It is often said that the governments of the big authoritarian states of the day, namely Russia and China, have struck an informal bargain with their population: economic growth and rising income levels delivered at the price of relinquishing political freedoms. As long as China was growing at double-digit levels and Russia surfing on an unprecedented oil boom, this bargain seems to have worked – when one discounts the rising numbers of riots in rural China in the last years. Now that the Credit Crunch is hitting these markets, the big question marks are not only on these countries’ growth rates next year, but more worryingly on their politics. Optimists would say this crisis is an opportunity for political change and democratization. Pessimists would argue that the regimes will cling to power, even if it is at the price of rolling back market-friendly reforms. How will popular discontent be vented? How will the authorities react? These are the big questions for 2009. Some developments are already in the making:
China. China’s growth prospects for 2008: the IMF has not yet issued an official revised growth forecast for China. Its Managing Director is said to have estimated a growth rate at about 5%, but, according to its External Relations department: “we don’t have a new number for China yet. We will have a new number in January.” The authorities however have revealed a few symptoms of panic. The sheer size of the fiscal stimulus package proposed by China reveals a psychology of averting excessive immediate damage by throwing money at a more profound problem of legitimacy. The shrill tones by the government as a response to foreign criticism of its policies in Tibet – leading to China cancelling a bilateral summit with the EU because the current holder of the rotating EU Presidency, French President Nicolas Sarkozy, was due to meet the Dalai Lama, can also be interpreted as a sign of excessive nervousness on what comes next politically in China. Such a move can further be seen as a good way of feeding into nationalist sentiment at home in a moment of internal crisis: the earthquake this spring and the recent baby milk scandal in China have fed into the undercurrent of discontent that is making itself felt. Earlier this month, a group of Chinese dissidents and critics signed the Charter 08 document. It is a document calling for nothing less than, I list: “a new constitution”, “separation of powers”, “legislative democracy”, “an independent judiciary”, “public control of public servants”, “guarantee of human rights”, “election of public officials”, “rural–urban equality”, “freedom to form groups”, “freedom to assemble”, “freedom of expression”, “freedom of religion”, “civic education”, “protection of private property”, “financial and tax reform”, “social security”, “protection of the environment”, “a federated republic”, and “truth in reconciliation”. It was signed by several thousand people, often from the intelligentsia, the press, and even some local and party authorities. Several people were arrested for this document that was spread online and often signed online, despite China’s “Great Firewall”. The documents’ main author, Liu Xiaobao is still reported as missing. (see here in English. Here in French). In the meantime, a big return of the state in the economy cannot be ruled out. It looks like 2009 could be make or break time for China.
The same holds for Russia. I recently met Andrei Illiaronov, a former adviser to President Putin, who left office in the aftermath of the Yukos affair and who is now working partly for the US’ libertarian Cato Institute . His comment I requested on current economic policies in Russia was that the authorities are taking advantage of the situation to set up an “economic dictatorship”. Indeed the government has stepped up intervention in the economy as companies being bailed out by Russian reserve money (here more) are also subjected to closer Kremlin scrutiny. Most recently, a jewel of Russia’s industry, Norilsk Nickel, has a new Kremlin appointee as chairman. But the government is starting to realize that its reserves (initially at almost USD 600bn) might well be depleted soon (200bn have been used already), at a moment when there is no sign that the massive injections have had any positive effect so far. Russian people are set to be badly hurt by the current crisis. According to bne : “Between October and November some 80,000 Russians suddenly lost their jobs, according to the Russian Ministry of Health, and analysts predict that the dole will surge from 6.1% to 7% of the population by the end of the year. Meanwhile, a recent survey by the Levada Centre found that one-third of Russians have outstanding debts and 11% are trying to pay these debts off just as their household income is falling, thanks to the crisis.” Prospects for 2009 are bleak. An analyst at East Capital publishing on the bne site wrote: “The extremely rapid oil price fluctuations in 2008 make it very difficult to forecast where growth will end up in Russia in 2009. But if one assumes an average oil price around $50 per barrel for 2009, growth should be around zero.” The number of protests against government measures and the regime has been rising. These were met with blunt repression. Earlier this month, a gathering of opposition groups led to mass arrests. The latest case has been against the raising of import tariffs on cars by the authorities to protect the domestic car industry. The protests have been spreading, while the government fights back. The government has introduced a controversial bill on national treason….
It looks like in 2009 we will not be spared a few nasty developments in the authoritarian emerging markets. How long will the unlikely equation “market economy + political dictatorship = wonderful wealth outcomes for the population” continue to last? Let’s start to brace ourselves for a round of political and economic instability.