The Raging 2020s

by Alec Ross

  China’s transition to authoritarian capitalism began in 1978 as the country emerged from the brutal reign of Chairman Mao Zedong. Ravaged by famine and political purges, China lagged far behind the developed world on nearly every quality-of-life statistic. At the time, the country had an economy slightly smaller than that of the Netherlands, but it was home to 950 million more people, almost 90 percent of whom lived in extreme poverty. Hoping to pull the country out of its backwards existence, Mao’s successor Deng Xiaoping gradually started opening China for business. The state loosened its grip on the agriculture sector, allowing rural farmers to rent land and equipment, and sell their surplus on the free market. Private companies, previously outlawed by the Communist Party, began popping up around the country. In coastal cities, the government established “special economic zones,” which provided tax breaks and exemptions from the restrictive business policies of the rest of the country. As foreign investors flocked to these free-market hubs, China’s exports skyrocketed and its economy began to grow. China turned its back on economic communism some ten years ahead of the Soviet bloc, and the word communist ceased to have any meaning tied to its actual ideological origins. But while Moscow’s economic reforms were soon followed by the dissolution of the Soviet Union, Beijing managed to open the Chinese economy without weakening the Communist Party’s grip on political power.

  The story of China’s ascent over the last forty years is by now common knowledge, but that does not make it any less remarkable. The country sustained an average annual growth rate of 9.5 percent for a full forty years, a hot streak that the World Bank characterized as “the fastest sustained expansion by a major economy in history.” Its gross domestic product increased by a factor of thirty-six, lifting more than eight hundred million people out of poverty along the way. It marked the single largest eradication of poverty in human history, probably the best demonstration of how economic liberalism outperforms socialism. China now boasts the second-largest economy in the world behind the United States.

  When China began embracing freer market economics and Western technologies like the internet, many thought its citizens would soon begin clamoring for other features of Western society, like civil liberties and political freedom. Those predictions turned out to be wrong.

  Most Chinese citizens do not view their newfound prosperity as a vindication of Western political and economic theory, but rather as a testament to the strength and wisdom of the government of the Chinese Communist Party. Though they acknowledge the merits of economic freedom, the majority of Chinese people think self-government is too messy. In their eyes, democracy leads to conflict and leaves societies vulnerable to violence and unrest, while politicians make promises they cannot keep. By comparison, the Chinese government has consistently delivered on the stability and economic prosperity it has promised its people for the last forty years. Most Chinese citizens would concede that the model is not perfect, but they still see it as a better alternative to the perceived chaos of Western democracy. This view is reinforced by the government, which uses state media to highlight turmoil in Western countries and downplay China’s own problems. When citizens do cast doubt on the government, the party has plenty of ways to keep their ideas from spreading through its surveillance infrastructure.

  Most citizens of the developed world would not tolerate this sort of government panopticon, but the people of mainland China have accepted it with little pushback. This is partly a product of history—given China’s long track record of centralized state control, civil liberties and political freedom are not baked into the social fabric the way they are in western Europe or the United States. But a more significant reason is that the Chinese people see political control as a necessary cost of social stability. China tends to prioritize the harmony and cooperation of the collective over the freedom and liberty of the individual. If the price of peace is total surveillance, it is accepted. One Chinese national who has also spent years working in the United States explained to me that he feels unconflicted about living a more submissive life when he’s in China and a more open life when abroad, pointing to how that duality has enabled his family to grow wealthy.

  Political upheaval tends to come in times of turmoil and uncertainty, but the Chinese people entered the 2020s feeling more secure than ever. Most of the four hundred million members of the Chinese middle class grew up on less than two dollars per day. The entrepreneurs and executives who lead the country’s business community are less than a generation removed from extreme poverty. Overbearing as it may be, the government has delivered well-being for the vast majority of the Chinese population.

  This transaction—economic prosperity for political submission—is the core of the Chinese social contract. Instead of gaining the consent of the governed through the ballot box, the Chinese Communist Party did it through their wallets.

  “China has five thousand years of centralized political history. It’s not going to become democratic tomorrow,” said geopolitical analyst Parag Khanna. “We thought that they could liberalize, democratize once they joined the World Trade Organization and became part of the global economy—we were wrong.

  “The [Chinese Communist] Party has bought off the people through material welfare in exchange for political silence,” he added.

  Most recently, as the Chinese government encroached further into the physical and digital lives of its people, it also tightened its grip on the private sector. From the 1980s through the first decade of the 21st century, there was a boomtown energy in its market development, with corruption at its core. China’s coastal cities became free markets where bribes and payouts were simply a cost of doing business. The more the country’s economy grew, the richer government officials became. In the most recent count, at least 104 billionaires were members of the National People’s Congress (China’s parliament) or the Chinese People’s Political Consultative Conference (Beijing’s top advisory body). By contrast, though the 116th US Congress counted more than 250 millionaires, there was not a single billionaire on Capitol Hill. The British Parliament also has no billionaires.

