Enlightened Rule and Tyranny: The DivergingEconomic Dynamics of Authoritarianism
Draft Working Paper, 2008. Department of Political Science, University of Oslo
Carl Henrik Knutsen
Abstract
This paper analyzes the question of why dictatorships diverge so much in their economic outcomes. First, the hypothesis of authoritarian economic divergence is investigated empirically, by looking at GDP per capita growth rates, and is found to be strongly supported by the data. Then, a theoretical model is constructed and analyzed, and the model points to some crucial mechanisms that might explain the result. Rational autocrats motivated by personal power engage in widely different strategies and conduct very different economic policies in different contexts. The central explanatory variable is the nature of the security threat facing the dictator and his regime. If the security threat is mainly external, for example a neighboring country and its army, the dictator will have incentives to conduct growth- and development enhancing policies. If the nature of the security threat is mainly internal, for example a rebel movement or a democracy movement, the dictator can have strong incentives to hinder economic development. The model also makes other predictions, like for example that a vast amount of natural resources in a country reduces the dictator’s incentives to develop the economy. Historical examples are presented to illuminate the relevance of the model. In particular, the history of how the Kuomintang switched from a predatory strategy when fighting the Communists in the Chinese civil war to a developmentalist strategy once it had established itself on Taiwan is treated. This historical “quasi-experiment”, involving the same actors in two different specified contexts, gives strong support to the validity of the model presented in the paper.
1.Introduction
In “Politics”, Aristotle wrote that the best possible form of government under ideal conditions was the enlightened monarchy, with the benevolent and knowledgeable monarch at the helm (Aristotle, 2000). In the same book, Aristotle describes how monarchy easily slides into a form of government he labeled “tyranny”, for example when the monarchy faces the unavoidable event of monarchic succession, with the death of the old king. Therefore, Aristotle concluded that other and more “balanced” forms of government like his “Politeia” would be more robust in the sense that they provided decent rule under different contexts. Aristotle based his analysis on observations of ancient Greek city states, but his analysis could perhaps also be used fruitfully in order to explain trajectories in the more recent history of authoritarian nation states. One key insight is how concentration of power in dictatorships brings about very divergent outcomes in different empirical settings.Aristotle however focused on the virtues of rulers. In this paper, I will show that even if all rulers are self-interested and motivated by power, some authoritarian states will prosper economically, while others will face developmental disasters. The key claim is that rulers choose very different policies in different contexts, and what seems like “Enlightened Monarchs” might very well be self-interested dictators that due to accident do things that have “good” consequences for his subjects.
There is seemingly something inherently unpredictable about authoritarianism as a form of government. Authoritarian regimes exhibit far more variation in their empirical performances than democratic regimes (Rodrik, 2000). You have the present-day Chinas and the Singapores; the growth miracles that make the Lee-thesis (on the necessity of authoritarian rule for development) resonate with many people both in academia and in other circles of social and political life. Then you have the North Koreas and the Zaïres; primary examples for the hypothetical course: “How to destroy your economy 101”.Adam Przeworski (2007) claims that “[W]e currently do not do a good job distinguishing one dictatorship from the next” and that “[D]ictatorships are by far the most understudied area in comparative politics. We need to start thinking about them”.As Robert Barro puts it, it is clear that we have two types of dictatorships when it comes to how they produce economic outcomes. However, the necessary theory for explaining why this is so is not yet fully developed (Barro, 1997:50).This paper seeks to provide such a theory and give explanations to the puzzle of how and why authoritarianism produces so wildly fluctuating economic results. Why do some authoritarian regimes become growth miracles whereas others turn out as growth disasters? The underlying assumption is that the actions and policies promoted by authoritarian rulers explain a large share of the variation in growth and development performances. Social scientists studying growth have turned their focus towards institutions as a primary mover of developmental outcomes, and this is obviously important also for understanding how dictatorships work (Przeworski, 2007). However, institutions are endogenous, and can be affected by the actions taken by rulers and other important actors in a country, and this insight is crucial in the following paper. In this paper, rulers are portrayed as motivated mainly by the concern of staying in power. Their actions are viewed in this light. The main point is that this motivation leads to very different strategies in different contexts, and thereby affects the overall economy in extremely different ways.
