The Economic Perks of Autocracy

For some time now I have been promoting the view on this blog and in discussions with journalists that it is wrong to blame Vladimir Putin and his inner circle for Russia’s rapid retreat from democracy and rule of law. It is wrong because, given the circumstances, Putin has largely been a rational actor seeking to aggressively promote Russia’s interests at home and abroad, and his tactics, although often lawless and authoritarian, are consistently rewarded. The real problem is the near total lack of willingness on behalf of investors, financial institutions, and their representatives in government to discourage Putin’s most overtly autocratic measures and encourage policies of greater transparency and social liberties. Sadly, the clear message being sent from the international community is that it’s OK to repress your people so long as you maintain a high rate of economic growth and fulfill our insatiable appetite for return on investment (Russia and China are only two examples of many in this respect).


So if we are going to point the finger for the demise of Russian democracy, we must first point at private sector business and banking from Western countries – those who have bought a stake in the Kremlin’s unique offer of “joint venture autocracy.” Thanks to an unprecedented glut in global liquidity and enormously diversified portfolios (an investor figures he or she can absorb a hit in one or two emerging markets as long as the others hold steady), all critical statements, requests, condemnations, and appeals from politicians and NGO leaders are rendered totally ineffectual and solely rhetorical. Given this troubling inconsistency between rhetoric and action, no wonder Russians think the West is indulging in extravagant hypocrisy. We are. The events of the past week have provided no shortage of evidence. Right on the heels of the caustic diplomatic exchanges over missile defense, Kosovo, and a spy murder case that played out at the G8 summit, thousands of investors descended upon St. Petersburg for an economic summit and showered Putin with obsequious praise. It was frankly a disgusting display of sycophancy, gullible optimism, and moral bankruptcy. The experience of booming business in Russia accompanied by eroding liberties has revived an old debate – what will happen if and when dictatorships are able to outperform democracies in economic growth? Why bother advocating for rule of law in such a situation? In fact, this has been the principal underlying rationale behind Vladislav Surkov’s doctrine of sovereign democracy – that Russians are yet mature enough to be responsible for the selection of their own leaders, and that perhaps after another decade of economic growth under state corporatism can the Kremlin’s grip on political and economic power be loosened. Alvaro Vargas Llosa, who in the past has written some interesting columns on Russia, has a new article out this week precisely addressing this debate, which suggests that “Putinochet” Russia may not be all it is cracked up to be by enthusiastic investors:

A recent article in the online magazine measures economic performance against the degree of political and civil freedom existing in various nations. The conclusion is that in the last 15 years, the economies of nations ruled by despots have grown at an annual rate of 6.8 percent on average—two and a half times faster than politically free countries. Those autocracies that have opened their markets in recent decades but continued to restrict or prevent democracy—China, Russia, Malaysia, and Singapore, for example—have done better than most of the developed or underdeveloped countries that enjoy a considerable measure of political and civil freedom. …. But this is not the end of the story. Of the 15 richest countries in the world, 13 are liberal democracies. The other two are Hong Kong, a Chinese territory that enjoys far greater civil liberties than mainland China, and Qatar, where the abundance of oil and natural gas, and the tiny population, translate into a large per capita income average. …. When the environment in which the economy breathes depends on institutions rather than on the commitment of an autocrat or a party, stability and reliability generate the sort of long-term results that we call “development.” That is probably why Chile’s economic performance after Pinochet compares favorably to the years when the general was in power. Not to mention the fact that dictatorships that enjoy economic success are heavily dependent on technology invented in countries where exercising a creative imagination does not land one in jail. … From a moral point of view, the relative prosperity that a dictatorship can trigger is a double-edged sword—it brings relief to people who are otherwise oppressed but also serves as an argument for the indefinite postponement of political and civil liberty. Two things are certain, however. First, history indicates that the combination of political, civil and economic freedom is a better guarantee of ever-increasing prosperity than a capitalist dictatorship. Second, there are sufficient examples—Portugal or the Baltic countries—of underdeveloped countries that have generated stable and reliable environments through political freedom to invalidate the notion that a country should be kept in political and civil infancy until it reaches economic maturity.