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. Last Updated: 07/27/2016

Battle of 2 Capitalisms

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In the United States, more people are starting to believe that the opposition between the democratic nations of the West and the nondemocratic nations of Europe and Asia -- primarily China and Russia -- might serve as the main source of confrontation in the 21st century.

The state of global affairs seemed to be clearly defined immediately after the collapse of the Soviet Union and the socialist nations of the Soviet bloc.

Model market economies developed in many countries in Europe and North America following a fairly long evolutionary process of growth from the 17th through the 20th centuries. As a result, those countries experienced an impressive leap forward in their economic development during the second half of the 20th century. They achieved a standard of living for their citizens unprecedented in most other countries of the world.

Alternative economic systems, such as socialism, were founded on the models of state planning, highly centralized authority and the rejection of private ownership. They could not provide a comparable standard and quality of living, and consequently failed. It seemed clear and inevitable that, as a result of that failure, Western institutions and economic models would fill that void.

In addition, another development was taking shape during the second half of the 20th century. Japan's post-war reconstruction was an example of an extremely successful application of market institutions to a traditional social and political culture that greatly differed from the West's. A powerful export-oriented economy was built on this foundation in the 1960s. A Western social and political system subsequently evolved, but only as a result of economic growth.

The "economic miracles " of South Korea and Singapore show that democratic institutions are not necessarily a precondition for high economic growth. Communist China, however, is by far the most vivid example of the past decade that enormous growth can take place even in the absence of many basic freedoms.

Despite the peculiarities of each case cited above, overall they form a model of economic growth and entrance into the global market. It includes the development of an export-oriented economy based on relatively cheap labor capable of producing goods that are competitive on the world market. It also includes either a delay in or outright rejection of Western political institutions. And finally, it supposes the state plays a major role in initiating such an "economy of growth," playing the role of "state entrepreneur."

The elite of "backward" countries realized that there is no alternative to the global economic system, and the attempt to build a closed and isolated economy is doomed to failure.

With the fall of the socialist empire, many expected the rise of a global market. When 30 years ago it seemed that the victory of the market economy inevitably meant the victory of Western capitalism -- which is to say democracy -- today we see the development of two forms of capitalisms: one with democracy and one without; a liberal capitalism and a state-controlled one.

For one system, competition is a necessary and fundamental principle; for the other system, competition is limited.

In one system, institutional checks and balances, such as a free press, independent parliament, fair and impartial legal system, healthy civil society and so on, open up many possibilities to achieve individual goals. The other system looks like a clenched fist that limits individual interests.

For one system, personal rights are more important than those of the government. For the other system, it is the other way around.

It appears that the global competition between these two types of capitalisms will dominate the global arena for the next several decades. Each system sees the other as a clear threat and as an encroachment on its fundamental principles. Each tries to expand to become more active on their adversary's territory.

There is one thing, however, that can prevent a decisive collision of these two forms of capitalism. Both are active on a single, global market in which each derives a certain benefit by exchanging resources with each other.

The battle over who will dominate this market, however, will be a very serious one.

Kirill Rogov is a political columnist and a researcher at the Institute for the Economy in Transition. This comment appeared in Vedomosti.