The economic advantages of dictatorship

   on December 10 2010 10:05 PM
U.S. President Barack Obama meets with China's President Hu as part of the G20 Summit in Seoul
U.S. President Barack Obama meets with China's President Hu as part of the G20 Summit in Seoul Reuters

Dictatorships are faster and more efficient than democracies, which can be bogged down by long-drawn out debates among deeply polarized political parties who can't seem to agree on anything.

Indeed, many pundits have remarked that certain democratic countries like the United States can't make big decisions unless they are confronted by an even bigger crisis.

 

This phenomenon is on full display in the post-crisis world.

 

Many highly-respected economists believe the remedy for the recent global recession is more fiscal stimulus. Paul Krugman, Joseph Stiglitz, and Richard Koo, and even Nouriel 'Dr. Doom' Roubini fall in this camp.

 

Koo explains that the real estate collapse left the private sector with too much debt and too little assets. In response, it is using income to pay down debt, or de-leveraging, instead of spending, investing, and taking out more loans. In this case, the government must step in and fill that void, through fiscal stimulus, until the private sector has repaired its balance sheet and can move forward.

 

So far, China, because it is a dictatorship, has been able to do so, said Koo at a Council on Foreign Relations meeting.  He pointed it out that China's stimulus package, as a percentage of its GDP, was three times larger than the U.S. fiscal stimulus.

 

As a result, China is bouncing back quickly while the U.S., Japan, and many other countries lag behind.

 

Koo cited Nazi Germany as another example to illustrate the economic advantage of dictatorships.

 

Germany was reeling from the heavy burden of war reparations and a global economic recession in the early 1930s. However, from 1933 (when Hitler ascended to power) to 1938, the unemployment rate declined from 30 percent to 2 percent and industrial production doubled. 

 

Hitler achieved this through massive government intervention and spending.

 

Meanwhile, democracies like the U.S., U.K., and France languished economically during the 1930s.

 

Interestingly, the U.S. was finally lifted out of the Great Depression in the 1940s by its own massive government spending. The U.S. democratic government, of course, was only able to do so because it was facing the military crisis of World War II.

 

However, for all their advantages, dictatorships have seriously flaws.

 

In democracies, when the government is pursuing a wrong policy -- often for the benefit of the governing parties and at the expense of the governed people -- citizens vote it out of office.  Kim Jong-il's regime in North Korea, for example, would have been voted out years ago.

 

Unfortunately, in dictatorships, wrong policies are allowed to persist for long periods of time because the government rules by force. 

 

For example, Nazi Germany was able to silence dissenting voices and pursue extreme (and tragic) policies to the ultimate detriment of the country.

 

North Korea, on the other hand, never got started on the right foot and its woeful economic policies have continued for decades.

 

Meanwhile, South Korea, a flourishing democracy which was poorer than North Korea when the two countries first separated, became a leading modern economy within a generation and recently became the first non-G7 country to host the G20 Summit.

 

For China, its dictatorship will be an economic advantage as long as the government chooses the right policies. If it goes down the wrong path, however, the efficiencies of a dictatorship will work against them.

 

On the other hand, the U.S. will drag its feet and perhaps remain unable to fix its problems absent a major crisis. However, it is much less likely to prolong catastrophic and abusive policies than China would, so the U.S. may have the economic policy advantage in the long run. 

 

Email Hao Li at hao.li@ibtimes.com

 

 

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