Why authoritarianism (sometimes) works economically: Dictatorship and economic development in East Asia Lecture for the Political Science Symposium on China and Eastern Asia 21/4-2008

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

The empirical record Rodrik (2000): East Asian Tigers are exhbit#1 and Chile under Pinochet is exhibit#2 for the Lee-thesis. Then we have China… Does this prove the claim that democracy and human rights are luxury goods that should only be attained once a certain level of development is reached? Is the Strong Autocrat the only one who can guarantee development? This argument is certainly popular among more or less autocratic third world leaders, but it has also been popular in academia (even though decreasingly so) In any case: Even if the Lee-thesis should hold, we have to engage in an evaluation of whether authoritarianism is desirable, on the background of other normative criteria as well. It is not always the economy, stupid!

Some general results

Econometric analysis Przeworski and Limongi (1993) and Przeworski et al. (2000): No overall effect on economic growth from regime type. Rodrik (2000): Democracy is positively related to high- quality growth Barros inverse U-shape? Halperin et al (2005): The democracy-advantage and the Asian outliers Knutsen (2008): Democracy increases growth, decreases corruption and protects property rights better on average… Growth and other economic indicators/factors: The democracy-advantage is larger for other indicators than for growth in GDP

But… The variance among dictatorships is far higher than among democracies, when it comes to for example economic growth performances: Some dictatorships perform extremely well and others perform horrendously! A large bulk of the well-performing dictatorships can be found in East Asia. Two questions we need to answer: – Why is it that some dictatorships can produce very high rates of economic growth? – What explains the divergence in results among dictatorships?

Theoretical arguments I will only go through the theoretical arguments that point in favor of dictatorships when it comes to promoting economic development. There are even more arguments pointing in favor of democracy, so be aware of the theoretical bias here! List of arguments on regime type and growth (Knutsen, 2006) and list of arguments on regime type and property rights (Knutsen, 2007): The arguments draw on different strands of literature and connects insights from different disciplines

A list of arguments The property rights argument (Marx, Mill and median voters) The forced savings and investment argument The crushing of the unions argument The chaos-avoidance argument (Huntington and political and social stability) The avoiding gridlock and pushing reform argument The autonomy from interest group argument (centralization and the enlightened elite) The cultural argument

Prerequisites for the arguments The motivation of elites? The incentives of self-interested elites? Institutional structures? Information, learning and adaptation? Common to these arguments are that they make strong assumptions on the behavior of autocratic elites. What if these are not valid? Power concentration (dictatorships) vs checks and balances and accountability (democracies) Democracy as maximin

The divergence among dictatorships: Institutional structures and types Dictatorship is a broad and not very well defined category (there are many dimensions to regime type). – Hadenius and Teorell: 1) existence of hereditary succession? 2) military force underpinning the regime? 3) existence of popular elections? – Przeworski et al: Institutional checks and parties – Linz and Stepan: Totalitarian, Post-totalitarian, Autocratic, Sultanistic (ideal types)

The divergence among dictatorships: The rational dictator and his context-dependent strategies Mancur Olson (1993&2003): Roving vs Stationary Bandit Robinson (2001): When is a state predatory? The endogeneity of survival probability Knutsen (2008): Power motivated dictators and the role of the security context (internal vs external threats). The case of Kuomintang.

Other explanations on autocratic divergence in economic outcomes Aristotle and the virtues of rulers: Enlightened rule vs tyranny The international context (political support and open markets) Economic (or social or cultural) determinism and superficial politics

What is it about Asian dictatorships Econometric results show that Asia is exceptional: On all other continents are democracy positively associated with economic growth and development. But not so in Asia (Knutsen, 2006). The data-problem and self-selection: Myanmar and North Korea. Looking behind the macro-aggregates and ideal- types: Idiosyncracies and the Asian model (FDI, size firms..) The initial level of development..

Country Growth GDP per cap 1970(PPP) Average FHI Average polity Taiwan* 6,727904,1-2,1 Singapore* 6,452794,7-2,0 Botswana 6,311932,37,6 South Korea* 6,127163,7-0,6 China* 5,28156,6-7,2 Thailand* 4,718223,62,8 Cyprus 4,452751,99,6 Ireland 4,472601,110,0 Mauritius 4,340052,09,6 Haiti 4,39305,9-5,3 Indonesia* 4,210875,3-6,0 Malaysia* 4,228844,03,7 Cape Verde 4,013874,1 Seychelles 3,740914,7 Romania3,720565,3-2,8

Democracy and growth in Asia in the 90s

Growth accounting: de-mystification? Alwyn Youngs results: Asian growth records are mainly due to economic fundamentals like a high savings rate, increases in human capital and growth and reallocation of the labor force. Technical criticisms Causality and inference criticisms Why did these countries save, educate and reform in the first place??

The debate on markets and state- intervention Did countries like Taiwan, South Korea and Singapore follow the text-book, neoclassical model? The answer is a qualified no.. World Bank and economists vs Chang, Wade and Amsden Asian countries relied on selective and often ingenuous forms of state intervention in markets, but were sure to keep in line with basic economic fundamentals (private incentives, property rights). State as entrepreneur and planner Rodrik (2008): Many ways to institutionalize the deeper economic fundamentals, and there is no single, best matrix of institutions and policies independent of contexts

State feedback property rights, rule law, incentives, macro climate education, technology, ind.pol & cap allocpublic goods Firms, labor Outcome technology, capital, aid open markets, demand feedback International environment

Asian experiences characterized by: – Export-led growth and open international markets. Comp adv and sector composition. – US aid in the early period – Strong incentives to firms (markets and others; command approaches). – Property rights protection and legal system. – Betting on a few horses: economies of scale and state-led cartels. Focus on specific sectors (externalities and future growth potential + military relevance) – Support contingent on performance. (autonomy of state and bureaucracy) – State-led solving of coordination problems

Asian experiences characterized by: – Infrastructure and education – Investment and technology policies, allocation of credit to firms – Sound macroeconomic policies (inflation, currency…) – Land reform, redistr. and inequality (Koreans are the worlds true ethical communists…) – Cheap labor (union policies and factory despotism) and work hours:1980s, manufacturing: 53,4 and 48,4 h/w in S.K and Taiwan) – Capital accumulation (anti-consumption and pro-investment policies) – Technology adaptation (West and Japan) – Relative political stability – Well-functioning bureaucracies (For example economic planning boards)

The deeper question: Why were wise policies selected in the first place? We can not stop after labeling some regimes as developmental and some as predatory. The altruistic and enlightened autocrat? Asian values? Ideology; anticommunism (-China) and authoritarian capitalism The institutional explanation: Parties and checks and balances. Autonomy and embeddednes (Evans). Lack of personalized clientilism (question of degree). The bureaucracy. The self-interested dictator: – Stability (Olson, Robinson) – Security threat and politics of power – Glory and pride