  Chinese companies work hand-in-glove with the government, leveraging public funding and state-sponsored intellectual property theft to gain an edge over their foreign competitors. There is little distinction between state and capital in China’s industries of the future. The leaders of tech giants like Baidu, Huawei, Tencent, and Alibaba are as beholden to Beijing as the governors of the East India Company were to the British monarch. Still, China is by no means a state-run economy, according to Ian Bremmer, founder of the Eurasia Group.

  “In China, there’s a much more robust private sector than people appreciate. There’s real competition … even among national champions and state-owned enterprises,” Bremmer said. In other words, China remains a free market for those that play by Beijing’s rules.

  But the Chinese model is not bulletproof. The problems go beyond its lack of political freedom. The entire social contract is predicated on economic growth, and it seems unlikely that the Chinese government will be able to drive high growth numbers forever, given that there is no precedent in history for an economy to never falter. Every country has its ups and downs. If growth slows or the country falls into a recession, the goodwill that Chinese people feel toward Beijing may disappear. The Communist Party cannot afford the economic ebbs and flows that democratic countries regularly weather—this is part of the reason the government relies on central planning. The state offers little in the way of safety net programs, and independent trade unions are nonexistent. All organized labor is controlled by the Communist Party.

  China’s growth and stability have lent its model increasing appeal across much of Asia and Africa, especially when juxtaposed with the economic and political disorder that has more characterized the US and its allies in recent years. It is questionable, however, whether the Chinese model could ever be replicated by any nation that does not have the sheer size of China. And the trade-offs that a closed system requ
ires may seem stabilizing in the short term, but if growth stalls or autocratic power stops benefiting the people without any outlet for reform, then history shows that the consequences will be terrible.

  THE CONTEST BETWEEN CLOSED AND OPEN

  The appeal of a controlled model like China is simple: stability. In a tumultuous world, many people will trade their freedom for security. It is easier to provide that sense of security when the social contract is closed off and determined from top down.

  Over the last decade, we have seen a marked authoritarian turn around the world. For many well-meaning observers in long-standing democracies, it is tempting to reduce that trend to misinformation, irrationality, or a onetime backlash. But when you look closely at the appeal of the reigning closed models, you find they offer a very canny exchange with citizens. In China, citizens receive growth and a sense of solidarity for handing over their freedom to the state. In the Gulf kingdoms, absolute power is offset by generous benefits in some of the most generous welfare states in the world. The Saudi government sends monthly cash payments to about half its population. In Qatar, the state provides free water, electricity, and telephone lines. The United Arab Emirates and Kuwait furnish married couples with free plots of land and no-interest loans to build houses. Free health care and education are standard across the region. Nowhere in the Gulf States do citizens pay income taxes. In most countries, a substantial portion of the workforce is employed in government jobs. In Saudi Arabia, about two-thirds of all workers are employed by the government, where wages are 70 percent higher than in the private sector. A few years ago, a senior Saudi official revealed the scope of the average civil servant’s daily workload: “The amount worked doesn’t even exceed an hour—and that’s based on studies.”

  In democratic countries that flirt with authoritarianism, the appeal of the authoritarian narrative is similar: for too long, establishment politicians have failed to make you wealthier or more secure; it’s time to kick them out and let this strong new leader get out there and swing his fists on your behalf.

  But in each of these closed models, the promise of stability and growth is a short-term gamble. It means imposing sharp limits on freedom. Minority groups are dealt with brutally; next-generation technology is channeled toward next-generation surveillance; citizens know there are harsh restrictions on what they can say or do. And countries like the United States, with its long history of racial strife and what Philip Roth called its “indigenous American berserk,” are not immune from any of it.

  The open model still leaves citizens with the ability to protest and work against injustice. The closed model leaves citizens without self-determination—at the mercy of state power or corporate power, or both, which is anathema to what a truly effective social contract can accomplish. The crowning achievement of history’s strongest social contracts has been to create a sense of balance—where individuals have a meaningful say in the larger institutions and powers that direct their lives. As we have seen, that bold ideal has lost ground in recent decades. That is why closed models have resurged. But that is also why the path toward fixing the social contract for the 21st century lies beyond the closed models. Instead, it lies in the messier but democratic open models.

  We have seen in each chapter of this book how the prevailing model in the US and major European countries has lost its way. But there are open models in the world today that have succeeded in adapting to the challenges we are facing now. In these countries, we can find useful lessons and examples for other countries around the world.

  The prime example is the Nordic model. And to understand just how it has adapted to fill the gaps left lingering in the US-dominant social contract, we can find a clear contrast. Just look at how both handled the COVID-19 pandemic.

