Rise of State Capitalism and Decline of Liberal Democracy

The post-Cold War era was marked by the triumph of Western liberal democracy and free markets. Political scientist Francis Fukuyama declared the End of History in the 1990s, predicting the global dominance of liberal democracy. Simultaneously, economist John Williamson formulated the Washington Consensus, promoting fiscal discipline, privatisation, and free trade as universal economic principles. However, the 2008-09 global financial crisis challenged these ideas and led to a resurgence of state intervention in economies worldwide. This shift has given rise to new models of governance and economic policy, reshaping global power dynamics.

From Liberal Democracy to State Intervention

The 2008 financial crisis exposed weaknesses in unregulated free markets. Western governments abandoned strict fiscal discipline to rescue banks and firms. Keynesian economics, long sidelined, regained popularity as a tool for economic recovery. US Treasury Secretary Hank Paulson acknowledged China’s role in stabilising the global economy, praising its state-controlled capitalism. This marked a shift from Washington Consensus ideals to acceptance of state intervention and control.

The Beijing Consensus Emerges

China’s economic model, dubbed the Beijing Consensus, combines state control with market mechanisms. It emphasises strategic state intervention, investment in human capital, and long-term planning. China’s rise as the world’s largest exporter and importer challenged Western economic dominance. Its success encouraged other countries to adopt similar policies, blurring lines between liberal market economies and state capitalism.

Geoeconomics and Mercantilism

The growing economic power of China prompted the US to adopt mercantilist trade policies. Analysts like Edward Luttwak advocated geo-economic containment of China through economic statecraft. The Trump administration aggressively promoted US exports, especially defence and energy, merging state and private sector interests. This approach marked a departure from traditional US policies separating government and business roles.

Decline of Western Liberal Democracy

The second term of President Trump witnessed an erosion of democratic norms in the US. Restrictions on press freedom, racial supremacism, and political polarisation raised concerns about rising authoritarianism. Similar trends appeared globally, with democratic institutions weakening and surveillance expanding. States increasingly curtail individual freedoms citing national security and economic development.

Surveillance States and Power Centralisation

Surveillance has become a global phenomenon. Democracies like the US and India use sophisticated monitoring under legal cover. Political power centralises, undermining checks and balances. Institutions meant to uphold democracy face compromise or capture by ruling elites. This challenges the distinction between democracies and authoritarian regimes.

The New Global Ideology

China’s model of state capitalism and authoritarian governance is gaining global appeal. Its emphasis on economic growth over individual rights influences many countries. The new Beijing Consensus contrasts with the fading Washington Consensus and Fukuyama’s liberal democracy. Economic progress and political stability are increasingly used to justify restrictions on human rights worldwide.

Questions for UPSC:

1. Critically analyse the impact of the 2008 global financial crisis on the ideology of economic liberalism and state intervention worldwide.
2. Explain the concept of the Beijing Consensus and discuss its implications for global economic and political order with suitable examples.
3. What are the challenges faced by liberal democracies in the 21st century? How do rising surveillance and power centralisation affect democratic institutions?
4. Comment on the use of economic statecraft in contemporary geopolitics. How does it influence the relationship between major powers like the US and China?

Answer Hints:

1. Critically analyse the impact of the 2008 global financial crisis on the ideology of economic liberalism and state intervention worldwide.

1. The crisis exposed flaws in unregulated free markets and fiscal austerity policies central to economic liberalism.
2. Western governments abandoned strict fiscal discipline, bailing out private banks and firms to prevent economic collapse.
3. Keynesian economics saw a revival, emphasizing state intervention, public investment, and demand management.
4. International financial institutions softened the Washington Consensus stance, accepting more state involvement in economies.
5. The crisis legitimized state capitalism models, notably China’s Beijing Consensus, as alternatives to liberal economic policies.
6. It blurred ideological lines, with both developed and developing countries adopting mixed approaches balancing markets and state control.

2. Explain the concept of the Beijing Consensus and discuss its implications for global economic and political order with suitable examples.

1. The Beijing Consensus combines state-controlled capitalism with market mechanisms and strategic long-term planning.
2. It emphasizes state intervention, investment in human capital, and prioritizes economic growth over individual freedoms.
3. China’s rise as the world’s largest exporter and importer exemplifies its success and global influence.
4. The model challenges Western liberal democracy and Washington Consensus ideals by promoting authoritarian governance with economic pragmatism.
5. Its adoption or admiration by other countries signals a shift towards state capitalism and away from liberal democratic norms.
6. Examples include China’s role in global trade, infrastructure investments (e.g., Belt and Road Initiative), and influence on global governance norms.

3. What are the challenges faced by liberal democracies in the 21st century? How do rising surveillance and power centralisation affect democratic institutions?

1. Liberal democracies face erosion of democratic norms, political polarization, and weakening of institutions.
2. Surveillance states have expanded, with democracies using sophisticated monitoring often justified by national security.
3. Centralization of power undermines checks and balances, compromising the independence of judiciary and law enforcement.
4. Freedom of press and civil liberties are increasingly curtailed under legal or political pretexts.
5. Political elites use democratic frameworks as a facade to consolidate power, blurring lines with authoritarian regimes.
6. Examples include US political polarization, India’s use of agencies against opposition, and global decline in press freedom.

4. Comment on the use of economic statecraft in contemporary geopolitics. How does it influence the relationship between major powers like the US and China?

1. Economic statecraft involves using economic tools (trade, investment, sanctions) to achieve geopolitical goals.
2. The US has adopted mercantilist policies to contain China’s rise, promoting exports of defense and energy sectors.
3. China leverages its economic power through initiatives like the Belt and Road to expand influence and secure strategic partnerships.
4. Economic interdependence complicates rivalry, with cooperation (e.g., crisis management) coexisting with competition.
5. Both powers blur lines between state and private sectors, using economic means as extensions of strategic policy.
6. This dynamic shapes global trade norms, supply chains, and international alliances in a contested geopolitical landscape.