2.The modern empirical record: Authoritarianism, democracy and variation in outcomes.
Before explaining the phenomenon of authoritarian variation, we have to set the record straight in terms of examining whether authoritarian regimes actually have had more disparate economic outcomes than more democratic regimes in general. Anecdotal evidence can be provided in abundance: Think of modern-day China compared with China under the Great Leap forward. Think of the Taiwanese and South Korean experiences and compare them with that of Pol Pot’s Cambodia or North Korea under Kim Jong Il. According to Mueller, “[T]he greatest advantage of democracy over dictatorship may not be that democracies outperform dictatorships on average, but that democracies seldom sink to the depth of misery that one too often observes under dictators” (Mueller, 2003: 425).
If we take a somewhat more systematic look at the growth records in GDP per capita of countries in the period between 1970 and 2000 according to data from the Penn World Tables, authoritarian countries dominated both among those with the best and worst performances.Table 1 shows that 11 out of the 15 best performances had an average FHI above 3,5, and the same was true for 14 of the 15 worst performers, according to Table 2.[1] Authoritarian countries dominate both among the best and the worst performances.
Table 1: Top fifteen growth performers according to PWT.
Rank / Country / Recorded average annual growth 1970-2000 / Average FHI 1972-20001 / Taiwan / 6,7 / 4,1
2 / Singapore / 6,4 / 4,7
3 / Botswana / 6,3 / 2,3
4 / South Korea / 6,1 / 3,7
5 / China / 5,2 / 6,6
6 / Thailand / 4,7 / 3,6
7 / Cyprus / 4,4 / 1,9
8 / Ireland / 4,4 / 1,1
9 / Mauritius / 4,3 / 2,0
10 / Haiti / 4,3 / 5,9
11 / Indonesia / 4,2 / 5,3
12 / Malaysia / 4,2 / 4,0
13 / Cape Verde / 4,0 / 4,1
14 / Seychelles / 3,7 / 4,7
15 / Romania / 3,7 / 5,3
Table 2: Bottom fifteen growth performers according to PWT.
Rank / Country / Recorded average annual growth 1970-2000 / Average FHI 1972-20001 / Congo (Kinshasa) / -4,8 / 6,4
2 / Angola / -2,6 / 6,6
3 / Central African Rep / -2,6 / 5,6
4 / Nicaragua / -2,4 / 4,3
5 / Sierra Leonne / -1,8 / 5,3
6 / Niger / -1,5 / 5,8
7 / Mozambique / -1,5 / 5,6
8 / Comoros / -1,4 / 4,6
9 / Venezuela / -1,4 / 2,1
10 / Zambia / -1,3 / 4,7
11 / Togo / -1,2 / 6,0
12 / Madagascar / -1,1 / 4,4
13 / Mauritania / -0,6 / 6,2
14 / Nigeria / -0,6 / 4,9
15 / Cote d´ Ivoire / -0,6 / 5,4
If we look into the variances in growth performances among all recorded authoritarian and democratic regimes on a decade-wise basis, there is reasonable evidence for the hypothesis that there is more variation among authoritarian regimes than among democracies. This result would probably been even stronger if we didn’t face the problem of lacking data among particular nations. The nations that lack data are overwhelmingly authoritarian, and there are reasons to believe that these regimes also generally have dismal growth records. This list of countries includes North Korea, Myanmar, pre-invasion Afghanistan and Iraq and pre-peace Liberia. This makes us underestimate the average effect from democracy on growth in statistical analysis (Knutsen, 2008), and it maybe also makes us underestimate the growth-variance in the group of authoritarian regimes.
Tables 3, 4 and 5, which are taken from Knutsen (2006), show the variance in national growth rates among different categories of regimes along the democracy-authoritarian continuum, based on the Freedom House Index. When using the dichotomous classification, F-tests (two-sided) show that the discrepancies in variances between the groups are significantly different from zero at the 5% level for all the decades, and it is significant even at the 0,1%-level in the 1970’s and 1990’s. When comparing the two extreme cases from the trichotomous classification, the p-value for the 1980’s statistic is 0,051, just above the 5% significance level, whereas the divergence in variance between the groups is significantly different from zero at the 1%-level for the 1970’s and 0,1%-level for the 1990’s. These tests provide convincing support for the hypothesis that authoritarian regimes vary more in their economic growth performances than do democracies.
