Authoritarianism and the Layered Structure of World Economy

The (conservative) liberal model represented by Britain and the United States has dominated the global economic landscape for nearly 300 years. In economics, the foundational work The Wealth of Nations established the unshakable dominance of liberal economic theory, with much of subsequent economic development serving as annotations to its principles. On a practical level, the British Empire's dominance of the seas in the 19th century and the United States' successive victories over Germany and the Soviet Union in the 20th century, solidifying its position as the sole superpower, provided a robust backing for liberal economic theory. Notably, the outcomes of the Cold War and the stark contrasts between East and West Germany or North and South Korea further reinforced confidence in the inherent advantages of liberal economics. With its demonstrated economic success, the constitutional democratic political system compatible with liberal economics has also been widely regarded as a necessary condition for economic development. In mainstream English-language discourse, economic development is often assumed to be intrinsically tied to political freedom. Similarly, in many developing countries' public spheres, there is often a strong narrative that frames the possibility of economic development as dependent on reforms toward political liberalization.

However, historical realities do not fully support this perspective. While the 20th century indeed witnessed the decline of totalitarian planned economies, many other forms of authoritarian regimes achieved remarkable economic success. In South America, Chile's military dictator Augusto Pinochet led the country's economic boom in the 1980s. In Europe, Spain under Franco experienced astonishing economic growth for much of the post-World War II period. Similarly, in Asia, the authoritarian regimes of leaders like Park Chung-hee and Chun Doo-hwan in South Korea, Chiang Kai-shek in Taiwan, and Lee Kuan Yew in Singapore also generated economic miracles. These authoritarian governments coexisted with economic liberalization measures for extended periods. Beyond the post-war economic miracles, there are also pre-war examples of rapid economic growth that did not conform to principles of economic liberalization, the most notable being the Soviet Union under Stalin. Remarkably, not only did these authoritarian regimes achieve significant economic accomplishments, but few contemporaneous constitutional democracies could match their economic performance. For example, while the Soviet Union experienced rapid industrialization during the 1930s, countries like the United States, Britain, and Germany were mired in stagnation due to the Great Depression. Even more troubling, Germany, which was severely devastated by the Depression, overcame its economic crisis under the brutal Nazi regime. These historical facts suggest that authoritarian regimes are not only capable of driving economic development but may sometimes do so with greater efficiency than constitutional democracies. This economic success has also provided many authoritarian regimes with a basis for legitimacy.

This article will first explore the question, "Why can authoritarian regimes drive economic development?" To answer this, it is necessary to move beyond simplistic political slogans and overly idealized, abstract analyses. Instead, the focus should be on the actual economic structure of the world. Two key facts must be acknowledged:

1. As the birthplace of the Industrial Revolution and a "land of plenty," Britain and the United States have never relied on authoritarian regimes for economic development and have consistently been the dominant regions of the global economy.

2. Since the Age of Exploration, human society has increasingly become an interconnected whole. Any analysis at the national level must be understood within the broader context of the global structure.

Therefore, when examining the impact of authoritarianism on economic development, it is essential to consider the contextual backdrop of the Anglo-American world as the engine of the global economy.

With this perspective, the issue becomes much clearer. For the underdeveloped world outside of Europe and the United States, the most direct paths to economic development essentially boil down to the following three approaches:

1. Selling the country’s natural resources.

2. Leveraging low labor costs to take on low-end industries from developed countries.

3. Adopting advanced technologies from the US, UK, and Europe to improve domestic labor productivity.

If these three points were to be summarized further, it would be this: the most straightforward path for underdeveloped countries to develop their economies is not to emulate Britain by independently initiating an industrial revolution. Instead, it is to integrate into the global economic order centered around the US and UK, leveraging their own comparative advantages to participate in economic specialization. In doing so, they can accumulate technological capabilities and gradually climb up the value chain. 

When we understand the paths of economic development for late-developing countries as outlined above, the answer to the question this article seeks to explore becomes increasingly clear. The reason authoritarian regimes can drive economic growth is not due to any inherent superiority of authoritarianism over liberalism, but rather because the scenarios they face are shaped by their different positions within the global economic structure. The US and the UK sit at the top of this structure. On one hand, they must push the boundaries of existing technologies to improve productivity, which necessitates a culture that encourages free exploration and independent innovation. On the other hand, their relatively affluent populations possess strong consumption demand, providing a steady driving force for the emergence of new industries. Furthermore, the constitutional traditions in the US and UK have been passed down for centuries. As a result, constitutional democracy aligns well with their roles as leaders in the global economy. In contrast, the logic of economic development for countries on the periphery of this economic order is fundamentally different. These nations do not need to independently create new technologies (and often lack a cultural atmosphere conducive to free innovation), nor do they require extensive trial-and-error to invent new models. Their populations also tend to have limited consumption power. The paths to economic growth for these countries are relatively clear-cut: whether by selling resources, taking on low-end industries, or adopting advanced technologies, none of these strategies inherently require a constitutional democratic system. In fact, pursuing these paths often demands a certain degree of centralized power. The internal friction of constitutional democracies tends to erode these countries' comparative advantages, while the mobilization capacity of stable authoritarian regimes offers significant benefits. This ability to mobilize resources and maintain stability provides higher long-term returns for foreign investment from developed countries, making authoritarian regimes a more pragmatic choice for peripheral economies.

