There is enough historical evidence to suggest that even in the absence of full democracy, countries can find a degree of happiness among its citizens for several decades. When nations experience economic success, it is possible to see citizens dragging their feet in the demand for democracy.
In this context, China’s economic strength has reopened the discussion on how soon its citizens will see the need for greater political freedom. As the world’s second largest economy, the country finds itself in an intriguing position—of having become an economic giant without materially altering its political canvas. With established economic models being questioned after the financial crisis, there may also be little incentive for Beijing to change its approach. If this is indeed so, many business leaders may need to rethink their belief in the inexorable march towards liberal democracy.
That belief appears simplistic in China’s case. Those concerned with the way Chinese industry and government work together to outlast foreign competitors think China’s increasing wealth will erode this symbiotic relationship. They hope this would, in turn, enable them to compete effectively with China Inc. Unfortunately for them, thinkers across disciplines appear to be converging on the view that a move to greater democracy may take longer than expected.
A fortnight ago, I wrote of Michael Mandelbaum’s gloomy belief that the world might need to reconcile itself to more Cold War-like strains, including the challenge of dealing with an assertive China. Sociologists increasingly subscribe to the views of Daniel Bell, who 30 years ago commented that it was possible for capitalism to exist for an extended period without political freedom.
A recent entrant to this debate is Francis Fukuyama, who two decades ago believed history had ended and that we were all poised to enter a liberal age. In what appears to be a change of heart, Fukuyama recently wrote that democracy is a distant prospect in China, and that Beijing will deal with economic growth and political freedom in its own unique way. The Chinese people may not be able to vote their governments in or out; but China’s government has demonstrated that it can respond swiftly and decisively to popular pressures.
Consequently, the belief in China’s unidirectional move to democracy, with its impact on economic policy, may be just wishful thinking. Fukuyama thinks an economic downturn or less competent and corrupt leaders in future can reveal the fissures in China’s political economy. However, he feels that because the Communist Party does respond to popular discontent, especially among the middle class, it also reduces the likelihood of such social tensions. Therefore, for a long while, the economic structures of a pluralist democracy, most notably competition in its truest sense, may operate differently in China. To respond to this large successful country that operates outside the classical liberal competitive model, businesses from other countries will need different tools than the ones they have used for much of the last century.
It is likely that other countries will need some form of government-industry cooperation if they are to combat China. We saw a small sign of this recently when China chose to restrict exports of critical rare earths. Japanese industry and government came together with a unified response to find substitute sources for rare earths and appear to have succeeded in doing so. It is likely we will start seeing a closer alliance between industry and Capitol Hill, as well, in an effort to level the playing field with China.
Clearly, the notion that democracy is not inevitable is gaining currency. Even as we see protesters in the Arab world seek greater freedom, this inconvenient truth must give pause for reflection. This means companies that have sought to keep the government at an arm’s length may need to build a new and symbiotic relationship with their political administrators if they are to compete effectively with China’s might.
Govind Sankaranarayanan is chief financial officer and chief operating officer, corporate affairs, Tata Capital. He writes on issues of governance.
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