Table 3: Democracy and variation in PWT growth rates in the 1970’s
Average FHI / Number / Variance growth / Average FHI / Number / Variance growth[1, 4) / 45 / 3,40 / [1, 3) / 35 / 3,95
[4, 7] / 68 / 8,92 / [3, 5] / 31 / 6,45
(5, 7] / 47 / 8,81
Table 4: Democracy and variation in PWT-growth rates in the 1980’s
Average FHI / Number / Variance growth / Average FHI / Number / Variance growth[1, 4) / 61 / 4,81 / [1, 3) / 47 / 4,41
[4, 7] / 61 / 8,09 / [3, 5] / 29 / 6,98
(5, 7] / 46 / 7,15
Table 5: Democracy and variation in PWT-growth rates in the 1990’s
Average FHI / Number / Variance growth / Average FHI / Number / Variance growth[1, 4) / 88 / 4,38 / [1, 3) / 66 / 3,42
[4, 7] / 56 / 15,00 / [3, 5] / 46 / 5,92
(5, 7] / 32 / 22,34
However, the results above might be driven by omitted variables that impact both the probability of having a specific regime type and the variation in growth performances. One such factor could be for example the prior level of development in a country. I therefore propose a better test methodologically for investigating the hypothesis related to variation; a so-called Goldfeld-Quandt test of heteroskedasticity (Greene, 2003:223). I want to look at how observations are spread along a regression line, derived from a regression model proposed in Knutsen (2008). The regression equation is given below, and the independent variables are PPP-adjusted GDP per capita, log of population, dummies for plurality religion, geographic region and colonizer, as well as the log of regime duration (+ 1), share of population in urban areas, energy production/GDP and a linear time trend:
The dependent variable, namely growth in GDP per capita, is now operationalized by using data from the Worl Development Indicators, and the data are from 1972 to 2005. I run OLS with Panel Corrected Standard Errors, with country-year as unit of analysis. The calculation procedure of the standard errors takes into account autocorrelation (AR1), contemporaneous correlation and heteroskedasticity between panels. I then subtract the predicted values from the actual values of economic growth per capita, and square this difference, to obtain the squared residuals. I then perform the Goldfeld-Quandt test to see if there is reason to reject a H0 of homoskedasticity when comparing the subgroups of observations classified after regime type. First I check the dichotomous classification used above, categorizing all observations with FHI larger than or equal to four as authoritarian, and the rest as democracies. The F-value is 2,54 (1390, 1572 degrees of freedom), and the hypothesis of equal variation can be rejected at any conventional level of significance, even the 0,01%-level. I then compared the group with FHI above or equal to 5,5 on the FHI with those observations that had FHI less than or equal to 2,5 on the FHI. The F-value (789,1214 degrees of freedom) is 3,52, which is even higher than the F-value for the value based on the dichotomous classification, and the test shows that the hypothesis of equal variation can be rejected even at the 0,01%-level.
From this analysis, there is good reason to reject the claim that there is similar spread along the regression line for both relatively democratic and relatively authoritarian regimes. The evidence points in favor of the hypothesis presented above, namely that there is systematically higher variation among authoritarian regimes, and this result holds even if we control for a host of other factors. The analysis points out that not only do authoritarian regimes grow significantly less on average than democracies according to the model, which I have investigated earlier (Knutsen, 2008), but authoritarian regimes are also scattered more widely around their model-predicted values. Authoritarian regimes’ growth performances are from this general model much more difficult to predict than the growth performances of democracies, and this is the empirical fact that will be sought explained in this paper.
3.Concentration of power in dictatorships
It is hard to argue with Overland et al. in their statement that “[G]ood policy analysis should acknowledge the realities of dictatorships” (Overland et al., 2000:2). What is it about authoritarianism as a political regime type that generates such vastly divergent economic outcomes? Some would automatically respond that it is the broadness of the concept and the lack of nuances in describing all non-democratic regimes as authoritarian, and to a certain extent this insight is a valid one. Authoritarianism comes in several forms or “types”, from absolute monarchies to one-party communist states to military regimes. These different regimes might be institutionalized in widely different ways, and their political processes are driven by relatively different “logics”. Nevertheless, there are common denominators, and lack of general popular control over public decision making and lack of political equality are two of them (Beetham, 1999). Authoritarian regimes are then often associated with a concentration of political power, when compared to democracies, even if the degree of power concentration varies also within the group of authoritarian regimes. Often, in practice, authoritarianism is associated with a lack of horizontal power dispersing institutional structures, like checks and balances. Additionally, the vertical accountability links, in the form of free and fair elections and freedom of speech and media, between populace and political elites are lacking. More generally, what has come to be referred as political rights and civil liberties are often either weakly or selectively protected under authoritarian rule.
