Financial strategies of autocratic survival: Lessons for democratic backsliding

• In Event: Political Regimes and Economic Policies

Abstract

Numerous autocracies have not only endured but prospered in the face of internationally mobile capital, maintaining impressive political stability over time. Despite this, few studies have successfully unraveled the intricacies of this phenomenon. The reality of financially open and politically stable autocracies challenges the traditional political-economic narrative, asserting that democracies, not autocracies, are the drivers of financial liberalization for improved economic efficiency and growth.
Contrary to democratic systems, where financial openness aligns with the principles of democratic governance, creating economic opportunities and fostering prosperity and stability, autocracies adopt a different approach. They rely on an asymmetric distribution of benefits to a minority of governing coalitions to ensure support for their authoritarian rule. The pursuit of financial market liberalization by autocracies risks empowering opposition forces and disrupting the established authoritarian order.

This study tackles the intriguing question of how autocracies can embrace financial openness for efficient growth while retaining crucial support from an elitist minority. It argues that autocracies skillfully reduce capital control measures to promote financial market openness, while judiciously allocating the benefits of foreign direct investment inflow to governing coalitions through state-centric distributive institutions. To ascertain this authoritarian dilemma, the study systematically examines the recent experiences of nondemocratic countries, employing an instrumental variables technique. Findings are expected to offer crucial insights that reverberate through the theory of institutionalized autocracy and the intriguing phenomenon of democratic recession. In the latter, a significant number of democratizing countries have recently reverted to authoritarian rule, strategically embracing financial openness to rekindle economic growth and political stability.

The study extends its focus to several South Asian countries that have experienced democratic backsliding. Through a comparative case method, the study aims to illuminate a strategy for combining financial and distributive policy institutions in the pursuit of regime survival amid a globalizing world. This comparative analysis promises to contribute to the literature on theory of authoritarianism by shedding light on how autocratic regimes handle financial and distributive policies, offering valuable insights into the dynamics of autocratic governance in a rapidly changing global landscape.

Author

• Motoshi Suzuki, Kyoto University