Acceptance of authoritarian capitalism as a viable and exportable model for development depends upon an understanding that economic and political liberties are not interdependent. However, similar faulty reasoning induced promoters of authoritarian socialism (communism) to overlook its most fatal contradiction. The collapse of communism provides evidence that repression of political freedoms will eventually undermine the activities that support economic growth. While authoritarianism can be consistent with short run economic gains, there are logical and economic limits to these results.
On the economic side, authoritarian capitalism involves the politicization of commerce and the commercialization of politics. Commerce is politicized when the profitability of economic actors depends more heavily upon relationships with the ruling party than the efficient use of scarce resources. Commercial politics describes the actions by ruling parties to develop their own sources of revenues through business transactions to decrease their dependency upon the electorate. These activities are likely to involve privileged, insider access to economic data that benefit the party and also allow party functionaries to enjoy private gains.
Despite the impressions to the contrary, authoritarian capitalist regimes employ extensive, if not always deep, interventions in the economy. Most of them have highly interventionist foreign exchange policies. These are implemented in support of industrial policies that target specific industries as leaders in their export-orientated industrialization (EOI) strategies. Investment funds and subsidies are directed toward selective areas of economic activity and, conversely, are diverted from use in other areas. Many of those countries applying EOI policies tend to be highly dependent upon foreign investment funds or technology or both, as well as access to foreign markets for their exports. This dependency on outsiders is exacerabated by the institutionalized restrictions upon the formations of domestic entrepreneurs to provide an indigenous source of economic growth.
An equally problematic issue relating to Singapore's growth is that it can be explained in large measure by the massive increases in input of labor and capital instead of from increases in efficiency or productivity. Most economists readily recognize that such input-driven growth will be limited by the law of diminishing returns. Following this logic, East Asia's "miracle economies" mirror the early stages of growth in the Soviet Union that obviously proved to be unsustainable. In all events, the necessary sources of increases in productivity are inventiveness and free thinking. Unfortunately, policies under authoritarian capitalism suppresses individualism and intellectual freedom and will greatly impair the formation of entrepreneurs.
