ublic Choice art IV: Dictatorship Chair of Economic olicy University of Jena Carl-Zeiss-Str. 3 07743 / Jena iterature: Mueller (2003) pp. 406-424 onald Wintrobe (1998) The political economy of dictatorship University of Western Ontario Cambridge University ress (1998) pp. 43 76. room: 5.35 phone: 03641-943257 email: Sebastian.Voll@uni-jena.de 1
ublic Choice art IV: Dictatorship Source: Freedom House (2009) 2
Tinpot vs. totalitarians Question 1: What are the main aims of a so called tinpot regime and a totalitarian regime? olitical aim tinpot regime: the dictator uses its rewards of monopoly from its political power to maximize personal wealth and consumption the level of repression is the lowest possible to stay in office the government does not intervene very much into the life of it citizens. olitical aim totalitarian regime: use of the instruments of mass control to maximize power (e.g. Hitler, Stalin) citizens have to respect the will of the dictator the will of the dictator enters directly into the law the leader can always nationalize and confiscate resources directly bad economic performance might cause problems, but does not necessarily reduce the power of the leader. 3
How to model a tinpot regime? Question 2: What is the optimal quantity of repression and loyalty invested by a tinpot regime? Derive the equilibrium, explain briefly the different equations which lead to the equilibrium. 1) Tinpot dictators want to minimize the power necessary to stay in office: ower is costly, Money spent on power can not be spent on dictators consumption Dictators have two instruments available to stay in office/produce power: 1. oyalty (), 2. epression (). They are able to bind parts of the population to themselves as loyal supporters through the creation and distribution of political rents The level of repression affects the supply of loyalty. ower is modelled as follows: (, ), 0 0, 0 4
How to model a tinpot regime? Assumptions: a) amount of loyalty available to the dictator is fixed in the short run but variable in the long run b) level of repression is variable in the short and long run c) tinpot means to minimize the power necessary to stay in office min Why? Explanation: if dictators receive more resources than required to stay in office, they do not spend the resources on or, they use the resources for private consumption Note: tinpot dictators have the monopoly about formal legal power but they have no monopoly on political loyalty 2) Supply of loyalty: S S (,, E) S E = supply of loyalty = price paid per unit of loyalty = repression = economic performance of the country 5
How to model a tinpot regime? 3) Closer definition of the price for loyalty the dictator has to pay (,, E) 4) The dictators expenditure function B 5) Definition of the minimization problem Min, (,, E) (, ) min 6
7 How to model a tinpot regime? 6) Derivation of the equilibrium )], ( [ ),, ( min, E MinV a) 0 V ba) bb) 0 V 0,,,
The tinpot regime Question 3: In a tinpot regime, there are two instruments to build political power. Explain the characteristic of these two instruments and use a suitable chart to explain the optimal use of these two options. The instruments to stay in power are oyalty () and epression () The assumption is that the amount of loyalty available to the dictator is fixed in the short run The level of repression is variable in the short and the long run Therefore, if the dictator has to react in the short run towards changes related to his equilibrium in power (e. g. a decrease in economic performance), the only option to react in the short run to such changes is Tinpot dictators have in the short run the possibility to take parts of their private resources (resources for their private consumption) to increase the level of repression to a higher level than shown by the budget constraint Because the tinpot dictator wants to maximize his private consumption, he minimizes the money spend to stay in office This means that he minimizes the resources spend on the quantity of loyalty and the quantity of repression. 8
The tinpot regime S (p 0 ) B * E min S1 (p * ) 1 2 B = budget constraint = level of power = (,) = loyalty = repression S = supply of loyalty S S (,, E) = price per unit of loyalty paid by the dictator * B 9
Improvement of economic performance Question 4: Assume that the country has a lot of natural resources. What happens if the dictator makes an agreement with an industrial country to exploit more of the natural resources to improve economic performance? Use a chart and explain briefly. S (p 0 ) S (p 2 ) S (p 0 ) B 0 B 2 2 1 E 0 0 2 A E 2 E 1 0 B 2 B 2 B 1 1 min 1 Explanation: 0 to 1: the improvement in economic performance shifts the supply of loyalty to the right. E 1 : there is an excess supply of repression. The dictator will relax 0 to 1. New equilibrium in the short run is E 1. 1 to 2: transformation process to the new equilibrium. The price the dictator pays for loyalty is suboptimal high. He can gain if he decreases loyalty and increases repression. E 2 : new equilibrium. Thus, under tinpot an improvement in economic performance results in an increase in loyalty and a fall in political repression. 10
