Economic History Case Studies: The Impasse Between Liberal Capitalism and Illiberal Capitalism (1989-2022)

The Developmentalist model, as I had correctly suspected, is meant to be understood as a “development” toward Liberal Capitalism or Illiberal Capitalism. The difference between Liberal Capitalism and Illiberal Capitalism, the latter of which is to speak of an “Authoritarian Capitalism,” is nil. Despite sharing the traits of Economic Liberalization and Social Liberalization, their point of contention lies on the topic of Political Liberalization. Where Parliamentary Democracy proves too ineffective at promoting and perpetuating Neoliberalism, Authoritarian political structures must emerge in its apparent absence.

Today, at the end of 2022, I can confidently think of two nations where the Illiberal Capitalist ethos has taken hold, Hungary and Poland. In both countries, there is a growing disdain for Social Liberalization, but not the Economic Liberalization that comes with it. The retreat from Social Liberalization contributed to the loss of Political Liberalization because Political Liberalization itself relied on Economic Liberalization and Social Liberalization as its foundations. Without Social Liberalization, Parliamentary Democracy ceases in favor of an Authoritarian political structure that strives to promote the interests of Kapital and Schuld vis-à-vis the Market/Mixed Economy and the Fractional-Reserve Banking System.    

Thus, given the implications of Hungary and Poland, it stands to scrutiny that Liberal Capitalist Parliamentary Democracy cannot exist without Economic Liberalization, Social Liberalization, and Political Liberalization. Remove Social Liberalization (what Poland and Hungary have done) and the Political Liberalization collapses on itself, thereby warranting the need for Authoritarian political structures to hold onto the Economic Liberalization. Those two nations are what comes to mind when I speak of an “Illiberal Capitalism” coexisting at variance with Liberal Capitalism.

Both Liberal Capitalism and its Authoritarian counterpart follow the same script in Developmentalism. Modernize, urbanize, and industrialize the national economy. Create the conditions conducive to Economic Liberalization so as to initiate Social Liberalization and Political Liberalization. When a major crisis occurs, an impasse is reached where the only two conceivable options are Parliamentary Democracy or some form of Authoritarianism. The type of political system chosen by the Developmentalist government affects where the focus of Liberalization is pivoted toward.

For sake of reference, I illustrated a simple diagram below to describe this process for those interested. I based it on a 2017 Japanese economic history textbook, entitled, The History of Japanese Economic Development: Origins of Private Dynamism and Policy Competence.

The book, written in fluent English by a Japanese professor as instructional materials for his students, is designed to provide a straightforward, easy-to-read historical discussion of Japanese economic development from the purview of Developmentalism. In addition to being in English, the book is also accessible for anyone unfamiliar with Japanese history. While the first half of the book focuses on Japanese economic history prior to 1945, the latter half discusses the subject after 1945. It is in the latter half where the above diagram is relevant because the author adamantly maintained that post-1945 Japanese economic history and the economic histories of Asian Tigers (specifically South Korea, Taiwan, Singapore, Hong Kong) are closely intertwined. The rest of Asia viewed post-1945 Japan as the model of economic development within the realm of Developmentalism.    

Going back to the diagram itself, I was able to conclude that the professor who wrote the book recognized Developmentalism as an unending process of Liberalization. There is an impasse occurring at a precise moment when the conditions of Economic Liberalization and Social Liberalization will introduce a corresponding Political Liberalization. It is a two-way street with only two options: either the Developmentalist nation adopts Parliamentary Democracy or adopts some form of Authoritarianism.

Where I ultimately deviate from that professor’s writings is why Developmentalism would present the Totality of a “developing country” with those two choices. The Japanese professor argued that Parliamentary Democracy emerges when the country is stable and prosperous enough to implement such a mode of governance. The absence of those two factors is what will result in the developing country becoming Authoritarian.  

I, on the other hand, believe that this occurs in countries where all manner of Liberalization has become so entrenched that no other mode of governance except Authoritarianism can be entertained. Suppose there is a nation practicing Developmentalism somewhere on Earth and it has reached the aforementioned impasse. If Parliamentary Democracy was chosen as its political form, then the driver of Liberalization shifts away from Economic Liberalization to Social Liberalization. Alternatively, if Authoritarianism was chosen, then Economic Liberalization remains as the primary driver of Liberalization.

Should Authoritarianism be the intended political form, let it be known that Illiberal Capitalism can automatically return back to Liberal Capitalism under the right set of circumstances. This is not so much a matter of if but a question of how and why that process would occur in any nation managing to implement Illiberal Capitalism.  

The implications of Hungary and Poland also raise even more questions than answers. But what happens if a Liberal Capitalist nation decides to adopt Illiberal Capitalism? Would it too make a gradual return to Liberal Capitalism? What happens if a nation under Liberal Capitalism decides to eliminate Economic Liberalization instead of Social Liberalization? Would Political Liberalization also be affected and, if so, what new political form will emerge as a result?

Based on some insightful conclusions from The Third Place, my suspicion is as follows: if Liberal Capitalism represents a delicate balance between Production for Profit and Production for Utility, then Illiberal Capitalism represents the purest form of Production for Profit. Should Economic Liberalization be eliminated over Social Liberalization, the result should be the purest form of Production for Utility, a “Liberal Socialism” rooted in Social-Democratic Welfare Capitalism. And as I had also pointed out in The Third Place, Production for Profit and Production for Utility are not mutually exclusive from each other.

Categories: Economic History

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