Value The of Democracy: Why Some Dictatorships Economically Outperform Some Democracies When we say dictatorship what is it that comes to mind? For older Americans it might be the image of Stalin during cold war era, Soviet Russia. A more modern image may be Kim Jung il standing on the balcony of a palace saluting the passing military units beneath him. Certain ideas are glued to the perceptions we have about dictatorships, some with good reason. For instance limited political freedom or civil liberties are synonyms associated with authoritarian regimes. Most Americans may also have a general image of a country of dire poverty, such as the examples of Soviet Russia and North Korea. However this is not always the case. On occasion there have been examples of successful dictatorships that do significantly better than democracies. So why do some dictatorships economically outperform some democracies? Though there are numerous examples of successful dictator ships for simplicity reasons I will primarily be using China as my example of a successful dictatorship. Because China has become a global superpower through commerce rather than military presence it stands a good chance of standing the test of time, when considering its economic viability. Before answering the question of why some dictatorships outperform democracies we have to look at the forces that create a dictatorship. Olsen's (1993) view on the matter is: Under anarchy, uncoordinated competitive theft by "roving bandits" destroys the incentive to invest and produce, leaving little for either the population or the bandits. Both can be better off if a bandit sets himself up as a dictator a "stationary bandit" who rationalize theft in the form of taxes. He goes on to say, the conditions for a lasting democracy are the same necessary for the security or property and contract rights that generates economic growth. With this
statement Olsen is implying that with mere social stability and property right you will have economic growth. This is a somewhat limited view because if it were universal truth than the countries that were primarily agrarian based economies would prosper, yet we know that they do not. He also claims that it is in a dictator's best interest to confiscate property when faced with a short time line. Durham(1999) shows direct contrast to Olsen's view by saying, "that discretion decreases growth in advanced areas, and, contrary to theory, inhibits investments in poorer countries. Also, single-party dictatorships have higher investment ratios." Robinson (1995) theorizes more along the lines of Olsen but goes even further and believes it is in a dictator's best interest to keep the state underdeveloped to maintain power. This may explain the poorer dictatorships like Angola and even some of the moderately wealthy African nations such as Libya. Both of these countries have a GDP above $6,000, but over 30% or more of their population live below the poverty line, according to the CIA world factbook. Durham (1999) makes a valid criticism of such arguments calling them "survivor bias". He believes, "regimes must be strong enough to affect investment, yet that very strength can potentially inhibit resource allocation and accumulation." Durham (1999) also believes, "Authoritarian regimes bestow considerable discretion on sovereigns and are by definition not susceptible to the "political business cycle." You can see evidence of this in the case of China, where they have been in recently strained diplomatic relations with Europe and America over its currency manipulation. So if Olsen and Robinson are right it would be in China's best interest to keep its wealthier neighbors and partners happy so that they can maintain a steady stream of revenue even if it is less revenue. Theories such as Olson and Robinson explain more how they become a dictatorship or even stay a dictatorship yet they neglect to explain why some dictatorships fail even while using a "predatory view," (though Olson denies this term).
So consider the example of China who is considered the poster child of globalization and aggressive growth, and is still a dictatorship. According to the CIA world factbook it has a GDP per capita of $7,400 and yet only 2.8% of the population lives below the poverty line. This is even more impressive when you consider it has a population of over a billion people. The economic forces that have to go into keeping that large of a population employed, housed and fed is astounding. So how can a dictatorship of this size outperform underdeveloped democracies much less, developed democracies? For comparison we should look at a country often compared to China, India. Though these countries have similar economic structure they have different political structures and very different economic results. One of the reasons for the dramatic differences is that as a dictatorship China has the ability to make drastic changes with little to no warning or public approval. This can be in numerous forms such as citizens or special interest groups like banks. Another specialty and equally important group they get to ignore is unions, which if given a collective voice may unnecessarily slow productivity or raise wages. This is what Durham believes gives China its success as well as its power. India, as do most democracies, has do deal with the political backlash of decisions (Goyal and Jha 2004). These decisions may be right but very still difficult to get public approval for, such as raising taxes. However this does not come without a learning curve, as Goyal and Jha (2004) put it "micro policy shows a stop-go cycle in China a case of too much too often, because of the greater freedom of the policy to make drastic changes." In essence this freedom of being able to decisively act gets a reward for being right but no "political consequence" for being wrong. Again this is a point that Olsen and Robinson make. However it only states how power is maintained, it fails to show how growth is achieved such as in the Durham model.
