Liberal democracy, once hailed as the ultimate triumph over fascism and communism, now faces a significant challenge. The dynamics of information in the technological era and geopolitical alliances threaten the supremacy of liberal democracy in the 21st century. Are we heading towards a new era of communism?

From the Triumph of Liberal Democracy

Liberal democracy emerged victorious in the 20th century, with fascism and communism collapsing. The United States and its democratic allies in Asia and Europe enjoyed economic and military ascendance. Even China, an autocracy, liberalized its economy and parts of its society during this period.

However, this idea is now deeply questioned. The wave of democratization and social liberalization has reversed. China, under the leadership of Xi Jinping, has reverted to a more dirigiste economy and a more totalitarian society.

The Chinese Model

Chinese cities are cleaner and safer than those in the United States, and China can manufacture electric vehicles, batteries, and computer chips in abundance. China can also provide abundant housing for its population, whereas the United States faces a chronic housing shortage.

China's strength is not limited to manufacturing; it has also outperformed American short video services with TikTok. The Chinese model is not limited to manufacturing; it has also formed a powerful network of allies, including Russia, Iran, and North Korea, ending the idea that autocracies cannot cooperate.

Towards an Export of Chinese Communism

Is the Chinese model going to prevail? Can universal surveillance, speech control, suppression of religion and minorities, and command and control of the economy really be the keys to national power and stability in the 21st century?

Why the Market Economy Prevailed Over Communism

Hayek's theory explained why capitalist economies performed better than planned economies. His theory was about the aggregation of information. Markets achieve this through prices, which are information. If broccoli is expensive and cauliflower is cheap, it indicates to farmers that they should produce more broccoli and less cauliflower.

In a planned economy, poorly informed central planners might wrongly decide that cauliflowers are perfectly fine and that we should produce more of them.

Tesla or BYD?

Let's compare the Chinese EV flagship, BYD, with the American flagship, Tesla. Both are roughly equivalent in terms of revenue and are generally considered to be two of the best manufacturing companies in the world. However, the financial input required for their construction was very different.

Tesla's growth required the extraordinary efforts of Elon Musk, who had to engage in constant public fundraising and financial engineering. BYD, on the other hand, never had to scramble for funding and continued to benefit from generous and often subsidized financing from banks controlled by the Chinese state.

The End of Liberal Democracy

We can outline a general theory about how liberal democracy might be much less suited to the 21st century than it was to the 20th century. With advances in information technology, the costs of collecting information may have fallen to such a low level that the advantages of liberal institutions – markets, elections, and freedom of expression – may be diminished.

Thus, it might be that while China builds cars, Americans argue about transgender athletes. While China builds electronic chips, Americans spend their time debunking fake economic statistics.

While China builds submarines, Americans spend their time high-frequency trading. While China builds trains, Americans raise funds for elections. And so on.

Goodbye Freedom, Hello Communism

If liberal democracy is simply not the most efficient way to organize a society in the era of cheap information, it simply means that the individual freedoms we have come to know and love are disappearing.

Sometimes, one system simply replaces another after a major technological change – agriculture mostly led to the end of hunter-gatherer groups, industrialization led to the end of monarchies, and so on. If the information era has surpassed liberalism, we will experience a very dark period, and there is not much we can do to remedy it.

We should continue to fight for liberal democracy, and hope that technology and human nature allow for its continued victory. Or invent a new system, new non-democratic but liberal institutions.