As a postdoctoral research fellow at the University of the Western Cape’s political studies department a decade ago, I once remarked in front of graduate students and staff about “us in the West”. An older member of staff corrected me and said: “We are in Africa — we are not the West.”
That slip of the tongue, and correction (thank you, Keith!), has stayed with me as I examine (and own up to) my ideological biases. After my postdoc, I was “Shanghaied” and spent two happy years teaching in that city. During my time there I asked my students to keep open minds and read analysis from different views first — Indian, Russian, American, British and Japanese — before they made up their minds on international issues.
In Chinese president Xi Jinping’s online summit with global leaders on Monday — the first since the 100th anniversary celebrations of the Chinese Communist Party a week ago, when he declared Beijing will not “allow anyone to bully, oppress or subjugate China” — Xi proposed to German chancellor Angela Merkel and French president Emmanuel Macron that their countries could assist with the development of Africa in a “four-party” framework. Xi asked for debt relief and encouraged the two European giants to join China on its Initiative on Partnership for Africa’s Development.
Aid Africa is again back in fashion and there is competition for it. A month ago it was US President Joe Biden announcing America is back and calling on democracies to stand together against autocracies. With President Cyril Ramaphosa unofficially representing the continent, the G7 pledged to provide vaccines and infrastructure funding. This week China is proposing that it and the two European powers work together to provide more vaccines and to work together for African peace and development.
The question is if state capitalism can pull a country out of the middle income trap to take the next step to an advanced economy
What is emerging is more nuanced than the Cold War between the USSR and US. The ideological competition is between authoritarian capitalism on the one side — also known as the developmental state, which has brought many Asian countries to prosperity and power — vs the liberal capitalism the US practices. In authoritarian capitalism the state plays a central role in directing the economy. State-owned enterprises or those closely aligned with the state champion and share responsibility on political, social and economic issues. In the liberal capitalist system government regulates but does not own or direct big business. Arguably, authoritarian capitalism is more suitable for developing countries set on rapid economic growth. Asian examples are Japan, Taiwan, Singapore, South Korea and Hong Kong in the 20th century; Rwanda and Vietnam are current examples.
With China’s authoritarian capitalism national interests supersede capital accumulation by investors. In this context, given the current contest between Beijing and Washington, we can see why Chinese regulators have halted the initial public offerings (IPOs) of two of its largest tech companies — the suspension of Ant Financials’ $37bn IPO in late 2020 in Shanghai and Hong Kong, and the still developing story of Didi Global’s IPO in the US. In an authoritarian capitalist system it is not Adam Smith’s invisible hand that allocates capital — Big Brother’s hand is ultimately in control.
The current debate is not whether state capitalism — when practised well as in Asian countries — can foster rapid economic growth. The question is if state capitalism can pull a country out of the middle income trap to take the next step to an advanced economy. Like many other Asian economies the Chinese economy has used authoritarian capitalism to put its demographic dividend of cheap labour to good use. This model is no longer possible as the Chinese population ages and wages rise. The next step to sustain economic growth is technological innovation.
What we are all waiting to see is whether state capitalism can foster innovation. The jury is still out on this score.
In memory of my father, Jimmy Kuo (1943-2021). You taught me well.
• Dr Kuo, a former lecturer at the Shanghai International Studies University in China, is adjunct senior lecturer in the University of Cape Town’s Graduate School of Business.
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