Modern history supports this conclusion. The rapid industrialization of the Soviet Union in the 1930s was critically aided by advanced technologies from the United States and Germany. The Great Depression in the capitalist world caused overproduction, and Stalin, by starving millions of farmers and selling the confiscated grain on the international market, acquired the capital needed to purchase the surplus industrial capacity of the West, significantly accelerating the Soviet Union's industrialization process. After World War II, the rapid economic development of countries like Spain, Chile, South Korea, and Singapore was rooted in the expansion of the US-led economic order. Their economic success was largely due to authoritarian governments leveraging the global economic system dominated by the United States, gaining several decades of precious developmental time by riding this wave. The ultimate collapse of the Soviet Union, however, was fundamentally because it attempted to build an economic system independent of the Anglo-American order. The Soviet bloc as a whole lacked the foundation for spontaneous technological innovation, which was insufficient to sustain long-term economic development.

Understanding the above logic helps clarify the concept of the "middle-income trap." Late-developing countries tend to move closer to the economic center within the global order. The closer they get to the center, the more high-value-added industries they control. High value-added industries inherently require advanced technological capabilities and high consumption capacity, which in turn demand a social and cultural foundation that inevitably conflicts structurally with an authoritarian regime. At this point, if the authoritarian government fails to adapt to the changing times by relaxing political control, the country's economic growth will gradually plateau at a relatively low level. While authoritarianism can indeed drive economic development, its potential is capped by an inherent ceiling.

After clarifying the role of authoritarianism in economic growth, this article will start to discuss the layered structure of the world economy. The formation of the layered economic structure traces back to the Industrial Revolution. While the Industrial Revolution, originating in the British Isles, ushered in a new epoch for humanity, the changes it brought were not "universally applied" but rather "gradually diffused." Post-Glorious Revolution Britain established the world's first modern constitutional system and simultaneously embarked on the path of capitalism. In the 18th century, England surpassed the continental European states to become a superpower through the Industrial Revolution and its complementary Financial Revolution. Britain’s immense competitive pressure triggered political upheaval across Europe, with the French Revolution giving rise to modern nation-states on the continent. Throughout the 19th century, these transformed states joined the process of industrialization. France, Germany, Austria, and Russia began industrializing one after another, as did the United States—rooted in British traditions—on the other side of the Atlantic, and Japan at the far end of Asia. The 19th century can be seen as the first phase of capitalism’s economic order expansion, spreading from Britain to continental Europe, North America, and Japan, regions that encompass most of today’s developed nations. In the 20th century, driven by colonial competition, imperial ambitions, and populist movements, two world-shaking wars occurred. The outcomes of these wars led to the dismantling of the colonial system, the shift of the global economic core from Europe to the United States, and the continued expansion of the world economic system into South America, West Asia, South Asia, and the emerging economies of South Korea, Taiwan, and Hong Kong. Meanwhile, the Soviet Union gathered Eastern European and Asian states into a difficult confrontation with this system. By the late 20th century, mainland China initiated its reform and opening-up policies, while the Soviet Union collapsed after half a century of struggle. Finally, the capitalist economic system achieved its conquest of nearly the entire globe.

The diffusion of modern economic systems has effectively meant the large-scale integration of global resources, including raw materials and labor. This integration has always been characterized by distinct layers. In the 18th and early 19th centuries, this system primarily operated within Europe and parts of the North American East Coast, with Britain as its core. As colonial systems expanded globally, regions outside Europe and North America became suppliers of raw materials and markets for the capitalist systems of Europe. After the two World Wars, the colonial system collapsed, and the United Nations system was established. Following the Cold War, economic order was unified under what came to be known as the "neoliberal" system, centered around the United States and spreading across the world. Broadly speaking, the U.S. and certain Western European countries control resource allocation (i.e., finance) and cutting-edge technology within this system, ensuring their dominant position in the global industrial chain through their irreplaceability. Germany and Japan dominate high-end manufacturing. South America, the Middle East, and Russia serve as suppliers of raw materials. Meanwhile, countries such as South Korea, China, and more recently Vietnam and India, have absorbed a significant portion of mid- to low-end manufacturing (with core technologies for advanced products like semiconductors still controlled by the U.S.). The entire world has become the consumer endpoint for the final products of this industrial chain. Today, people in China, India, Europe, or the U.S. alike can use technology products from Apple, and much of the planet can access services from Google, Facebook, Twitter, Amazon, or Netflix. Within this economic order, the U.S. (and the English-speaking world) has replaced Europe as the core. The EU, led by Germany and France, along with Japan and South Korea, form the inner periphery. Mainland China has recently climbed from the outermost edge to the mid-tier, featuring some cutting-edge products, a large volume of mid- to low-end industries, and an enormous domestic market. Regions like Russia, India, and Southeast Asia currently occupy the periphery of this system. However, Russia's position is declining, while India and Southeast Asia are rising.

