The Economist - UK (2022-03-19)

64 Finance&economics TheEconomistMarch19th 2022

forlargeprofits).Bybringingcountriesin­

totheglobaltradingsystemitwouldbe

possibletoraiselivingstandards,aswellas

fosterdemocracyandfreedom.Aglobal­

isedworldwouldalsobea morepeaceful

one,theargumentwent.

In the 1990s globalisation took off.

Tradeboomed.Annualglobalflowsoffor­

eigndirectinvestment(fdi, includingpur­

chasesofcompaniesandtheconstruction

ofnewfactories)rosebya factorofsix.In

1990 Russia’sfirstMcDonald’sopened,in

Moscow;kfcsetupshopa fewyearslater.

Russian oil companies began directing

theirexportstowardstheWest.Between

1985 and 2015 Chinese goodsexportsto

Americarosebya factorof125.

Livingstandardscertainlywentup.The

numberofpeoplelivinginextremepover­

tyhasfallenby60%since1990.Somefor­

merly closed countries have utterly

changed.TheaverageEstonianisnowonly

marginallypoorerthantheaverageItalian.

Theotherhoped­forbenefitofglobali­

sation—political liberalisation—has fal­

tered,however.OurWorldinData,are­

searchorganisation,puts countries into

fourgroups,rangingfrommostto least

free:“liberaldemocracies”,suchasAmeri­

caandJapan;moreflawed“electoralde­

mocracies”,suchasPolandandSriLanka;

“electoralautocracies”,suchasTurkeyand

Hungary;and“closedautocracies”,suchas

ChinaandVietnam,wherecitizenshave

norealchoiceovertheirleader.

Classifyingpoliticalregimesisnotan

exact science, and involvesmaking as­

sumptionsandjudgments.OurWorldIn

DatacountsIndiaasanelectoralautocracy

since2019,forinstance,whichsomeother

sourcesdonotagreewith.Nonetheless,it

helpsgiveanideaofa broadertrend:the

waningmightofliberaldemocracies.

Theshareofpoliticalregimesthatwere

liberaldemocraciesrosefrom11%in 1970

to 23% in 2010. But democracy has re­

trenchedsince.Mostofthe1.9bnpeople

livinginclosedautocraciesnowresidein

justonecountry:China.Butlesserformsof

autocracyareontherise,suchasinTurkey,

wherePresidentRecepTayyipErdoganhas

consolidated power during his two de­

cadesinoffice(seechart1).

UsingdatafromtheWorldBank,the

imfandelsewhere,wedividetheglobal

economyintotwo.Weestimatethattoday

theautocraticworld(ie,closedandelector­

al autocracies)accountsforover30%of

globalgdp, morethandoubleitsshareat

theendofthecoldwar.Itsshareofglobal

exportshassoaredoverthatperiod.The

combinedmarketvalueofitslistedfirms

representedjust3%oftheglobaltotalin

1989.Nowit represents30%(seechart2).

Chinaisbyfarthebiggestnon­democ­

racyineconomicterms,witha dollargdp

roughly two­thirdsofAmerica’s,making

upoverhalfofourgroupofautocracies.

Butothers,suchasTurkey,theUnitedArab

EmiratesandVietnam,havealsogainedin

economiccloutoverthepast 30 years.

Autocraciesarenowanespeciallyseri­

ousrivaltodemocracieswhenitcomesto

investmentandinnovation.In 2020 their

governmentsandfirmsinvested$9trnin

everything from machinery and equip­

menttotheconstructionofroadsandrail­

ways.Democraciesinvested$12trn.Autoc­

raciesreceivedmorefdithandemocracies

between 2018 and 2020. And since the

mid­1990s theirshareofpatent applica­

tionshasgonefrom5%toover60%.China

dominatespatenting,butonalmostallour

othermeasurestheeconomicpowerofau­

tocracieshassoaredevenafterChinaisex­

cludedfromourcalculations.

Manyautocracieshaveremainedstead­

fastly mercantilist. China, for instance,

openeditsdomesticmarketswhereit suit­

edit,butkeptwholesectorsclosedoffto

allowdomesticchampionstorise.None­

thelessautocracieshavebecomeintegrat­

ed with democracies to an extent that

wouldhavebeenunthinkableduringthe

coldwar.Vietnam,whichhasbeenruled

bya singlepartyfordecades,forinstance,

hasbecome apivotal linkinthe global

manufacturing supply chain. The king­

domsandemiratesoftheMiddleEastare

vitalsourcesofoilandgas.

Weestimatethatroughlyone­thirdof

democracies’ goods imports come from

otherpoliticalregimes.Thecodependency

insomemarketsisclear.Democraciespro­

duceabouttwo­thirdsoftheoilnecessary

tomeettheirdailyneeds.Therestmust

comefromsomewhere else.Half ofthe

coffee that fills Europeans’ cups comes

fromplaceswherepeoplehaveweakpolit­

icalrights.Andthatisbeforegettingtopre­

ciousmetalsandrareearths.

Integration goes far beyond trade.

Americanmultinationalsemploy3mpeo­

pleoutsidedemocracies,a riseof90%in

thepastdecade(theirtotalforeignemploy­

menthasincreasedbya third).Investors

fromdemocraciesholdovera thirdofthe

autocratic world’s totalstock of inward

fdi. Autocracieshavebuiltuphugeforeign

reserves,nowworthmorethan$7trnand

often denominated in “free” currencies

likethedollarandtheeuro.

Brokendream

Thisintimacy is nowunderthreat asa

third,darkerperiodcomesintoview.Even

beforethewarinUkraine,powerfulcoun­

trieswerelosinginterestina trulyglobal

presence.Insteadtheywereseekingtorely

moreonthemselvesortodominatetheir

immediate geographicalarea.Theirnew

thinking is becoming increasingly en­

shrinedinstrategyandpolicy.

Thewaningappetiteforglobalisation

hasafewcauses. Onerelatesto greater

consumerawarenessintheWestabouthu­

man­rightsabusesinplacessuchasChina

andVietnam.PollsinWesterncountries

regularlyfindthata highshareofrespon­

dentssupportboycottingChinese goods

(whethertheywouldactuallydosoisan­

othermatter).Westerncompaniesarebe­

ing pressed to source goods elsewhere.

Concernsoverthenational­securityimpli­

cationsoftradeandinvestment,including

industrialespionage,havealsorisen.

Autocracies have their own worries.

Oneisthattoomuchintegrationcancause

Western culture to seep acrossborders,

weakeningautocraticrule.Denghimself

Commandingheights

Measuresofautocracies’economicclout*,%of world total

Sources:OurWorldinData;Boixetal.(2013);VarietiesofDemocracyproject;Lührmannetal.(201);WorldBank;TheEconomist

*Includeselectoralautocraciesandclosedautocracies

2

30

20

10

0

2010200090801970

GDP

China

Other

autocracies

60

40

20

0

2010200090801970

FDIinflows

30

20

10

0

20102000901975

Value of listed companies

Regime change

World population, by political system, % of total

Sources:OurWorldinData;Varietiesof Democracy project (v12)

1

100

80

60

40

20

0

21102000908070601950

Closed autocracies

Electoral autocracies

Liberal democracies

Electoral democracies