Don’t get me wrong, I would prefer to live in a democracy over a dictatorship any day for there are other issues under consideration beyond pure economic rationality. In this article however, I will explore why nations under dictatorships might actually show better usage of economic resources and help in increasing social welfare, ceteris paribus.
The year is 2011 and the location is Libya. Widespread protests have seized the country as the dictator, Colonel Muammar al-Qaddafi, who has been ruling the nation for over 40 years is brutally kicked out of his house and murdered. He was a cruel man, known for his promotion of ethnic genocide and international terrorism- the archetype of a classic dictator. However, his regime fared better in many ways as compared to the democratic regime before- the country’s growth rate sky-rocketed under his rule and economic prosperity abounded. The graph below gives an estimate of the scale of economic growth in terms of per capita GDP in Libya under the Qaddafi regime. The country saw substantial economic growth from 1969 onwards, the year he came into power. The fall in growth in the 1980s can be attributed to the oil glut in international markets following the energy crisis in the 1970s, which affected Libya severely, considering over 80% of its exports comprised crude oil. Nevertheless, economic growth quickly resumed post 1990 and rose to reach its peak in 2009-2010, right before the dethroning of Qaddafi.
Qaddafi launched ambitious programmes promoting education, health, housing and public works. The literacy rate was 88.4% and life expectancy was 74.5 years. The United Nations Development Programme (2010) considered Libya a high-development country in the MENA region and Qaddafi was praised in the United Nations Human Rights Council for his support for women’s rights. In most economic spheres, dictator-ruled Libya had surpassed its democratic counterpart.
But how was this happening? To understand this better and come up with a possible explanation, let us imagine a small game. Imagine a puppet economy consisting of two people- one a farmer and the other a shepherd. Imagine further that there is one viable piece of land available for use by both- the farmer can farm and the shepherd can graze his herd. The caveat is that the available land is limited, so there is competition between the farmer and the shepherd. We can imagine this with a payoff matrix.
In the case where both use the land simultaneously (U,U), each gets a payoff, equivalent to utility here, of (3,3) each. When the farmer uses the land alone, he gets a utility of 6 and the shepherd gets a utility (disutility) of -1, and vice versa. When neither uses the land, let us suppose the government allots them separate lands of inferior quality, so they both get to use them with utility payoffs of (5,5). We "solve" the game as follows-
Let us start with the farmer. Suppose the farmer believes that the shepherd will use the land. Then, if he decides to use the land as well, he gets a payoff of 3. If he decides to not use the land, he gets -1. He will decide to use the land.
The same principle holds if the farmer believes that the shepherd will not use the land. The farmer would choose to use the land.
Now for the shepherd. If the shepherd believes that the farmer will use the land, he gets a payoff of 3 by using the land, and -1 by not using the land. He chooses to use the land.
Likewise, if the shepherd thinkS the farmer will not use the land, it is still better for him to use the land and get the payoff of 6.
The best strategy in this game is for both players to use the land and get a payoff of (3,3) each. But, imagine what could have happened if both players had chosen to not use the land- each would have gotten a payoff of (5,5) which is better than the (3,3) in the case where both choose independently. Both (3,3) and (5,5) are examples of something known as Nash Equilibria- a situation where all players are acting according to their best response actions and their beliefs are correct.
But what does this mean for our discussion? You see, in democracies, everyone has a right to freely formulate beliefs and base their actions on them. This often leads to society reaching a distribution of resources that is not optimal (to be precise, Pareto-optimal). Here (3,3) is not the optimal allocation because a better alternative is available, (5,5), which makes both players better off. Similarly, in dictatorships, the all-powerful dictator controls most resources and can direct the people to act according to his/her will. In this example, suppose our puppet economy was under a dictatorship and the dictator realised that this allocation of (3,3) was not optimal for society. He could pass an order stating that nobody is allowed to use that viable piece of land anymore- everyone would be granted separate pieces of land by the government. The society would then move away from the allocation (3,3) and be able to achieve the higher utility payoffs of (5,5). In this way, dictatorships could help us attain better distribution of resources and higher social welfare.
This, however, is an isolated description of a puppet economy and by no means can ever justify an authoritarian government. In reality, there are several caveats to a dictatorship- the state of the economy might not even be one of the concerns of the dictator, the violence that usually characterises dictatorships may actually destabilise the economy and international trade sanctions can often hurt domestic industries. Thus while the case of the Libyan dictatorship cannot be generalised, it still lends crucial evidence to the ongoing debate on economic growth in dictatorships and democracies.
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