Mo money, mo problems—autocrat remix
We’ve been wondering why stratified societies grow more slowly than inclusive societies. After challenging offered explanations in previous posts, we offer a new explanation. Perhaps dictators don’t seek economic growth because increased material wealth is basically pointless for the already obscenely wealthy.
El-Materi’s house is spacious, and directly above and along the Hammamet public beach. The compound is large and well guarded by government security. It is close to the center of Hammamet, with a view of the fort and the southern part of the town. The house was recently renovated and includes an infinity pool and a terrace of perhaps 50 meters. While the house is done in a modern style (and largely white), there are ancient artifacts everywhere: Roman columns, frescoes and even a lion’s head from which water pours into the pool. El Materi insisted the pieces are real. He hopes to move into his new (and palatial) house in Sidi Bou Said in eight to ten months.
The dinner included perhaps a dozen dishes, including fish, steak, turkey, octopus, fish couscous and much more. The quantity was sufficient for a very large number of guests. Before dinner a wide array of small dishes were served, along with three different juices (including Kiwi juice, not normally available here). After dinner, he served ice cream and frozen yoghurt he brought in by plane from Saint Tropez, along with blueberries and raspberries and fresh fruit and chocolate cake. (NB. El Materi and Nesrine had just returned from Saint Tropez on their private jet after two weeks vacation. El Materi was concerned about his American pilot finding a community here. The Ambassador said he would be pleased to invite the pilot to appropriate American community events.)
El Materi has a large tiger (“Pasha”) on his compound, living in a cage. He acquired it when it was a few weeks old. The tiger consumes four chickens a day. (Comment: The situation reminded the Ambassador of Uday Hussein’s lion cage in Baghdad.) El Materi had staff everywhere. There were at least a dozen people, including a butler from Bangladesh and a nanny from South Africa. (NB. This is extraordinarily rare in Tunisia, and very expensive.)
[…]Even more extravagant is their home still under construction in Sidi Bou Said. That residence, from its outward appearance, will be closer to a palace. It dominates the Sidi Bou Said skyline from some vantage points and has been the occasion of many private, critical comments. The opulence with which El Materi and Nesrine live and their behavior make clear why they and other members of Ben Ali’s family are disliked and even hated by some Tunisians. The excesses of the Ben Ali family are growing. (Godec 2009)
The epigraph here describes the son-in-law of Tunisia’s former double threat prime minister and president (read: autocrat). It seems that his connection to the ruler was enough for him to lead an incomparably opulent life. I contend that this fact may actually be key to the riddle we’ve been pondering recently about autocracies.
Explaining autocratic underachievement
(Acemoglu, Johnson, and Robinson 2005) suggests that stratified societies are at a structural disadvantage when it comes to economic growth. There, they suggest that autocracies underperform inclusive societies because:
- Autocrats cannot commit to upholding economic rights essential for growth. Realizing this, producers ‘shirk’ and growth slows.
- Autocrats block Kaldor-Hicks improvements that disadvantage them.
But when we examined these explanations we found them wanting:
- First, we built a game theoretic model which showed that, under the right conditions, a rational dictator could credibly commit to upholding certain economic rights because it’s in their long-term interest.
- Second, we pointed out that, even in inclusive societies, there are blocs capable of blocking Kaldor-Hicks improvements.
An alternative explanation
We can resuscitate the second explanation by noting how pervasive it is.
If you’re the dictator of basically any country, you’re so materially wealthy that more money for personal consumption is close to pointless. Tunisia (from the epigraph) is not a wealthy country. Its per capita GDP is $3,553 and its total GDP is $40 billion putting it in 96th place out of 191 listed countries (Fund 2017). Yet the president’s son-in-law has a tiger named Pasha. I’m sure you could tell a similar story about North Korea.
Formalizing this somewhat, I’m suggesting that basically every dictator is in the region of their utility function where the marginal utility of more money is very small indeed. If we also suppose that increasing economic growth has some expected cost (most saliently, increased risk of deposition), autocrats’ reluctance to increase growth is quite rational. In symbols and sloppily, \(u(\Delta\$ + \$) \cdot (1 - (\Delta r + r)) < u(\$) \cdot (1 - r)\) where \(r\) is the risk of deposition, \(u(\$)\) is the utility from money, and \(\Delta\$\) and \(\Delta r\) are the increased money and risk associated with some proposed reform.
This is all lovely theorizing, but is it actually true? We already (briefly) examined the data on the counterclaim that restraint is useful for dictators in the long-term and the data seemed supportive. To test the new explanation offered here (diminishing marginal utility) we might look at GDP and rapacity as measured by risk of expropriation (which seems to be the standard proxy in the literature). If there is a substantial anticorrelation when comparing these variables across countries and times, our new explanation would be less plausible (i.e. Anticorrelation could indicate that autocrats in smaller countries are more rapacious because they can’t be sated by the income available from more moderate rates of expropriation). Unfortunately, the data set that’s standard for these kinds of questions (PRS Group and others 2004) is proprietary.
We’ve been wondering why stratified societies grow more slowly than inclusive societies. After challenging offered explanations in previous posts, we offered a new explanation. Perhaps dictators don’t seek economic growth because increased material wealth is basically pointless for the already obscenely wealthy.
Acemoglu, Daron, Simon Johnson, and James A Robinson. 2005. “Institutions as a Fundamental Cause of Long-Run Growth.” Handbook of Economic Growth 1. Elsevier: 385–472. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.464.9644&rep=rep1&type=pdf.
Fund, International Monetary. 2017. “World Economic Outlook Database.” IMF Washington. http://www.imf.org/external/pubs/ft/weo/2017/01/weodata/index.aspx.
Godec, Robert F. 2009. “TUNISIA: DINNER with Sakher El Materi.” https://wikileaks.org/plusd/cables/09TUNIS516_a.html.
PRS Group, and others. 2004. “International Country Risk Guide.” East Syracuse, NY Available at www.prsgroup.com/icrg/icrg.html.