Before China’s Transformation, There was the “Spanish Miracle”
The post-World War II world was full of “economic miracles.” After a cataclysmic war, formerly fascist societies quickly rebuilt themselves as liberal democracies. A decade after enduring firebombing and two nuclear attacks, newly democratic Japan had raised national production back to prewar levels. Germany and Italy had similar success, and all three now rank among the largest economies in the world.
The phrase “economic miracle” is a misnomer. There is nothing miraculous about markets enriching people given how production and exchange are always the sources of wealth. The speed at which so many destroyed states rebuilt is surprising, but not impossible given maximum economic freedom. Instead, what is incredible is how political liberalism went hand-in-hand with economic liberty in the reconstruction of the former Axis nations.
Economic freedom does not always lead to democracy. In some cases, autocratic governments can harness markets to perpetuate their power as much as enrich ordinary people. China certainly qualifies as such a hybrid of economic liberty and political authoritarianism. Mao’s communist reign (1949-1976) left millions destitute, and his successors in the Communist Party wisely performed an economic volte-face in the late 1970s. The economy was liberalized to terrific effect, an average annual growth rate of 10%.
For liberally minded Westerners, the rise of millions from poverty under the direction of an authoritarian government is hard to stomach. It offends democratic sensibilities and mocks those who deride central planners as perpetually incompetent. Yet, reality is more complex than theories. China’s transition to a market economy necessitated a political and ideological shift that could only occur after Mao died and under the right successor. Deng Xiaoping, a survivor of two purges, was such a man to initiate change. Beyond pushing for economic reforms, Deng affirmed a truth, however heretical in Mao’s China, which animates capitalism; “to get rich is glorious.”
But while China is certainly the largest hybrid of economic freedom and political illiberalism, it is not the first. Concurrent with Mao’s rule, another totalitarian holdout underwent an economic revolution. On November 20, 1975, General Francisco Franco, Spain’s absolute ruler since April 1939, died. Politically speaking, Nationalist Spain still exhibited fascist behavior; Roman salutes, a cult of personality around El Caudillo, and political repression. But economically, it was very different from the country that Franco had conquered decades ago.
The three-year civil war left an already poor country in dire straits. 600,000 people had died, thousands more were thrown into prison, there was little intact infrastructure, and foreign exchange reserves were near zero. Franco would go on to compounded matters given what he said his May 9, 1939 victory speech: “A totalitarian state will harmonize in Spain the operation of all the capabilities and energy in the country…” His regime had political prisoners build infrastructure, fixed wages and prices, nationalized the railroads, and turned Spain’s five major banks into a cartel (no new banks were founded until 1962).
Those decisions ensured that economic output did not exceed prewar levels until the mid 1950s. But what left Spain mired in a chronic depression in the 1940s and early 1950s was Franco’s belief in autarky: “We have everything we need to live and our production is sufficiently abundant to assure our survival. We do not need to import anything.” Shortages, black markets, currency devaluation, and negative growth rates all followed to ruinous effect.
Franco eventually realized that he ignored economic principles, such as comparative advantage, at his peril. As Spain remained destitute and isolated while Western Europe flourished, Franco reorganized his government. Younger and more liberal ministers took charge of key ministries in the late 1950s. The “economic miracle” that occurred from 1960 to 1975 was largely their handiwork.
The June 1959 Economic Stabilization Plan was the foremost of Spain’s many “development plans” between 1959-1975. It mixed liberalization with concessions to the state. Tax collection became more efficient while the government cut expenditures. Trade was liberalized although industrial goods remained protected. Agriculture declined as a sector of the economy, and industrialization exploded. Even state owned industries turned a profit: the Barcelona based automobile manufacturer SEAT grew at 22% per year.
The biggest success was the acquisition of needed capital. The end of autarky brought in roughly $8 billion worth of foreign direct investment. Increased tourism, twenty million visitors came to Spain, and remittances from abroad supplied funds for needed capital goods. The new policies and flood of money into Spain from abroad fueled a fifteen-year growth in the economy, from $12 billion to $76 billion, that was surpassed only by Japan.
The economic transformation was so powerful that some thought it gave fascism a new lease on life. In an October 7, 1968 editorial entitled “Fascism for the Future,” the American historian Gabriel Jackson speculated that fascism would outlive Franco. As he wrote, “a Fraquist type of dictatorship may continue for decades in Spain and by doing so may provide a model for other nations that achieve a minimum of economic prosperity in the absence of strong traditions of political liberty.”
Jackson’s prophecy was half right. Spain democratized after Franco died, although King Juan Carlos I had to intervene to quash a prospective coup on February 23, 1981. But not even the present economic crisis, 25% unemployment and prospective insolvency absent bailouts from Germany, seems likely to reverse decades of democratic rule.
However, the latter half of Jackson’s prediction seems right. Nationalist Spain was present-day China on a smaller scale. Both countries adopted economic freedom but not political liberalism. Franco agreed to economic changes even though he maintained a political veneer of fascism as encapsulated in his comments about the incompatibility of democracy with “the Spanish national will.” In China, Deng Xiaoping’s reforms lifted millions from poverty, yet he authorized a crackdown on the Tiananmen Square protestors in June 1989.
The world is still waiting for China to democratize even as its economy soars. At the moment, it seems that any hope of the Communist Party collapsing in the near future is wishful thinking. The party appears as secure as the economy it guides. While unfortunate, this circumstance is neither unprecedented nor cause for panic. Wealth does not always lead to democracy, but it usually moderates the worst excesses of terrible ideologies.