China also did certain things that may seem common sense but are not inherent with most dictatorships, such as encouraging foreign investment, managing inflation and high levels of savings. The ladder is another crucial pillar in the success of a dictatorship. Were as democracies are primarily consumer nations, successful dictatorships have high levels of savings, such as China Goyal and Jha (2004). So for the Olsen and Robinson models this would explain a failure in their argument, but would explain dictatorships like Libya or Angola. China unlike the other to has taken more of a pro-growth economic model, especially when relating to international commerce. Libya and Angola's dictatorships have taken a predatory view of state without instituting any serious pro-growth regulations. Their dictators have essentially taken out of the pot but not put anything back in, just as Olsen and Robinson described. This saving gives a ready and nearly constant stream of cash for the banks to invest in the counties infrastructure, as opposed to having to acquire loans and thereby increasing cost. Dictatorships must also provide a very basic economic element of stability. Olson (1993) so eloquently put is as, "to make himself the ruler of the domain, and to provide a peaceful order and the other public goods for its inhabitants, thereby obtaining more tax theft than he could have obtained from migratory plunder." This stability is crucial in order to get a steady stream of investment and to get it at a low cost, such as the case of interest rates. There is no incentive to invest if there is no acceptable level of certainty that the government or some other entity will confiscate the investment tomorrow. This proposition is also forced onto China because of the large amount of business it has in movable assets. The service and industry account for over 90% of its GDP according to CIA world factbook.
Knowing that dictatorships have the ability to operate with relative impunity why then do they not just take the land or investments? The answer is simple China and dictatorships like it know that if they take all of the tax or rents now there will not be any to take in the future. Again this idea has been lost on dictatorships such as Libya and Angola. Stability is only one reason China has done so well over most other counties. The other is that they have invested heavily in education and infrastructure. In order for any society to complete on a global level its citizens must be educated at or above the level of those it is trying to compete with. In addition they must be able to get their goods and services to global markets. This resource allocation is in stark contrast to theories such as Robinson's because through investments such as education China has managed to grow its economy at astonishing rates while still managing its monopoly on power. North Korea, with respect to Robinson's model, has limited the" knowledge" of its people. They have done this because you cannot request what you do not know exists. China's education, on the opposite end of the spectrum, in math and science is quickly catching up to the western world and in many ways is surpassing it. It is also investing heavily in its infrastructure with heavy emphasis on communication as well as highways and railroads. This is an area that often undervalued or overlooked by most scholars comparing democracies and dictatorships but it is vital to the success of both. Given all the evidence of successful dictatorships like China how can western and even underdeveloped democracies better compete with these markets? In some ways they will not be able to effectively compete against them, such as with the quickness of government and the impunity of special interest groups that Durham suggests. In other ways democracies by their very existence could not and would not want to do business the way Olsen and Robinson suggest. However, they can learn from and dare I say mimic them. One such way is
encourage a society of saving and investing rather than a society of consuming. Democracies must also encourage heavy investment in education with special emphasis on math and science, because if a society is not growing it is merely falling behind.
References
Olsen, Mancur 1993 "Dictatorship, Democracy, and Development." The
American Political Science Review Vol. 87, No. 3 pp. 567-576 Robinson, James 1995 "Theories of Bad Policy." Policy Reform 1:1-17
Durham, J. Benson 1999 "Economic Growth and Political Regimes." Journal of
Economic Growth 4:81-111 Goyal, Ashima and Jtha, A. K. 2004 "Dictatorship, Democracy and Institutions:
Macro Policy in China and India." Economic and Political Weekly Vol. 39, No.42 pp. 4664-4674 CIA.gov 14 February 2011 https://www.cia.gov/library/publications/the-world-
factbook/index.html