Can Autocracy be Conducive to Economic Growth

Apr 1, 2017 | General

Several arguments exist regarding the role of regime type in the progress of a country, especially developing countries. Regime type can be broadly categorized on the autocracy-democracy spectrum. This blog post gives an overview of these arguments highlighting the channels through which a specific regime type can be crucial to the economic development of the country.

Those in favor of autocracy’s role in economic growth argue that economic development might be hindered by political contestation which is the hall mark of democracy. Such contestation, approval and dialogue at different hierarchical levels in a democracy might result in unnecessary delays and thus it becomes difficult for the government to implement policies which promote economic growth (Knutsen, 2010). Autocracies on the other hand are not politically challenged and are free to implement growth enhancing policies which will result in higher level of investment. Hence, given such policies are implemented by an autocrat, growth is expected to accrue faster in such countries. This hypothesis is also sometimes referred to as Lee’s hypothesis called after the former Prime Minister of Singapore Lee Kuan Yew’s advocacy for autocracies (Knutsen, 2010).

Another argument relates to the notion of different distributive pressures faced by democracies and autocracies. Such arguments were first raised by Schweinitz (1959: 388) who argues for the role of unions in building up pressures which can “limit the freedom for action of entrepreneurs” and consequently can have an adverse effect on investment and subsequently economic growth. Huntington & Jorge (1975) claimed later that in a democratic setup “the interest of the voters generally leads parties to give the expansion of personal consumption a higher priority via-a-vis investment than it would receive in a nondemocratic system” (pg. 60). Thus, in its entirety, the argument is that at lower levels of income there is a high demand for consumption and unions then build up pressure for higher wages. This impacts profits unfavorably and, since profits are invested back into the economy, lower profits adversely affect investment and consequently economic growth. On the other hand, as Haggard (1990) argues, autocracies can efficiently manage an economy as they do not face such distributive pressures from the electorates.

However arguments also exist which strengthen the case for democracy. Democracy protects the private property rights of individuals (Olson, 1993) which, as has been argued by Knack & Keefer (1995), is an important determinant of economic growth. Security of property rights is not guaranteed under autocracies because the powers of the autocrats remain unchecked and he is free to make frequent policy changes as he deems right which might not be conducive for enhancing investor’s confidence (Goodell , 1985).

Moreover autocracies also tend to spend heavily on military and these huge military expenditures are seen to have a negative effect on economic growth (Gillis, et al., 1992). The common man bears the brunt of these expenditures in the form of paying high taxes imposed under autocracies to support military expenses (Kurzman et.al, 2002). Democracy, on the other hand tries to maximize the welfare of the people by keeping the tax rate low and not spending heavily on military (Kurzman et.al, 2002). Lastly, democracies are often seen as a desirable regime type because it does not stifle the grievances and the opinions of the people (Kurzman et.al, 2002). It is associated with the freedom of speech and expression and provides appropriate platforms and opportunities for people to do so which helps prevent social unrest (Kurzman et.al, 2002) and can help promote social harmony by reaching common grounds amongst the capitalist and the working classes (Przeworski ,1985).

Further research is needed to investigate the channels that make autocracy or democracy more conducive to economic growth. Particular conditions in a country might also be a determining factor. The case of Pakistan will show that the country has done well on the economic front under military rulers but better economic “managers” do not justify the existence of military dictatorships which have increased economic disparities and also often led to human rights violations. Democracies in Pakistan on the other hand were short lived and had been characterized by misgovernance with the political class lacking the will to bring a positive change. So the need in the case of Pakistan, in order to sustain long run growth is to bring socio economic reforms in an appropriately governed environment by building inclusive institutions which according to Acemoglu and Robinson (2012) “(will) lead(s) to a more equal distribution of income, empowering a broad segment of society and making the political playing field even more level.”

References:

Acemoglu, . D. & Robinson, J., 2012. Why Nations Fail:The Origins of Power, Prosperity, and Poverty. Crown Publishing Group.

De Schweinitz, . K. J., 1959. Industrialization, Labor Controls, and Democracy. Economic Development and Cultural Change, Volume 7, pp. 385-404.

Gillis, M., Perkins, D. H., Roemer, M. & Snodgrass, D. R., 1992. Economics of Development. 3rd ed. New York: W.W. Norton.

Goodell , G., 1985. The Importance of Political Participaion for Sustained Capitalist Development. Archives Europeenes de Sociologie, 26(1), pp. 93-127.

Haggard, S., 1990. Pathways from the periphery. Ithaca,NY: Cornell University Press.

Huntington, S. P. & Jorge , D. I., 1975. Political Development. In: Handbook of Political Science. Reading, MA: Addison-Wesley Publishing Co., pp. 1-114.

Knack, S. & Keefer, P., 1995. “Institutions and Economic Performance: Cross-Country Tests Using Alternative Measures. Economics and Politics, 7(3), pp. 207-227.

Knutsen, . C. H., 2010. Investigating the Lee thesis: how bad is democracy for Asian economies?. European Political Science Review, 2(3), p. 451–473.

Kurzman, C., Werum, R. & Bukhart, R. E., 2002. Democracy’s Effect on Economic Growth: A Pooled Time Series Analysis 1951-1980. Studies in Comparitive International Development, 37(1), pp. 3-33.

Olson, M., 1993. Dictatorship, Democracy, and Development. The American Political Science Review, Volume 3, pp. 567-76.

Przeworski, A., 1985. Capitalism and Social Democracy. Cambridge , UK: Cambridge University Press.

Disclaimer: The views expressed here are those of the authors and do not necessarily represent the views of the Institute of Development and Economic Alternatives

Comment

Authors

Umbreen Fatima