Why economic analysts like authoritarian democrats like Narendra Modi

Noah Smith, an an assistant professor of finance at Stony Brook University, recently offered an interesting answer to a puzzling question. Why did analysts and the economics press have such high expectations for Indian Prime Minister Narendra Modi? Why did everyone seem to think he would manage to execute massive economic reform?

Mr Smith suggested the following explanation: “I suspect that part of it was due to Modi’s somewhat authoritarian approach to governance. Modi is no dictator, but he seems to be taking a more heavy-handed approach to policy making. That kind of flexing of executive power is probably taken as a positive sign by many economists who, despite evidence to the contrary, remain enamored of the idea of an enlightened despot forcibly modernizing a poor country’s economy.”

This idea of the despot as good for economic growth might seem appealing. China, which is not a democracy, might even be offered as an example of how good politics does not necessarily make for good economics.

But I would be cautious about using China as an example to cheer authoritarian leaders. China’s president Xi Jingping is not a despot in the classical sense — he has a 10-year term and will be replaced by the Party. But Deng Xiaoping was undoubtedly despotic. That said, he was able to get the Party to agree on smart reforms for the country. If there is a force that bears down on and controls China, it is a collective that is the Party.

Even so, the principle is probably the same as if a single despot exerted control. Despots promise efficiency rather than social welfare, as Mr Smith points out. And this is thought to be good for economic growth.

He recalls two Nobel Prize-winning economists’ — Milton Friedman and Friedrich Hayek — optimism about Chilean dictator Augusto Pinochet’s economic policies. And he reminds us that many people wrongly still believe that Pinochet’s free-market policies created an economic “miracle” in Chile. In actual fact, it was only after Pinochet’s 16-year despotic regime ended and democracy was restored, that Chile started to grow at 4 per cent a year. During Pinochet’s regime, it was half that.

Mr Smith says that “the evidence of history confirms the disappointing performance of dictators”. As well as a recent paper by economists Daron Acemoglu, Suresh Naidu, James Robinson and Pascual Restrepo, who estimate that the move from authoritarian rule to democracy can increase a country’s economic growth rate by roughly 20 per cent.

Clearly, good politics can make for good policies. Dispensing with democracy is no remedy for poor economic growth.


Originally published at www.rashmee.com on June 20, 2017.