COLUMN-Do dictators and strong economies go hand in hand?

Fri Aug 15, 2014 12:18pm EDT

Related Topics

(Edward Hadas writes about macroeconomics, markets and metals for Reuters Breakingviews. The opinions expressed here are those of the author.)

By Edward Hadas

Aug 15 (Reuters) - Are authoritarian governments bad for the economy? Turkish voters do not seem to think so. On August 10, Tayyip Erdogan won an absolute majority in the country's presidential election. Observers say that the country's increasing prosperity is a big part of his AK Party's appeal. Erdogan is not the only popular authoritarian around. Viktor Orban, who reportedly endorsed "illiberal" government, wins similar majorities in Hungary. If Russia had an election today,

President Vladimir Putin would win big. And Xi Jinping, who seems to be making one-party rule in China more authoritarian, would undoubtedly triumph if the government bothered with elections.

The success of such leaders irritates many Americans and Western Europeans, who believe that genuine multi-party democracy is the natural political arrangement in the modern world. Clearly, though, most voters in some countries want authoritarian leaders who tolerate no effective opposition and who impose their vision on the nation.

Many economists think modern industrial prosperity ultimately requires a strong civil society, which can only really thrive in a democracy where parties vie for votes on the same footing. In other words, they think authoritarian economies are inherently unstable. If only it were that simple.

True, the authoritarians of the previous century mostly adopted an ultimately disastrous economic approach. Communists and fascists believed in tight state control. It seemed to work for a while in the Soviet Union, but ultimately collapsed. Modern authoritarian economics has moved on. It gives business enough freedom to prosper. The state does not smother the economy, just tries to guide it closely enough to ensure that the government and the nation are well served.

The execution is deeply imperfect, but certainly not disastrous. GDP growth has been extraordinary in China and pretty good in both Turkey and Hungary, where leaders of small- and medium-sized businesses are among the governments' most fervent supporters. Businesses may be less enthusiastic in Russia, which is especially corrupt, but even there the economy has clearly done better than in the old Soviet days.

It is true that the big companies in these states must work more closely with the political authorities than their corporate peers in genuine multi-party democracies, but the similarities are greater than the differences. In all modern nations, the government sits at the centre of the economy. Its dictates and desires cannot be safely ignored, and its favour vastly increases the chance of economic success.

Indeed, while the new authoritarianism offers a clear political contrast with liberal democracy, the economic models are not as distinct as the system's critics might like. Relative to the way things work in the United States or a European nation, the new authoritarian approach has both advantages and disadvantages.

The ultra-heavy-state's main business plus is the weakness of political opposition to helpful economic change. In poor countries, traditional local authorities often hold back helpful development. Vested interests can also be an economic problem in richer democracies - just ask anyone who has tried to build a new airport or urban rail link. Strong governments can override them.

As long as the authoritarian government is reasonably well intentioned and competent, its ability to act can make a big economic difference. Much of China's widening economic lead over India can be traced back to the differences in political style. Corruption is rampant in both countries, education is about equally prized and local authorities have roughly the same amount of autonomy. However, the central Chinese government clears far more paths for investment far more quickly.

Neo-authoritarianism also comes with some big economic disadvantages. Without strong non-government organisations, there is no one to restrain graft and corruption, so people in and close to the government can unjustly amass great fortunes and break laws with impunity. Also, while today's strong leaders are far less megalomaniacal than Hitler or Stalin, they are still prone to overconfidence and grandiose ambitions. As they work in a sycophantic political environment, there is rarely anyone one willing to object forcefully to foolish plans.

Finally, neo-authoritarian governments generally care more about non-economic than economic goals. Putin and Xi are nationalists and Erdogan has a cultural and regional agenda. The economy may be harmed by the policies that spring from such ambitions. Russia is now in a trade war and China's current intense scrutiny of foreign firms could prove economically self-defeating.

At present, the negatives of the new authoritarian economies probably outweigh the positives. That, however, does not mean the arrangement is doomed. When industrial democracies were new, many clever observers thought they were beset by impossible internal economic contradictions. Indeed, the first authoritarian economic model was in part a response to those supposed flaws. But the liberal system evolved and thrived. The new authoritarian economies may yet do the same. (Edward Hadas)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.