Government failure in a tinpot regime Question 5: Assume you are a dictator and you observe a worsening in the economic performance of your country. How do you react to this observation to maintain your political power? The question is to lower or to increase the level of repression Worsening in economic performance will change the price ratio between repression and loyalty It might be attractive for the dictator to lower the level of repression and use the resources available to increase the level of loyalty In this case the dictator has chosen the wrong strategy. In the worst case the dictator will lose his job The optimal policy reaction would be to increase the level of repression in the short run very strongly In the new equilibrium there will be a higher level of repression and a lower level of loyalty compared to the equilibrium before the worsening in economic performance 11
Government failure in a tinpot regime a) Wrong reaction: E * S ' ( 0 ) S ( 0 ) E 0 S shifts left wrong reaction: E0 E2, not feasible: offered loyality is S, so reducing repression leads to < min b) ight reaction: 1 E 1 E 2 min S ' ( 0 ) S ( 0 ) B 1 S '' ( ' ) 2 B E 2 0 E 0 min 1 2 B 1 0 B 12
Military regimes Question 6: Explain why military regimes have low probabilities to survive after being in power. Why do military regimes have incentives to give the military power back to the civilian government after the military coup? Use a chart. It is easy for military regimes to overcome the civilian government because they have a comparative advantage in. They are very strong at the management of violence The comparative disadvantage of military regimes is given by the accumulation in political loyalty The main goal of a military regime is budget maximization. Thus, the whole military can be assumed to be a budget maximization bureau. Intervention is a strategy available to the military for increasing its budgets in countries with weak political systems Budget maximization is often the most attractive strategy available to raise the salaries, the prestige and the power of the military personal Once the military came into office, it will raise the salaries of its personnel. This increases the price of repression. The raise in the salaries causes a reduction of power for the military regime. In the worst case the military regime will not be able to stay in office 13
Military regimes B B 1 2 B 2 3 1 B B 2 ' military min What would be an optimal strategy to overcome this problem? There is always the possibility to increase only the salaries of the leaders from the military regime (e. g. only the salaries of the chief mates). In this case it is necessary to find a possibility to maintain the motivation of the soldiers The military regime can give the power back to the civilian regime, after having suitable guaranties of immunity from prosecution and cuts in the salaries 14
Totalitarians What are two of the main differences between totalitarians and tinpot regimes? 1) Totalitarians maximize power over the population, not their own consumption. 2) Totalitarian have no budget constraint: even if all tax bases are taxed with the highest tax amount, the totalitarian can confiscate the needed resources directly Are there any limits to the Totalitarians power? 3) For totalitariens, it is harder to detect the opposition: there is no open opposition, therefore accusing a citizen of opposition is subject to errors. The more often erroneous incriminations occur, the less citizens will invest into loyalty. 4) The more totalitarian a regime, the more important network links are. This is true even for loyal individuals because nobody can trust anybody 5) For tinpot regimes we were assuming that the quantity of repression and the supply of loyalty are positively correlated. Totalitarian regimes are characterized through a negative relationship between repression and the supply of loyalty. is that high that citizens will react on an increase of with a reduction of loyalty upward sloping supply curve of loyalty Explanation for the negative slope of the loyalty supply curve: At low levels of repression: income effect is small, because the probability to (wrongly) get accused of opposition is small; substitution effect is therefore higher then income effect If repression is increased beyond a treshold, the income effect (-) is higher than the substitution effect (+) for the citizens, because being accused as an opponent of the system is highly probable (Stalin) and bears high risks for the personal income (death) 15
Totalitarians Question 7: Define the maximization problem for a totalitarian regime. Derive the equilibrium for the optimum quantity for repression and loyalty. a) ba) bb) Max (, ), S S (, E) The lagrangian equation is given by: S S Z(,, ) (, ) (, E) Z 0 S Z 0 emark: note that Wintrobe abstains from including the price for loyalty () as a decision variable, despite noting it as a variable in the text (p. 62 and p.67) 16
Totalitarians What happens in totlitarian regimes if there is an increase in economic performence? Explain the development by using a chart. S 1 E 1 S 0 E 0 1 0 0 1 17