Being in different positions within the global economic layers entails distinct institutional and cultural adaptation mechanisms. Countries at the core of the system align with political and economic liberalism. This is because the advancement of cutting-edge technologies requires a large number of free individuals engaged in technological exploration, people who understand frontier technologies to transform them into cost-effective, high-quality products, and robust corporate structures to organize the production and distribution of these products. It also demands a sound legal system to protect innovation, a free financial system to support the growth of new enterprises, and an overall social environment that inspires creativity and curiosity. Moreover, core countries must maintain the most powerful military forces to safeguard the global economic order. However, as described in the previous discussion, regions outside the core have a much lower demand for creativity and instead prioritize strong execution capabilities. This execution power serves two purposes: first, to undertake mid- to low-end industries that require less technological sophistication, and second, to adopt advanced technologies from leading regions to climb up the industrial value chain. While a market economy is usually essential, excessive political freedom is not necessarily the most efficient path. In fact, state-led industrial policies often yield excellent results, as evidenced by the rise of the Asian Tigers and the relative lag of India compared to East Asia. For resource-dependent nations, the need for political freedom or even a market economy is quite limited. Such countries often experience situations where oligarchs control critical national resources and dominate the political and economic lifelines.

Analyzing from the perspective of the global economic structure, the assumption that liberal democratic systems will spread universally lacks absolute economic foundations—at least not in the foreseeable future. The apparent global democratic decline since 2010 may not necessarily signify a "historical regression" but could instead reflect an alignment of political systems with the realities of the current economic structure. Countries outside the core layers of the global economy lack sufficient technological accumulation and often do not possess the cultural foundations needed to inspire creativity or organize advanced industries. As a result, they are generally unable to produce domestic companies capable of competing with top firms in the United States, Western Europe, or Japan. Without the ability to cultivate such enterprises, it becomes difficult for these nations to further advance their economies. Consequently, their populations may tacitly accept a slide toward authoritarianism. Within the core zones, competition has also intensified. For example, France's innovation capacity and corporate competitiveness have been increasingly unable to rival the United States since the Cold War. Currently, France's per capita GDP is only about 60% of that of the U.S. Against this economic backdrop, it is not surprising that extreme political forces have become increasingly mainstream in France in recent years. Even within the core of the core—the United States—the liberal order has failed to deliver a satisfactory life for everyone. Since Reagan's era, mid- to low-end industries have gradually shifted to peripheral countries with lower labor costs, leaving fewer dignified job opportunities for industrial workers. This shift has contributed to the widest wealth gap in the U.S. since World War II.

After the Cold War, Russia attempted to integrate into the global economic system, even experiencing a brief "honeymoon period" with the West. During this time, Russia also made efforts toward political democratization. However, decades of a rigid Soviet system had left Russia without the technological and intellectual foundation to compete economically on equal footing with the United States. As a traditional European power, Russia lacked the high-quality, low-cost labor resources of countries like China and Southeast Asia. Moreover, its strong imperialist sentiments were incompatible with taking on a subordinate role as a workforce provider for the U.S. and Western Europe. After going in circles, Putin's rise to power marked a return to authoritarianism. Following conflicts in Georgia and Crimea, Russia grew increasingly estranged from the West, culminating in a complete break with the U.S. and Europe in recent years. This is the helpless anger of an ancient empire unable to integrate into the core of the global economic order. Its economic predicament cannot be resolved with a few slogans about "democracy and freedom."

Today, in the face of growing systemic challenges, the U.S.-led global economic order is undergoing its most significant strategic adjustment since the Reagan era. The central theme of this adjustment is "supply chain security," which involves the more dispersed distribution of mid- to low-end industries across various regions of the Eurasian continent. This strategy aims to reduce the risks associated with overly concentrated supply chain nodes that could jeopardize the functioning of the global economy. Such economic restructuring will inevitably trigger political ripple effects. Regions previously heavily reliant on mid- to low-end industries may face fiscal difficulties as they gradually lose capital and orders, potentially fueling populist movements and leading to geopolitical conflicts. On the other hand, redistributing supply chains does not fundamentally alter the layered structure of the global economy. Instead, it could incentivize recipient countries of these industries to pursue political consolidation, potentially creating new "enlightened authoritarian" states rather than progressing toward democratization. For this reason, I am not optimistic that this round of large-scale supply chain adjustments will reverse the trend of democratic backsliding.

The risk of structural disruption to the globalized economy is now imminent. The grand visions of world peace that were passionately celebrated 20 years ago have faded like yesterday's withered flowers, long abandoned and forgotten. The looming arrival of general artificial intelligence only adds to the risks facing this increasingly fragmented world. Living in today's era, one can increasingly empathize with the mindset of those who lived through the 1910s. Yet the course of the world has never been dictated by individual will. With my limited ability, I write these words in an attempt to glimpse the fate that the future may hold.