Economically Benevolent Dictators: Lessons for Developing Democracies

85 Pages Posted: 6 Mar 2010 Last revised: 14 Aug 2010

Ronald J. Gilson

Stanford Law School; Columbia Law School; European Corporate Governance Institute (ECGI)

Curtis J. Milhaupt

Columbia Law School

Date Written: August 12, 2010

Abstract

The post-war experience of developing countries leads to two depressing conclusions: only a small number of countries have successfully developed; and development theory has not produced development. In this article we examine one critical fact that might provide insights into the development conundrum: Some autocratic regimes have fundamentally transformed their economies, despite serious deficiencies along a range of other dimensions. Our aim is to understand how growth came about in these regimes, and whether emerging democracies might learn something important from these experiences.

Our thesis is that in these economically successful countries, the authoritarian regime managed a critical juncture in the country’s development - entry into global commerce by the transition from small-scale, relational exchange, to exchange where performance is supported by government action, whether based on the potential for formal third party enforcement or by the threat of informal government sanctions. Compared to a weak democracy, a growth-favoring dictator may have an advantage in overcoming political economy obstacles to credibly committing that rent seeking will not dissipate private investment.

We explore this hypothesis by examining the successful development experiences of three countries in the late twentieth century: Chile under Augusto Pinochet; South Korea under Park Chung-Hee; and China under Deng Xiaoping and his successors. Although the macroeconomic policies and institutional strategies of the three countries differed significantly, each ruler found ways to credibly commit his regime to growth. Decades of law reform activity by the World Bank, IMF, and other international organizations, along with a vast academic literature, assume that an impartial judiciary is the key to the transition from relational to market exchange. Our study reveals that a variety of alternatives are possible.

We then consider a now familiar question raised about contemporary China: Does economic development inexorably lead to political liberalization? The conventional wisdom says yes, drawing support from the experience of Chile and South Korea. We show that the conventional wisdom overlooks important features of the Chilean and Korean historical experiences that bear directly on China. The same incentive structures that have propelled Chinese economic growth are likely slow political liberalization.

Keywords: Law and Development, Dictators, Chile, Korea, China, autocracy and democracy, transition to democracy

JEL Classification: F02, F14, G38, Hll, K00, K33, L52, N00, N15, N16, O00

Suggested Citation

Gilson, Ronald J. and Milhaupt, Curtis J., Economically Benevolent Dictators: Lessons for Developing Democracies (August 12, 2010). Columbia Law and Economics Working Paper No. 371; Stanford Public Law Working Paper No. 1564925; Stanford Law and Economics Olin Working Paper No. 393. Available at SSRN: https://ssrn.com/abstract=1564925 or http://dx.doi.org/10.2139/ssrn.1564925

Ronald J. Gilson (Contact Author)

Stanford Law School ( email )

559 Nathan Abbott Way
Stanford, CA 94305-8610
United States
650-723-0614 (Phone)
650-725-0253 (Fax)

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States
212-854-1655 (Phone)
212-854-7946 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

Curtis J. Milhaupt

Columbia Law School ( email )

435 West 116th Street
New York, NY 10025
United States
(212) 854-4926 (Phone)
(212) 854-7496 (Fax)

Paper statistics

Downloads
705
Rank
27,989
Abstract Views
4,073