olicy implications: tinpot Question 8: Discuss aid policy in the context of a tinpot regime. Use a suitable chart to underline your arguments. The main question is about either to extent economic aid towards tinpots or not. There is a kind of political dilemma. If aid is given to tinpot regimes without any strings attached on this aid, this would only increase the personal consumption of the dictator. This can be shown by the following chart: B B E 0 0 s min The budget constraint shifts from BB to B B. Because and remain constant the dictator has the possibility to increase his personal consumption. Note: it is possible that the dictator remains in office only by the aid given to him. This is the case if the dictator would not have enough ressources to stay in office without aid. In this case, once there is a cut in aid, he will not have enough budget to stay in office. 0 B B 18
olicy implications: tinpot One might argue that there is a possibility to overcome this problem by tying aid on conditions like the respect of human rights. The underlying assumption in that case is that there is the possibility to monitor violations to this constraint. The constraint is represented by constr. epression is lower than in 0. This has the effect that the tinpot regime will be destabilized by the binding constraint. In the short run, loyalty is fixed at 0. But with the constraint, the dictator will have insufficient power to stay in office. The dilemma is characterized through the following two problems. In the case where aid is given without strings, there will be support for the dictator to stay in power and finally he will only increase his personal level of consumption. In the case were aid is related to constraints like the respect of human rights, there is the problem that the dictator is in danger of loosing his power by implementing the policy called for by democratic countries. Solution: aid has to be given with a long term human rights constraint. The aim would be to force the tinpot regime to reduce repression in the long run. This can be successful as long as the dictator will get enough time for such policy ( 0 is no longer fix). 19
olicy implications: tinpot This can be shown by the following chart: S S S is reached, because the Tinpot can buy himself the support by increasing B B E 0 0 E 1 const min Note: due to declining ( 0 to const ), S would move leftward first, but Wintrobe assumes the sum of the effect to be positive 0 B 1 B 20
olicy implications: totalitarians Question 9: Discuss different policy options in the context of a totalitarian regime. Use a suitable chart to underline your arguments to explain the impact of aid policy. There are several options given to react on totalitarian regimes: 1) Democracies could engage in economic relations with totalitarian regimes to improve the economic performance of the government. 2) Democracies could start such like arms race or economic sanctions against the totalitarian regime in the hope that this worsens the economic performance of the totalitarian regime. 3) Democracies could push for human rights. If democracies engage in economic relations with totalitarian regimes, they can improve their economic performance and finally the result will be a higher level of repression towards the citizens who life inside the totalitarian regime. Because of the improvement of E, the support of loyalty will also shift to the right. Finally the dictator has more power, is more repressive and receives more loyalty. Aid in this case worsens the political rights of the people 21
olicy implications: totalitarians If the engagement is linked with human right constraints (e. g. a binding on constr ), this would simply reduce the power of the regime. Thus, a totalitarian leader would not like to accept such constraint 2 E 1 1 constr E 0 1 2 The remaining possibility which is left for democracies in the case of a totalitarian regime is also given by long-term aid linked with conditions such as respect of the human rights 22
olicy implications: totalitarians This can be shown by the following chart 0 _ S S E 0 E 1 The dictator knows that if he accepts the binding constrained, his power will be the same than before the aid received by the democratic countries. Thus, a long-term binding constrained can lead to the result that the level of repression decreases, whereas the level of oyalty increases and the power of the dictator to stay in office remains constant over the time. 0 1 23
