominent analyst.
Five significant political economy questions stand out, Tuft University’s Daniel W. Drezner argues in a new paper for the Brookings Institution: the uncertain pace of technological innovation, the severity of the middle-income trap for developing economies, the resiliency of constraints on great power wars, the depth and political effects of economic inequality, and the durability of free-market democracy’s appeal to the world’s governments. The combined effect of these known unknowns will determine whether the 2036 world economy looks brighter or darker than the world today, he contends in Five Known Unknowns about the Next Generation Global Political Economy.
One of the unspoken assumptions of the past generation was that for affluent countries, democracy was “locked in.” In other words, it was assumed that the advanced industrialized democracies would stay democratic and capitalist, and that the rest of the world would seek to emulate that model, notes Drezner. But it is now at least possible to conceive of an alternative governance model of political economy, for two reasons:
- First, the liberal capitalist model looks somewhat shopworn. Even before the Great Recession, the paradox of political stability affected the entire developed world. The paradox is that stable polities help to foster the slow accretion of policy distortions from interest group pressures and rent-seeking. Events since 2008 have not improved the image of the advanced industrialized economies. The growth slowdown in the OECD economies has been severe, which in turn led to increased fragility for elected governments. In the United States, political gridlock has accelerated a decline in public trust in government. ….Nor is this disillusionment limited to the United States. The Edelman Trust Barometer shows that trust of elite institutions is significantly higher in developing countries than in the developed world. Little wonder that extremist movements have gained voting shares across the European Union. Elected leaders like Hungary’s Viktor Orbán have said explicitly that “liberal democratic states can’t remain globally competitive,” and that it is better to create “an illiberal new state” inspired by Russia and China…
- At the same time, some commentators are beginning to articulate an alternative model that contrasts with liberal democracy. On the economic side, there has been enthusiasm in some quarters for the way that authoritarian states deploy a mix of sovereign wealth funds, state-owned enterprises, policy development banks, and national oil companies to accelerate economic development, buy off dissent, and promote technology transfer. Multiple Western analysts argue that the relative success of state-directed growth augur a rise in “authoritarian capitalism” or “state capitalism.” …. As previously noted, the ability of this model to generate economic growth in the future is dubious. But its political appeal to citizens frustrated with seemingly corrupt democracies can be potent. There are also emerging arguments in favor of alternative political models posited to be superior to liberal democracy. Arguments from authoritarian strongmen can be discounted as self-serving. Support from Western pundits are more worrisome but can also be dismissed………..
Many emerging markets lack the political and institutional capabilities to sustain continued growth. Daron Acemoğlu and James Robinson argue that modern economies are based on either “extractive institutions” or “inclusive institutions,” Drezner adds:
Inclusive institutions are less likely to be prone to corruption, more able to credibly commit to the rule of law, and more likely to invest in the necessary public goods for broad-based economic growth. Similarly, Pritchett and Summers conclude that institutional quality has a powerful and long-lasting effect on economic growth—and that “salient characteristics of China—high levels of state control and corruption along with high measures of authoritarian rule—make a discontinuous decline in growth even more likely than general experience would suggest.”