Strongman leaders will always cost economies dearly

Strongman leaders will always cost economies dearly

Hollow institutions are the definitive hallmark of systems of government dominated by strongmen. The world watched in amazement as Hosni Mubarak’s security apparatus and Saddam Hussein’s military simply disappeared at the first sight of trouble. As the Chinese and Turkish economies buckle in the face of adversity, many have focused on the role of institutions in supporting the state through challenges. Strongmen owe their power to very specific groups, often at the expense of traditional elites, and such shaky power bases can prove insufficient in times of national strain. Acute economic challenges, brought about by weak central banks, crony capitalism and unchecked government spending can arise in such conditions, a reality that is all too clear today.
Inflation is an economic symptom of strongman systems. Authoritarian states have artificially undervalued currencies and with central banks often incapable of intervening, that leads to potentially disastrous economic circumstances when populist policies trump economic orthodoxy. The systemic weaknesses caused by one-man rule often have such consequences, according to a recent study of 55 dictatorships. Though faced with minimal opposition to derail policies, the initial freedom to direct policies where they are most-needed can become a huge liability for national economies — take the example of Zimbabwe’s transition from breadbasket to basket case in just one decade.
With the passage of time, the balance shifts from the country’s national interests to the leadership’s private interests with disastrous consequences. In Libya, where Muammar Qaddafi’s initial developmental projects had great support, the quality of governance declined by the 1990s, and the clique surrounding the leader became corrupt, looting the treasury. As in similar systems, when the growth begins to slow, the government prints money — irresponsibly causing inflation crises. 
The status quo in the Arab world was turned on its head in 2011 due to economic grievances caused by authoritarian rule. The 2004 UN “Arab Human Development Report” warned of a “poverty of opportunities” in the Arab world, but was largely ignored. Whether in Tunis or in Damascus, the ill effects of short-term economic decision-making created circumstances that caused public disturbance. In fact, in such states, regime change is beneficial, from the perspective of the population, on economic grounds alone. 

Strongmen owe their power to very specific groups, often at the expense of traditional elites, and such shaky power bases can prove insufficient in times of national strain.

Zaid M. Belbagi

On the economic cost of such dictatorships, academics at the University of Utrecht had this to say: “Every year under a dictator reduces growth in GDP by between 0.10 and 0.15 percent. That means, if a dictator is in power for 20 years, average growth will be about 2.5 percent lower than in a comparable country without an all-powerful leader. That is a really major effect. Africa and the Middle East pay a high price for their dictators.”
In democracies, when such issues come about, people are able to elect leaders who can implement change. In authoritarian systems, decision-making bodies either do not exist or lack the flexibility to implement the required reforms. In Venezuela, Nicolas Maduro and his predecessor, Hugo Chavez, failed to allow a radical solution to hyperinflation to be implemented. In Zimbabwe, a decade earlier, President Mugabe’s decision to print more money in light of severe economic challenges reflected the same pitfalls. Such lessons are all the more important as authoritarianism is on the rise, often focused on short-term gains, without stakeholders realizing the longer-term dangers. 
Any leader recognizes that inflation — which erodes public trust and angers powerful elites who expect economic payouts — can pose serious existential risks. Whereas elected leaders can merely be voted out of office, authoritarian states can collapse entirely in the face of serious economic challenges. In Russia, where President Putin’s short-term international brinkmanship has cost the country dearly in sanctions, retirement is no longer a feasible option for the those in charge. Similarly, in China, the president’s purge of both the communist party and the country’s economic and industrial elite has made him enemies, so he is similarly bound to a system and set of policies that he can only deviate from at a risk to his own position.
All forms of authoritarian decision-making structures suffer from such weaknesses. In Iran in 2013, after a surge in inflation exacerbated public dissatisfaction, the Supreme Leader was forced to usher a perceived “moderate” into office. Such unthinkable compromises are often the result of authoritarian systems overreaching, for example in one-party states such as Cuba.
The economy can — in the long term — pay a heavy price for allowing charisma to replace thorough policy formulation with the involvement of state institutions. During the rise to power of any strongman, institutions are dismantled and potential rivals are removed. The effects of this process can make regimes addicted to growth and positive economic news to legitimize their rule. The consequences of easy credit and parceling out economic benefits to certain groups of society are always felt eventually. What the world is witnessing now shows there is no viable alternative to real economic productivity. 

  • Zaid M. Belbagi is a political commentator, and an adviser to private clients between London and the Gulf Cooperation Council (GCC). Twitter: @Moulay_Zaid
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