Are authoritarian states better at delivering economic growth?

Russia’s Vladimir Putin, who was re-elected (unsurprisingly) over the weekend, and China’s Xi Jinping, who has just been confirmed as President without term limits by the Chinese Communist Party, are the leading figureheads in an unsettling world of rising authoritarianism that sits in sharp contrast to the one in which most of us grew up. About two-fifths of states deemed to be autocratic nowadays are “strongman” regimes, and most of the world’s population now lives in states that are deemed to be not free or only partly free. Welcome to the world of “bad emperors.”

The so-called “bad emperor” problem originated in China. It is not so much about autocracy, per se, because benevolent and wise autocratic rulers can do good things. The devilish question is how to guarantee a persistent supply of good rulers, and the answer is that it is impossible. The political dynamics of bad emperors or strongman regimes include a tendency to unpredictability, the pursuit of policies that are likely to be volatile, and a greater possibility of the initiation of conflict and tension abroad.

Bad emperors are on the rise. Putin and Turkey’s Recep Tayyip Erdogan are good examples, and though neither is constitutionally president for life, both may yet contrive to be. In China, term limits were introduced after Mao Zedong in 1982 in order to mitgate the risk of bad emperors and ensure an orderly succession of leaders, but these have just been thrown out of the window. Health, bullets and opponents notwithstanding, Xi and the others could be around for a long time.

According to Freedom House, the decade-long drift towards less freedom continued in 2017. Some 55 per cent of the 195 countries under annual review are now considered not free or only partly free according to a threshold of basic civil liberties and political rights. Most are in Africa, the Middle East and Central Asia, but we cannot be complacent. That 55 per cent includes 65 per cent of the world’s population.

Hungary and Poland have both fallen foul of Brussels’ rules, and stand out as political outliers in the EU. Through legislative fiat and force of will, their leaders have undermined and taken control of the media and the judiciary and instituted classic “crony capitalism” in which businesses thrive on their political connections, not commercial prowess. Venezuela, Ecuador, Myanmar and the Philippines are among others to have joined the ranks of authoritarian countries or experienced declines in freedom. Even Modi’s India, the biggest democracy in the world, is allowing the nation’s latent authoritarianism a longer leash nowadays.

No one would call the United States an autocracy, and yet Donald “America First” Trump and the ruling Republican elite in DC seem to be learning from the handbook fast. Freedom House says that the erosion of democratic norms in the US has led to a retreat from its traditional role as a champion of democracy. Right wing populism in Germany, Austria, France Italy, and even the UK gives us further worries.

China and Russia were never big fans of the so-called Washington consensus of free market liberalism, but it is on the rack not because of them but because of the way in which we in the west abused it. China is taking advantage of the west’s economic discomfort, America’s retreat, and its own economic heft to advance its own authoritarian model as an example to others.

Is this model, one with much greater state intervention and control, the answer? There is no a priori reason to argue that democracy beats autocracy when it comes to economic growth, and the empirical evidence says that authoritarian states can experience high rates of growth. Singapore is a classic example, along with South Korea and Taiwan, and a multitude of low population, oil producing nations.

But look a little deeper. Small oil states are unique, and well, just small oil states. A number of other authoritarian states, such as Cuba, Zimbabwe, and North Korea never achieved the kind of economic advancement that others have done. Even though authoritarian regimes, unencumbered by pesky democratic processes and special interest groups, can organise and deploy labour, capital and controls effectively to achieve fast growth, there is no evidence that this works except in the early stages of economic development.

The Asian Tiger economies all embraced and locked in democratic processes and transparency en route to becoming high income and innovation-oriented countries. There is no major high income country that has authoritarian government, bar Turkey, which is both borderline and regressing. In this context, if China ever joined this group, it would be a first. This doesn’t mean it can’t, but nor does it mean we can extrapolate China’s past performance into the future as if by spreadsheet.

In the end, we know enough about economic development processes to know what works. It isn’t the strongarm ruler’s diktats and slogans, any more than some ideologically defined superiority of state control. It is a combination of features that nowadays includes property rights, the rule of law, fairness, price signals, effective incentive systems, independent and competent institutions that manage the regulatory environment, macroeconomic stability, social insurance, conflict management, and a well-crafted role for the state as a handler of important issues like ageing, the environment, industrial policy and investment, and, where agreed, as an owner in the economy.

It’s what we otherwise call the “social market economy.” It didn’t die in the wake of the financial crisis, though authoritarian solutions would choke it. And it doesn’t really need replacing, though it does need to be re-framed for contemporary circumstances. We will have to be on our guard to ensure that bad emperors, even those who can be removed, don’t get the chance to ruin the economy while claiming to re-invent it.