By Gerhard Schnyder & Dorottya Sallai

Authoritarian trends are on the rise in many liberal democracies and threaten, according to some observers, fundamental values – such as the rule of law and judiciary independence – and, in Europe, even the integrity of the European Union. Some governments have used the COVID-19 pandemic to further restrict individual rights as well as increase their intervention in the economy. But how can we tell when increasing state intervention is a healthy correction of markets and when we should talk about a more problematic phenomenon: ‘authoritarian capitalism’?

Management scholars tend to use ‘authoritarian capitalism’ to designate any capitalist system where the state plays a more prominent role than has been considered ‘optimal’ since the 1980s or so (e.g., Situ et al. 2018). We challenged this view in our recent paper, arguing that the simplistic application of the political theory concept of authoritarianism to the economic realm is problematic. We do not reject the concept of authoritarian capitalism per se. Rather, we argued that it needs to be used with caution and requires a clear definition instead of using it as a facile label to describe any business systems where the state plays a more prominent role than we consider optimal. Crucially, such a definition also requires a narrower and more rigorous conceptualisation of how political authoritarianism translates into economic authoritarianism.

Authoritarianism designates a political system, which diverges from liberal democracy in two ways:  Firstly, it restricts citizens’ right to participate in politics and to publicly contest power. Secondly, it aims to replace pluralism and diversity with obedience and conformity. Belarus, for example, can be considered authoritarian according to these criteria. For instance, electoral alternation in power is all but impossible, as was illustrated by last year’s presidential elections when Alexander Lukashenko, the incumbent, was declared the winner– a highly unlikely result that let to mass protests, which were violently repressed. Similarly, the recent forced landing of the Ryanair flight 4978 by the government to arrest a vocal journalist on his way from Athens to Vilnius, illustrates the force with which the Lukashenko regime suppresses any dissent.

Applying this definition to the economy, we argued that ‘authoritarian state intervention’ in the economy should be reserved for cases where the state denies certain individuals’ fundamental rights and does not respect a core tenant of the rule of law, namely, the principle of self-limitation of governmental power (Chen & Deakin, 2015).

This conceptualisation allows us to distinguish ‘state capitalism’ from ‘authoritarian capitalism.’ Based on the case of Hungary under the Orbán regime since 2010, we developed a dynamic view of state capitalism by looking at it as a political conflict over the boundary between the public and the private realm (Gamble 2016). ‘State capitalism’ can be seen as the shift of this boundary, from the liberal ideal of a ‘regulatory state’ (that ‘steers but doesn’t row’) towards a more interventionist, but still self-limiting, rule of law state. Thus, the renationalisation of gas trading and storage companies, E.ON Földgáz Trade and E.ON Földgáz Storage, expanded the realm of state ownership in Hungary, but the owner – Germany’s E.ON- received compensation. This shift in the boundary between the public and the private is hence not a case of ‘authoritarian capitalism.’

State capitalism becomes ‘authoritarian capitalism’ if – and only if – that boundary shift happens in a way that violates people’s fundamental rights. For example, the renationalisation of an industry when compensation is paid does not constitute an act of authoritarian capitalism. Expropriation of an entrepreneur using the coercive tools of the state and not following due procedure – as has happened in Hungary – does.

The rule of law not only protects private individuals from undue state interference, but also protects the public domain from capture by private interests. Through the case study of Hungary, we showed that the ‘authoritarian turn’ of state capitalism comes with the erosion of that second boundary between the private and the public: Not only does the state intervene in authoritarian ways in the economy, but the state apparatus itself becomes ‘colonised’ by private individuals.

Why does it matter? Our study provides a new conceptualisation of state capitalism that allows us to distinguish when state intervention is problematic from a liberal democratic standpoint and when it is not. Specifically, our study provides two important insights for policymakers, practitioners, and activists at a time when defending liberal democracy against authoritarianism has become a pressing issue, but when the desirability of a minimalist economic role of the state has lost its appeal. Firstly, our conceptualisation stresses that state- and authoritarian capitalism are not stable states, but that their definition crucially depends on the mechanisms of state intervention and not just on their outcomes. Secondly, our case study reveals that a key feature of authoritarian capitalism is the use of the state as a tool for the benefit of a narrow elite’s private interest. This adds much needed nuance to the debate about the state versus markets.

References:

Chen, D., & Deakin, S. 2015. On Heaven’s Lathe: State, Rule of Law, and Economic Development. Law and Development Review, 8(1): 123–145. https://doi.org/10.1515/ldr-2014-0031

Gamble, A. 2016. A Not Quite Robust Enough Political Economy. Critical Review. A Journal of Politics and Society, 28(3–4): 484–493. https://doi.org/10.1080/08913811.2016.1264159

Situ, H., Tilt, C. A., & Seet, P.-S. 2018. The influence of the government on corporate environmental reporting in China: An authoritarian capitalism perspective. Business and Society, In Press: 1–41. https://doi.org/10.1177/0007650318789694