The Battle of the Regimes

David Brooks / International New York Times | 4 August 2014

James Mwangi grew up on the slopes of the Aberdare Mountains in central Kenya. His father lost his life during the Mau Mau uprising against the colonial authorities. His mother raised seven children, making sure both the girls and the boys were well educated. Everybody in the family worked at a series of street businesses to pay the bills.

He made it to the University of Nairobi and became an accountant. The big Western banks were getting out of retail banking, figuring there was no money to be made catering to the poor. But, in 1993, Mwangi helped lead a small mutual aid organization, called Equity Building Society, into the vacuum.

The enterprise that became Equity Bank would give poor Kenyans access to bank accounts. Mwangi would cater to street vendors and small-scale farmers. At the time, according to a profile by Anver Versi in African Business Magazine, the firm had 27 employees and was losing about $58,000 a year.

Mwangi told the staff to emphasize customer care. He switched the firm’s emphasis from mortgage loans to small, targeted loans.

Kenyans got richer, the middle class boomed and Equity Bank surged. By 2011, Equity had 450 branches and a customer base of 8 million — nearly half of all bank accounts in the country. From 2000 to 2012, Equity’s pretax profit grew at an annual rate of 65 percent. In 2012, Mwangi was named the Ernst & Young World Entrepreneur of the Year.

Mwangi’s story is a rags-to-riches Horatio Alger tale. Mwangi has also become a celebrated representative of the new African entrepreneurial class, who now define the continent as much as famine, malaria and the old scourges.

But Mwangi’s story is something else. It’s a salvo in an ideological war. With Equity, Mwangi demonstrated that democratic capitalism really can serve the masses. Decentralized, bottom-up capitalism can be the basis of widespread growth, even in emerging markets.

That theory is under threat. Over the past few months, we’ve seen the beginning of a global battle of regimes, an intellectual contest between centralized authoritarian capitalism and decentralized liberal democratic capitalism.

On July 26, for example, Prime Minister Viktor Orban of Hungary gave a morbidly fascinating speech in which he argued that liberal capitalism’s day is done. The 2008 financial crisis revealed that decentralized liberal democracy leads to inequality, oligarchy, corruption and moral decline. When individuals are given maximum freedom, the strong end up stepping on the weak.

The future, he continued, belongs to illiberal regimes like China’s and Singapore’s — autocratic systems that put the interests of the community ahead of individual freedom; regimes that are organized for broad growth, not inequality.

Orban’s speech comes at a time when democracy is suffering a crisis of morale. Only 31 percent of Americans are “very satisfied” with their country’s direction, according to a 2013 Pew survey. Autocratic regimes — which feature populist economics, traditional social values, concentrated authority and hyped-up nationalism — are feeling confident and on the rise. Eighty-five percent of Chinese are very satisfied with their country’s course, according to the Pew survey.

China’s aggressive role in Africa is helping to support authoritarian tendencies across the continent, at least among the governing elites. Total Chinese trade with Africa has increased twentyfold since 2001. When Uganda was looking to hire a firm for an $8 billion rail expansion, only Chinese firms were invited to apply. Under Jacob Zuma, South Africa is trying to copy some Chinese features.

As Howard French, the author of “China’s Second Continent,” points out, China gives African authoritarians an investor who doesn’t ask too many questions. The centralized model represses unhappy minority groups. It gives local elites the illusion that if they concentrate power in their own hands they’ll be able to move decisively to lift their whole nation. (Every dictator thinks he’s Lee Kuan Yew.)

French notes that popular support for representative democracy runs deep in most African countries. But there have to be successful examples of capitalism for the masses. There have to be more Mwangis, a new style of emerging market hero, to renew faith in the system that makes such people possible.

President Obama is holding a summit meeting of African leaders in Washington this week. But U.S. influence on the continent is now pathetically small compared with the Chinese and Europeans. The joke among the attendees is that China invests money; America holds receptions.

But what happens in Africa will have global consequences in the battle of regimes. If African nations succumb to the delusion of autocracy, we’ll have Putins to deal with for decades to come.