September 20, 2023
The economics of autocratic legalism
How do modern autocracies immiserate their populace to satisfy the elite?
Source: Mos.ru, CC BY 4.0
When historians write about despotic governments of the past, revolutions and violent crackdowns take center stage. But modern autocracies have become more adept at subtler forms of oppression and expropriation.
The ability of autocrats to maintain the appearance of working within the framework of a liberal democracy might help to explain recent patterns of wealth and property redistribution in countries like Russia and China, according to a paper in the American Economic Journal: Microeconomics. The authors, Dan Cao and Roger Lagunoff, study the microeconomic foundations of property dynamics in modern autocracies and their implications for economic growth.
Modern autocracies use information technologies and social media to monitor their citizens and manipulate public perception more effectively than their predecessors. In particular, they can do more to mimic democracies that operate within the rule of law, giving them some measure of legitimacy on the international stage and among their own citizens.
This “autocratic legalism”—hiding authoritarian designs in legitimate legal frameworks—gives the appearance of providing robust property rights, while in reality redistribution is dictated by powerful political actors behind the scenes.
Autocrats would like to implement a massive one-time redistribution toward their preferred elite in-group and then commit to a rule of law—a stable allocation of property from that point forward. But they can't do that because they can't tie their own hands without an independent judiciary.
Roger Lagunoff
By building a model of property appropriation in autocracies, Cao and Lagunoff show that while autocratic legalism facilitates appropriation, it also imposes some constraints on what autocrats can do.
In their model, an autocrat controls property rights over a country’s assets, representing the interests of a dominant in-group against the general population. Some assets are private, such as housing, while others are public, such as infrastructure.
Over a period of time, the autocrat decides which assets are private property and which are public, the division of private property between the in-group and out-group, and how strictly property rights are enforced.
In such an environment, autocrats have one optimal strategy.
“Autocrats would like to implement a massive one-time redistribution toward their preferred elite in-group and then commit to a rule of law—a stable allocation of property from that point forward.” Lagunoff told the AEA in an interview. “But they can't do that because they can't tie their own hands without an independent judiciary.”
Instead, the autocrat has to use a more indirect method of immiserating the out-group.
While the in-group is able to use the legal process to appropriate the out-group's assets, the authors’ model predicts that the dictator will turn to public assets as a backdoor for redistribution.
When autocrats come to power, they have an incentive to nationalize assets from the incumbent elite, which history shows can be initially quite popular. But through legal adjudication, those assets are slowly privatized by the new elite. The result is an increasing concentration of private wealth and a declining share of public wealth over time—a trend consistent with recent data from Russia and China.
Expropriating public wealth
The chart below shows the growing wealth gap between the top 10 percent and middle 40 percent in China and Russia (right axes) and the declining share of each country's public wealth (left axes)—indicating a redistribution from public to private ownership.
While such a system has large benefits for a corrupt elite, there is also a big economic downside, according to Lagunoff.
“The path of redistribution turns out to be highly inefficient,” Lagunoff said. “It leads to a misallocation of assets, lower growth, and inefficient consumption smoothing.”
The authors point out that a civil society powerful enough to push for the rule of law and the enforcement of property rights could help mitigate such inefficiencies. But a more powerful civil society could also easily become a political threat to the regime.
The authors’ work shows the tensions between an autocrat’s need to appear to restrict lawlessness, its limited ability to enforce the laws on the books, and its desire to take the resources nonetheless. The constraints they face ultimately lead to excessive and inefficiently timed property expropriation.
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“The Dynamics of Property Rights in Modern Autocracies” appears in the July 2023 issue of the American Economic Journal: Microeconomics.