Trade policy and dictatorship Question 10: Discuss if trade liberalisation towards dictatorship will lead to an increase or a decrease on the level of loyalty. There are three effects which are important by discussing this question. 1) Trade can be expected to increase the national income of the target regime directly. This is because the inputs imported can be bought at a lower price and the regime can export its products (increase or decrease of the level of loyalty?). 2) There will be the effect that the richer the people are, the more they will demand for liberty. An increase in the wealth function of the people tends to reduce loyalty towards the dictator (decrease in the level of loyalty). 3) The increase in trade will create further links between foreign businesses and domestic producers. There might be the creation of independent power basis within the target regime (e. g. China). This means that the increase of trade makes the people more independent from the central government especially with its salaries. This leads to the result that loyalty towards the regime is falling in the short run. But note, up to a certain point of openness, there might be the result that nationalism increases again and therefore this leads to additional loyalty. The result suspects a decrease in the level of loyalty in the short run and an increase in the level of loyalty in the long run. The resulting effect is not really clear. 24
Trade policy tinpot Further discussion: trade policy with a tinpot regime. Assumption: possitive correlation between trade and loyalty. Trade in the case of a tinpot regime leads to an increase of E and therefore the tinpot dictator will automatically decrease the level of repression (compare slide 9). This result predicts that there is no need to implement a human right constraint. But constr would also not harm the tinpot dictator what can be seen as an argument why constr should be integrated into the contract. Assumption: negative correlation between trade and loyalty Because there might be the effect that there is a decrease in the level of loyalty towards the political regime of the tinpot dictator, the dictator would like to increase the level of repression. This leads to the result, that constr would ensure that the level of repression remains constant. This would also strongly support the necessity to implement constr. Note: constr might bear the risk that the dictator is not able to maintain. min 25
Trade policy totalitarian Further discussion: trade policy with a totalitarian regime. If there is free trade with a totalitarian leader (by assuming a positive correlation between free trade and the level of loyalty), the totalitarian leader wants to use the additional revenue to increase the level of repression. This makes it necessary that constr is implemented. The implementation of constr will have the positive impact that it prevents the citizens before the increase in because of the increase in E (compare slight 16). If we assume that trade will decrease the level of loyalty towards the totalitarian leader, the level of repression will fall as well. In this case a freetrade-agreement even without constr makes sense. But would a totalitarian leader sign a trade contract by which he aspects a loss in political power and the control over the citizens? In the case were the openness of the totalitarian regime goes in hand with an increase in the salaries of the citizens (e. g. China) it seems to be possible for the totalitarian leader to increase repression proportional to the increase in the economic performance. 26
Trade policy Question 11: Discuss free trade agreements with dictatorships from the point of view of the respect in human rights. If a trade agreement goes in hand with higher repression towards the citizens, very good arguments are needed for the engagement with the dictatorship. If it is not possible to implement the respect of the human rights into the free trade agreement in the long run, there are two remaining options: 1) Trade agreement with no human rights constraint, 2) Imposing sanctions towards the totalitarian regime. What would be the optimal reaction? Tinpot: in a tinpot regime it is less risky to implement free trade without any human rights constraint. Totalitarian: it might be better not to engage in trade with totalitarian regimes if the regime will not respect the human rights. In both of the cases the optimal answer has to be carefully evaluated with respect to additional conditions such as the danger of wars, the poverty of the citizens etc. 27
Alternative options Question 12: Discuss what kind of options are left to democracies if they will help the citizens who life under dictatorship. 1) Aid has not necessarily to be implemented by the government. There is always the remaining option that aid is given to international organizations who have access to the country and will engage on aid. 2) There could be the strategy to support parts of the opposition and dissidents to overcome the tinpot/totalitarian regime. If it is the aim to get rid of the dictator, one possibility would be to destabilize the political base of the dictator. 3) Convincing a totalitarian dictator to implement a tinpot regime. 4) One option discussed was the human right constrained ( constr ). In the case of constr it is important that the first step has to be done by the democracies itself. Therefore it makes no sense to make the restriction to say that political freedom has to be implemented before aid is given to the country. Aid (with a long term binding human right constraint) or the free trade agreement (with a long term binding human right constraint) has to be given first. The dictator needs time to increase loyalty. The increase in loyalty is needed to lower the level of repression. 28