The anatomy of illiberal capitalism
Populists such as US President Donald Trump and de facto Polish leader Jaroslaw Kaczynski, and authoritarians such as Turkish President Recep Tayyip Erdogan and Russian President Vladimir Putin, do not just share Hungarian Prime Minister Viktor Orban’s brand of so-called “illiberal democracy”. Each also espouses a form of “illiberal capitalism”.
But what does illiberal capitalism entail, and how compatible is it with illiberal democracy? As nationalists, Mr Trump, Mr Kaczynski, Mr Erdogan, Mr Putin and Mr Orban regard the market economy not as a means of boosting prosperity and individual freedom but mainly as a tool to strengthen the state.
Historically, there have been various schools of authoritarian right-wing thought about the relationship between the market and the state. At one extreme, the Nazis established a command economy while maintaining private property and a high level of income inequality. At the other extreme, early 20th-century Darwinists called for unfettered domestic free markets in which only the fittest would survive, leading to a stronger country.
Today, Russia sits at one end of the illiberal capitalist spectrum. Mr Putin views the collapse of the Soviet Union as largely an economic failure, and he recognises that private property and the market can make the Russian economy more resilient in the face of Western sanctions. But he also believes that private-property rights come second to the needs of the Russian “security state”.
As befits a former KGB officer, Mr Putin also believes the state has “ownership rights” to its citizens’ private assets, not just in Russia but also abroad. Russian oligarchs and companies overseas — such as those that have interacted with The Trump Organization — are thus potential instruments of Russian foreign policy.
Hitler quipped that while the Bolsheviks had nationalised the means of production, the Nazis had gone further by nationalising the people themselves. This is similar to Mr Putin’s own understanding of the relationship between capitalists and the state, according to which even the richest Russian is still a serf.
Under Russia’s highly concentrated ownership structure, the Kremlin’s control of wealth is synonymous with political control. Rather than trying to control millions of bourgeoisie, the state can deploy secret police to manage just a few dozen oligarchs.
Mr Trump is at the other end of today’s illiberal capitalist spectrum: no less comfortable than Mr Putin with deep income inequalities, but not as inclined to use the state to favour particular business people (other than himself ). As a result, his administration has been using executive orders to roll back many of the regulations that former US President Barack Obama introduced.
Still, there are exceptions to Mr Trump’s support for free-market policies. He is in favour of protectionism and cheap money, presumably because these positions play well with his core political constituency of white working-class voters.
If Mr Trump takes the protectionist route, however, US trade partners will retaliate, often with measures targeted directly at his base, as when the EU threatened tariffs against Kentucky bourbon. Given that threat, Mr Trump’s economic populism will most likely manifest itself through abstinence, avoiding pro-market measures that clearly hurt the white working class.
In Turkey, Mr Erdogan came to power in 2003 as the champion of devoutly Muslim Anatolian entrepreneurs. Opposing the traditional statism of Turkey’s Kemalist ruling elites, Mr Erdogan introduced pro-market reforms and feigned a commitment to the EU accession process by supporting Turkish democratic institutions.
Having achieved his political aims, Mr Erdogan is now dispensing with his ostensible commitment to democracy. But it remains to be seen if he will do the same with market capitalism. Even when he first came to power, Mr Erdogan’s support for free markets never stopped him from denouncing imaginary economic conspiracies. But if he attempts to usher in a return to statism, Turkey’s rising entrepreneurial class may well turn on him. In Hungary, Mr Orban’s approach to capitalism has been more complex. Although he is often called a populist in the West, his approach combines social Darwinism and nationalism. On the one hand, he has introduced a flat income tax that favours the wealthy and a child tax credit that benefits only higher-income households; on the other hand, like Mr Putin, he maintains a coterie of friendly oligarchs who help shore up his power, not least by controlling the Hungarian media.
Mr Kaczynski is the most economically populist of the illiberal capitalists. He started out as a social Darwinist, once introducing a child tax credit that would later inspire Mr Orban. But since his Law and Justice Party (PiS) returned to power in 2015, Mr Kaczynski’s flagship policy has been monthly cash payments of €115 (about 4,500 baht) to Polish families for each child after the first.
Moreover, Mr Kaczynski has pushed for raising the minimum pension, rather than all pensions, and for lowering the retirement age, which plays well among rural, lower-income voters. When it comes to trade, Mr Kaczynski’s government loudly opposes protectionism directed against Poland’s interests, as in the case of changes to the regime for delegated workers proposed by French President Emmanuel Macron.
Today’s examples of illiberal capitalism range from toleration of extreme inequality to favouring heavy redistribution, and from overweening statism to broad deregulation of markets. Beyond a shared inclination towards protectionism, they do not seem to have much in common. But far more important than each government’s economic policies is its political orientation.
It is no coincidence all five leaders have attacked their country’s judiciary. To be sure, Mr Putin’s and Mr Erdogan’s crackdowns have been far more effective than Mr Trump’s tweets or the PiS’s stalled attempt at judicial reform this summer. But in each case independent judges are viewed as rival power holders.
When politics comes first, there is a temptation to bend the law towards one’s own ends. But without the rule of law, businesses lose confidence that contracts and private property rights will be enforced or independently arbitrated, and the economy cannot sustain strong long-term growth. That is why illiberal democrats who place politics first will ultimately undermine the prosperity and strength of their countries, and thus their own legitimacy.