Where did the social planner go? Authoritarian rulers' strategies and their economic effects

1. Where did the social planner go? Authoritarian rulers' strategies and their economic effects "Aktualitetsuka" at the Department of Economics, University of Oslo Carl Henrik Knutsen, 7/3-2008

2. Facebookand the recognition that dictators come in different versions • Your results for What dictator are you? Fidel Castro • "You and Fidel Castro have strong nationalistic pride, and can get by without many resources, resorting to ingenious guerilla tactics. Some even call Castro a benevolent dictator (and hopefully you'll end up this way!) but sadly he resorts to the same oppression he fought against."

3. Political economy and democracy • The point of departure for most studies on political regimes/ structures and the economy: Investigate the interaction between politics and the economy in democracies. • Persson and Tabellini (2000:1) "We want to explain economic policies in modern democracies". • There are credible exceptions among less “formalized” studies in political science, but there are also some more “formalized” studies in pol.sci and economics on authoritarianism and the economy (Tullock, 1987, Robinson, 2000, North 1993, Clague et al., 2003, Wintrobe, 1990, etc)

4. Does authoritarianism (in general) matter for theeconomy? • Przeworski and Limongi (1993): Other aspects of political regime than the democracy-authoritarianism dimension might matter more: Empirical studies show divergence on the overall effect of democracy on economic growth. • Theoretical arguments point in different directions, both when it comes to growth and protection of property rights. • Knutsen (2007): Democracy affects property rights positively. • Knutsen (2008): Also a significant positive effect from democracy on growth when using new data and econometric methods. • Other aspects of the economy also related to democracy. E.g.: Wages (Rodrik), Population growth (Przeworski et al, 2000), Human capital accumulation. • Democracy-authoritarianism dimension does not exhaust the issue of politics, but theory and empirics indicate that it is an important variable to analyze!

5. The dictator • Certainly not the social planner that dictates the optimal allocation of resources at will! (Nobody really believes this anyway, after thinking over it. The problem is that many analysts forget thinking about the issue.) • Institutions and constraints matter also in autocracies • The role and structure of information • The self-interested autocrat • We have to ask: What characterizes the autocrat and his strategies and policies? • A self-centered, optimizing autocrat might not be completely realistic, but it presents a more valid picture than the benevolent, socially optimizing leader. • Avoid the popular fallacy: Socially non-optimal economic outcomes does not imply that the dictator is incompetent, stupid or irrational. • Robert Mugabe's CV: Bachelor in education, Bachelor in administration, Master in Law and Master in Economics!!

6. Aristotle • 2500 years ago, Aristotle wrote "Politics", and here he classified regimes and evaluated their effects: • In the ideal world, a benevolent, enlightened ruler would be best. • Unfortunately, most often we do not come close to the ideal world. • Enlightened monarchy often degenerates to tyranny. • In most contexts, a more "balanced" regime type works best: “Politeia".

7. Missing Aristotle's point: The Lee-thesis • Amartya Sen (1999:15): "[A] great many people in different countries of the world are systematically denied political liberty and basic civil rights. It is sometimes claimed that the denial of these rights helps to stimulate economic growth and is "good" for economic development. Some have even championed harsher political systems - with denial of basic civil and political rights -for their alleged advantage in promoting economic development. This thesis (often called "the Lee thesis", attributed in some form to the former prime minister of Singapore, Lee Kuan Yew) is sometimes backed by some fairly rudimentary empirical evidence"

8. Regime type and growth from1970-2000

9. Variation in growth performances • 11 out of the best 15 growth performances were in relatively authoritarian countries (1970-2000). • ... But so were 14 out of the 15 worst performances. • Econometric tests show that there is significantly higher variation among the more authoritarian countries. • Why?

10. Why divergence? • Concentration of power and lack of checks and balances (horizontally) and accountability (vertically): Political decision makers matter! • Leaders and elites make political decisions, not nations • What are the capabilities, and (maybe even more importantly) preferences and opportunities/constraints of dictators? • Different types of authoritarianism. Large literature with many labels: Politics are structured differently in different dictatorships (military rule, hereditary monarchy, dominant one-party etc..) • Type as a constraint for dictator or as an outcome of dictator's strategies? Both in the longer run..

11. Let's assume • ..A utility-maximizing dictator. • The maximization of what? • Power, money, fame, sex, interest group promotion, ideological vision. • Earlier models have focused on wealth, I focus on power: More specifically staying in office. • Uruler= U(p, m(p), f(p), s(p), i(p), v(p)) • Where U'(x)>0 x:{p,m,f,s,i,v} – • And z'(p)>0 z:{m,f,s,i,v}

12. Maintaining power • Political psychology and political science: power is a central motivation for rulers. (Definitions of power, precision) • The central question for the optimizing dictator is then: "How do I maximize the probability of staying in power?" • The answer to this question depends crucially on several contextual variables, and therefore the strategies chosen vary tremendously!

13. Political strategies and the economy • Political strategy->economic effects->survival probability • Dictators recognize the linkages and utilize strategy that maximizes probability of survival (actor-centered functionalism) • Economic and development policies as means. • Other strategies for survival can have important economic implications (wars, "terror", sealing the borders). • How to keep your backers by your side? Multiple strategies (Haber, 2006): • Logic of terror (fear as a tool) • Logic of co-optation (sharing the spoils) • Logic of organizational proliferation (creating institutional checks and balances)

14. Context and time dimension • Who are the main security threat? • The middle or working classes (democracy movement) • Internal rebel movement • The army • Neighboring country • Short term vs long term: legitimacy vs modernization theory.

15. Power is a relative concept • "How do I promote my own resource-base without enhancing that of my opponents?" • Natural resources? The resource curse: Two effects. • Industrialization and development • IF external threat: promote development to build army and national economic capacity (Taiwan, S.Korea, Singapore) • IF internal threat: Grab from opponents, hinder broad development of infrastructure and industrial capacity. • IF modernization theory is perceived as correct: block development.

16. Peter Evans(1995) • "Extracting a larger share from a shrinking pie is not the optimal way to maximize revenues, but it may be the only way consistent with the survival of predatory states ... Generating an entrepreneurial class with an interest in industrial transformation would be almost as dangerous as promoting the political organization of civil society. For predatory states, "low-level equilibrium traps" are not something to be escaped; they are something to be cherished" (Evans, 1995:248)

17. Some historical examples • Mobutu in Zaire: "I've never built one road.." • Kim Jong II: Military first and no trade/openness • Mugabe's clean-up in Harare and land-grabs • Kuomintang's change of strategies when moving from China to Taiwan • Meiji-Japan and the fear of colonization

18. Social planners and tyrants, or divergence "by accident"? • An analogy to Immanuel Kant and moral behavior: Doing the right thing because of some reason, or doing the right thing because of the right reason (duty). • Dependent on context, self-interested rulers might and might not enhance development. • The structure of political life is crucial to economic development. An understanding of the latter requires an understanding of the former.