How Authoritarian Rulers Mess up with National Economies

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How Authoritarian Rulers Mess up with National Economies and How that affects Trade and Development

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2 Introduction NB: You can get help with a new topic from our tutors Over the past few decades, scholars seeking to examine the relationship between authoritarian governments and trade and development have increased relatively. Despite the ballooning of democratization, it is evident that authoritarian regimes in both emerging economies and the third world nations are unlikely to become extinct in the near future. Courtesy of this assertion, it is paramount to fully understand how these regimes affect trade and development of an economy. This term paper seeks to dissect authoritarian regimes to ascertain how their dictatorial leaders bring down national economies. In addition, the paper seeks to analyze the effects of such regimes on the trade and development of a nation.

According to Bingman (2006), authoritarian regimes are those governments whose rulers or decision makers cannot be expunged from power through a welldefined democratic process. Authoritarian rulers often mutilate the constitution of their countries to enable them exercise undue ruling over their subjects. Authoritarian regimes can be divided into a number of groups, including single party dictatorial regimes, monarchies and military juntas (Umpleby, Medvedeva, & Oyler, 2004). A number of scholars assert that an institutionalized authoritarian government tends to adopt more progressive and open trade policies. This is often an antic employed by the primary decision makers in an authoritarian regime to enable them stay in power. The move to open up the economy to trade is often directed towards blinding a dissenting public. Institutionalized autocratic regimes often factor in the opinions of dissenting groups, thereby increasing the numbers of those in the ruling system. The

3 aforementioned move increases the number of individuals who get satisfied, it subsequently becomes relatively difficult to satisfy all political actors in the regime through trade contraction measures i.e. protectionist policies. Instead, authoritarian leaders must embrace open trade, whose impacts can be fully felt by a wider section of the society. However, that is relatively different in non-institutionalized regimes i.e. single party or dictatorial regimes where the interests and plight of the common citizens are considered less important.

The perception that leaders of emerging nations and those of third world countries failed or almost failed economies is rife. These perspectives that are grounded on authoritarian regimes assert that African leadership and that of Asian economies varies from criminalization to re-election of elites who are keen to manipulate power and utilize state resources to magnify their political and economic prowess. Despite enjoying the fruits of sovereignty i.e. internal and external sovereignty, internal sovereignty has taken a new twist as political leaders of the west inject funds to these economies to spur unrests through organized crimes for their personal benefits. The move by west political leaders to influence negatively the affairs of third world economies hampers trade and development of these economies. This is so because they play a major role in the formulation and subsequent implementation of retrogressive policies that discourage free engagement between states. Often, authoritarian rulers are driven by selfish interests and are keen to consolidate power by smashing their opponents and the support from political leaders of the west glues these interests together. From the aforementioned it is evident that authoritarian rulers mess up national economies due to their selfish interests. In addition, adopted policies that are often retrogressive impede

4 trade and development. This is because protectionist policies lock out free trade between economies. Failure to adopt sound trade and development policies results into low growth and development rates. Given the insensitivity of authoritarian rulers and their governments, it might be relatively hard for developing economies to realize millennium development goals by the year 2015 (Pike, Andres, & Tomaney, 2006).

Nationalization Whereas democratic regimes are moving away from nationalization by encouraging the privatization of public corporations, authoritarian governments are embracing nationalism. According to Schlumberger (2007), nationalization is the process whereby private companies, enterprises, institutions, and other private assets are converted into public entities by a state. The rights of private ownerships of these assets are transformed to allow public ownership. Nationalization does not only factor in private assets, it also implies the assets that may otherwise be owned by a lower carder of government i.e. municipalities or town councils, that are being transferred to be managed by the central government having been transferred to the public sector.

Nationalization is one very retrogressive policy associated with authoritarian regimes.

The same strategy was employed and advocated by socialist states, famously known as emerging economies. However, unlike socialist who managed the assets as public custodians i.e. for public benefit, authoritarian rulers and their cronies are the only beneficiaries of nationalization.

Considering that nationalized entities are owned by the state, the central government is vested with the responsibility of meeting the costs accrued or associated with these firms. This is a tricky aspect in authoritarian types of governments.

5 Nationalized industries are meant to operate in the best interest of the public. In the past two decades, third world economies have witnessed a collapse of nationalized corporations. Respective governments are unable to meet the costs associated with their operations. Nationalized industries managed by authoritarian rulers have been marked by mismanagement and looting. This has jeopardized trade and development as they are unable to produce quality goods and services or else products that meet quality standards. It is, therefore, apparent from the above discussion that through nationalization of industries, authoritarian rulers put their economies in a great mess (Spechler, 2009).