It is among others in the areas of power concentration and lacking political accountability we have to look when seeking to understand the diverging economic dynamics in different authoritarian regimes. When power is concentrated and accountability is lacking, the scope of possible policies the political elites can follow, if they wish, is much larger than in democracies, where power dispersion and institutional structures like free and fair elections put constraints on the possible policy choices of government. An autocrat bent on producing a high rate of economic growth, can with fewer political constraints than in a democracy, construct large-scale projects and push for a high national savings rate through restricting private and public consumption without facing popular protest. The autocrat canfurthermore push through tough economic reforms without fearing popular backlashes in the next election. However, autocrats can also rampage the economy by stealing, looting and even killing of the human capital (as in Cambodia), without being thrown out of office or the palace. “The scope for repressive policies to increase power and security of office is much greater under most dictatorships than in most democracies” (Mueller, 2003:425). This very general point of power concentration increasing the policy scope is one of the key explanations for the empirical trait of high variation in authoritarian economic performance detected in Section 2, and I will elaborate on the argument and specify potential mechanisms in the rest of the paper.
Institutions matter, but so do actors
I will in this study focus less on institutional structure and divergence in autocratic “types” than what is perhaps appropriate. There is no doubt that institutional structures have important real world effects, and that a complete understanding of the functioning and economic effects of dictatorships would need to entail this insight. However, I offer a very general theory on authoritarianism and economic effects, where the general characteristics of power concentration and survival strategies are core. There are differences between different types of authoritarian regimes, especially when it comes to the first. Some dictatorships are more personalized and some are more institutionalized with for example the party playing a role. In the latter case, it is perhaps most appropriate to view the party, rather than the leading individual, as the actor in the model that will be presented. Intra-party dealings and their effects will then not be explained by the theory. However, it is wrong to believe in complete institutional determinism. The central actors in power can build, reshape or restructure institutions, at least in the long run, and my theory, as I will explain later, is best viewed as a theory of the long run. Haber (2006) claims that the “logic of organizational proliferation” is one of the three main survival strategies of autocrats, and he shows how building organizations that counter the influence and powers of existing ones can enhance the survival of the autocrat: a divide and rule strategy! It is however probably easier to crush the influence of a bureaucratic apparatus than to build a well-functioning one, and the “privatization” of states in Africa has been recognized in the Africanist literature, even though the bureaucratic structures that existed from the colonial-era were often little to cheer about. As Evans (1995) and Evans and Rauch (2000) show, a well-functioning and autonomousbureaucracy is an important factor in promoting economic development, but bureaucracies are not exogenously given (think about the differences between present day South and North Korea and how they diverge on this point), they can be restructured and strengthened or weakened (for example by refusing to pay high wages or assigning positions to the dictator’s closest friends) by the political elite in charge. My claim is that due to power concentration in authoritarian regimes, institutional structures are not as difficult to change for dictators as they are for democratic government, but this does of course not mean that institutional structures are plastic in all dictatorships. In the model presented below, we will see that rational dictators engage in different survival strategies, including the shaping and reshaping of institutions as well as in more concrete promotion of specific economic policies. My argument is to a certain extent therefore classifiable as what Paul Pierson (2004) has labeled “actor-centered functionalism”: An actor sets up or alters (or destroys) an institution because the effects of the institutional change are viewed as beneficial for the actor. As Pierson notes, this requires rational behavior and a good understanding of how the institution works, and also a relatively long time horizon (which fits well with my claim that the model presented below is a long run model).As I have empirically investigated earlier, the “type” of authoritarian regime has a significant impact on the protection of property rights in a country (Knutsen, 2007). It would be interesting to link discussions on the type of authoritarian regime to the logic presented in this paper at a later moment in time.