  THE NORDIC MODEL

  The way a society responds to a crisis reveals a lot about its social contract. As COVID-19 swept across the globe in March 2020, an economic downturn appeared imminent. To contain the damage, the United States created a patchwork of stimulus programs: directing loans, grants, and tax breaks to businesses while raising unemployment benefits and sending stimulus checks to citizens. It was a response that catered to capital over labor. The stimulus package kept the financial sector and large companies afloat by injecting liquidity into the market. But it also allowed a surge in unemployment and the widespread failure of small businesses. The stock market quickly rebounded from its crash, but more than ten million workers lost their jobs and more than a hundred thousand small businesses closed their doors. Many people were stuck waiting months to receive government benefits and stimulus payments with no stream of income. Markets recovered but people did not.

  Now compare that to Denmark’s pandemic response. After negotiating with employers and labor unions, the Danish government decided to effectively nationalize private-sector payrolls. For three months, the government paid 75–90 percent of the salaries of workers affected by the pandemic, as long as companies promised not to fire them. The government also deferred tax payments and covered costs like rent and employee sick leave, further reducing the financial toll on businesses hurt by the virus. The Danish relief program let companies of all sizes weather the pandemic without dipping too far into the red and allowed workers to shelter in place without losing too much of their income. It was a response that focused on labor over capital. Bankrolling the economy was expensive—the program cost an estimated $42 billion, 13 percent of the country’s GDP—but in the eyes of the government, it was better to pay for people to keep their jobs than to bear the costs of mass unemployment.

  “What we’re trying to do is to freeze the economy,” Danish Employment Minister Peter Hummelgaard said at the time. “It’s about preserving ‘Main Street’ as much as we can. It’s a radical plan. But radical times need radical responses.”

  In the first month of lockdown, the unemployment rate in Denmark rose just 1.3 percent, compared to 10.3 percent in the United States. Once the country reopened, companies did not need to waste time hiring new workers, nor did workers need to find new jobs. And, not for nothing, the Danish stock market fully recovered, too.

  The United States and Denmark both devoted a significant amount of their GDP to pandemic response efforts, but the way each country targeted its resources revealed very different priorities. The US protected its biggest companies and investors, and Denmark protected its workforce and small businesses. If the US had made an equivalent investment in Main Street, the data would look much more Nordic.

  Denmark and its Nordic neighbors—Sweden, Norway, Finland, and Iceland—have a long history of using the government to shield people from the more inhumane features of the free market. This includes pandemic-induced layoffs, but also more commonplace economic afflictions like health care costs and rent inflation. The Nordics have used democracy to build some of the world’s strongest social safety nets. Under their social contract, the state and its institutions guarantee citizens a high quality of life from the cradle to the grave.

  If you are born in a Nordic country, you enter the world in a government-funded hospital and receive free health care for your entire life. Your childcare is subsidized by the state. You can earn up to a bachelor’s degree without paying a cent in tuition. When you rent or buy a home, you are eligible for government housing subsidies. When you have children, you are entitled to some of the world’s most generous paid parental leave—more than nine months in Sweden, Norway, and Finland—as well as a government-funded allowance until your kids grow up. (All five Nordic countries offer paid leave to fathers as well as mothers.) If you lose your job, the government provides you generous unemployment benefits and helps you get back on your feet through effective job-retraining programs. Once you retire, the state supplies your pension. These benefits are available to everyone, not just people at the bottom of the income ladder. While welfare programs in the United States and other countries are viewed as government charity, Nordics see them simply as a benefit of citizenship.

&
nbsp; This expansive welfare system is funded by some of the world’s highest taxes. The top income tax bracket is 38.2 percent in Norway, 46.2 percent in Iceland, 51.1 percent in Finland, 55.9 percent in Denmark, and 57.2 percent in Sweden. But despite the popular perception within much of the political Left, these high taxes do not disproportionately target the wealthy. In Sweden, for instance, anyone earning more than 1.5 times the average income—the equivalent of about $79,000 per year—qualifies for the upper bracket. By comparison, the top tax bracket in the United States kicks in only once someone earns 9.2 times the average national income. If the US adopted the Swedish tax structure, a person earning $87,000 per year would fall into the same tax bracket as someone earning $1 million per year. The Nordic ideals of fairness and equity extend to the wealthy—there is little desire to “eat the rich,” at least in the tax code.

  Nordic governments also generate a significant portion of their revenue through value-added taxes (or sales tax). VAT is what economists consider a regressive tax: it disproportionately targets people lower on the income ladder, who devote a greater portion of their income to living expenses. The corporate tax rate in each of the Nordic states is also slightly below average for developed countries, and the capital gains tax is below the top income bracket. In other words, the burden of funding the expansive Nordic welfare systems falls disproportionately on labor instead of capital, and particularly on low-, middle-, and upper-middle-income workers. It would be hard to imagine taxpayers in the United States or elsewhere supporting a system that overburdens the middle class.