Security Threats, Enemy-Contingent Policies, and Economic Development in Dictatorships

Abstract

In this article, I introduce, discuss, and formalize the argument that the type of security threat a dictatorial regime faces has implications for economic policy making and, consequently, economic outcomes. Dictators who mainly face internal threats often have incentives to conduct policies that are harmful to economic development, like underproviding productive public investment. However, dictators who mainly face external threats are more likely to conduct economic development–enhancing policies. The type of security threat facing a dictator thus contributes to explaining the large variation in economic development among dictatorships. The argument finds empirical support in cases from different geographical regions and historical periods. One particularly illustrative example, addressed in the article, is Japan in the nineteenth century, where the sharply increased severity of external threats from Western countries induced the selection of development-enhancing policies in the last half of the century.

Keywords:

• dictatorship
• economic development
• security threat

Acknowledgments

Thanks to participants at the Norwegian Annual Political Science Conference in Tromsø 2008, Asmund Rygh, Helge Hveem, Håvard Hegre, Gyda Marås Sindre, Kristian Helland-Hansen, Øivind Bratberg, and three anonymous reviewers for valuable comments and suggestions. A special thanks to Nils Olve Gillund for excellent research assistance.

Notes

¹As noted, survival strategies are not restricted to manipulation of public investment, so the g-variable may be interpreted more widely. Real-world dictators, of course, do not conduct the types of exact calculations presented here; the model only stylistically isolates some important mechanisms. These have empirical relevance even if dictators, or their advisors, have vague notions on whether public investment increases or reduces production, and, in turn, the various threats' severity, but no clear idea on the effects' strengths. Such beliefs could come from various sources, like interpreting their own country's history, or observing neighboring countries' experiences. Moreover, an even wider interpretation of the model indicates that dictators need not know how public investment affects production. Dictators may, for example, believe that investing in roads or internet infrastructure increases the chance of revolution, without acknowledging the negative economic effects, and still act “as if” they reduce production to mitigate internal threats.

²If α decreases as the industrial economy grows, for example because of increased diversification, the implication that internal threats induce selection of “bad policies” would only be strengthened. The implication is further strengthened if α is endogenous to certain bad policies, like expropriation. However, an endogenous α may also indicate that dictators in some instances could enhance their fighting capacity against foreign enemies by, for example, expropriation. A further extension of the model could be to let D set α, in combination with a more complex model economy (for example, negative effect of α on Y, and possibility for D to use resources on both public investment and spending). Such a model would yield implications on, for example, effects of taxation and expropriation. Dictators facing internal threats would have strong incentives to set a high α, but dictators facing external threats would have to balance the increase in income, and thus fighting capability, stemming from a higher income share against the decrease stemming from reduced overall production.

³Some of the arguments, like the concavity of Y(g) and linear cost of g, could also indicate that d²P_o/dg²>0.

⁴If one introduces uncertainty into the model, for example related to S' military capacity or the exact position of P*, D would set g higher than his best estimate of g* to ensure that he stays in power in period 2.

⁵In principle, g=0 could yield Y'(g)≤1/α, and thus be optimal. However, this is unlikely in practice as the first resources spent on public infrastructure (like the first road) likely yield large productivity gains in most economies.

⁶Dictators' incentives for promoting, for example, industrialization likely also depend on the winning coalition members' characteristics; for example whether they are landowners or urban business interests (Acemoglu and Robinson 2006).

⁷It may be noted that England, with its more isolated location, for a long time outgrew European mainland economies like the Prussian, partly due to the regime pursuing development-enhancing policies. However, England was never completely shielded from invasion threats (notably French). Moreover, despite limited franchise, the British regime historically had several relatively liberal characteristics, which contributed strongly to the selection of good policies (see North and Weingast 1989). Hence, England is not the best test-case for the model proposed here. However, it may be that liberal regime characteristics are endogenous to the security-threat environment in the long run (for example Rasler and Thompson 2005); such possible endogeneity is not captured by this paper's model framework. If external threats for example increase the probability of liberalization, this would generate a selection effect; the dictatorships predicted by the model to select good policies would more often tend to democratize and thus exit from the empirical sample where the model is applicable.

⁸As Mousseau (for example, 2009) argues, both regime characteristics and economic performance may be endogenous to the historically dominant types of exchange and related social norms. Nevertheless, this argument is not necessarily contradictory to that proposed here, as there may be interesting dynamics: Dictators acknowledging that clientelist practices strengthen their grip on power would want to reinforce such historical practices, in the process reducing prospects for economic growth.

⁹Indeed, it was likely the fear of internal threats, more specifically elements within his own army, that led Amin to allow Ugandan troops to enter Tanzania in the first place (Meredith 2006:238). This later induced the retaliation by Tanzanian forces that contributed to Amin's downfall.

¹⁰The lack of a sufficiently centralized political system was perceived by many Japanese policymakers to weaken Japan's ability to deter potential invaders (Perez 2009:84; Tipton 2008:44–45). Hence, the consolidation of power within the central government likely won acceptance among many local daimyō more easily because of the Western threat, although some daimyō resisted.

¹¹Estimates of GDP per capita growth in Meiji Japan vary a lot (Kelley and Williamson 1971), but even the more modest estimates indicate growth rates around two percent.

¹²