Pegged currency Pegged currency, famously known as fixed exchange rate, can be defined as a form of exchange regime whereby a state fixes the value of its currency against another currency, or to a conglomeration of other currencies, or to a measure of currency value i.e. gold (Pike, Andres, & Tomaney, 2006). In the contemporary economies, a fixed exchange rate is meant to stabilize the currency value of a state against the currency pegged to it. This move often eases the trading and investments between the two economies whose currencies are pegged together. Also, pegged currency is used to control inflation. However, pegged currency curtails the government from employing monetary and fiscal policies to foster its domestic macroeconomic stability. Pegging of currency has a tendency of leading to a black market. An economy seeking to maintain a fixed rate of a pegged currency does so by passing legislation that the trading of a currency at any different or other rate is illegal. This, therefore, may encourage the brooding of the black market in matters pertaining foreign currencies. However, there

6 are economies that have been successful in using this method as monopolies oversee the conversion of all currencies. Emerging economies such as China employed this policy of pegging currency in the 1990s to contain the effects of the dollar (Umpleby, Medvedeva, & Oyler, 2004).

Pegging currency is a curse to not only the third world economies but also to the emerging ones. An economy that has pegged its currency to that of another state is unable to trade in a good environment with other players using different currencies. This hampers trade and development of an economy. In addition, while utilizing a fixed exchange rate, a government is unable to employ monetary and fiscal policies in a free manner to check the levels of inflation. This exposes the government to trade deficits.

The aforementioned is imminent because inflation and purchasing power are largely related. In other words, the purchasing power of a rational individual increases relatively with an increase in inflation rates. This brings down the prices of imports. Cheap imports are catastrophic to the economic development and survival of an economy. With cheap imports, developed economies dump their products in developing economies. This crushes domestic industries as export prices will be relatively higher than imports.

Collapse of domestic industries together with unfavorable terms of trade and unfavorable balance of payment are enough to bring an economy to its knees. In addition, the stubbornness of an authoritarian government will lead it to embracing deflationary measures when the economy is experiencing a deficit in trade. This will increase the unemployment rate and raise the cost of living of an economy. From the above discussion, it is evident that the assertion that pegged currencies are associated with economic stability is only true to some extent, since attacks related to speculation

7 are often directed towards pegged currency regimes i.e. emerging or third world regimes (Umpleby, Medvedeva, & Oyler, 2004).

Black markets Black markets are a common phenomenon in authoritarian regimes. According to Spechler (2009), a black market, also referred to as an underground economy, is a place where the trading of goods and services is done outside a formal market that is established or else supported by a state. Most often, black markets thrive in most economies during war. A case in point is the third world economies where legitimacy of governments is questionable. In a number of African economies, authoritarian rulers who are at war with their neighbors or dealing with internal uprisings against their regimes impose restrictions in the use of resources such as food, gold, oil, and rubber.

These rulers impose such rationing use of resources to enable them fund their wars.

Therefore, in such cases, black markets sprout to ensure that the rationed goods are in full supply, though at exorbitant prices. Price controls and rationing by both the third world and emerging economies relatively increases activity levels in the black market.

Increase in black market activities is detrimental to trade and development of a country.

This is because the benefits accrued by sellers are unquantifiable, and do not benefit the government as they evade taxation.

Authoritarian rulers together with their governments often encourage the sprouting of black markets through their insensitive policies that seek to ration the trading of some goods in a formal market. Their policies are much aligned with their selfish interests i.e. the need to harness more profits by reducing trade on some

8 selected goods. This discourages economic growth as it impedes trade and development (Bingman, 2006).

Investment Investments, both local and foreign, are paramount for economic growth and development of a nation. A good entrepreneurial environment is necessary to attract investors. Investors are willing to inject their capital in an economy where they are assured of their returns. Authoritarian governments fall short of such an economy. Their environment is often marred with bureaucracies, corruption and insecurity. The aforementioned discourages investments from both local and foreign investors. Direct foreign investments play a cardinal role in improving the economic state of a country.

Foreign capital injection brings with it additional benefits apart from the development of business units. Some of the benefits accrued through foreign investments include infrastructural development and employment creation. The citizens of authoritarian regimes often live in abject poverty; this is relatively because they are unable to afford basic necessities. To break the vicious cycles of poverty, third world economies need to embrace foreign investors and realize that authoritarian rulers are a drag. For example, Robert Mugabe, who is a renowned Africa leader, has succeeded in scaring away investors through his antics as an authoritarian ruler. His citizens are exposed to a myriad of problems as the cost of living is escalating (Umpleby, Medvedeva, & Oyler, 2004).

Western economies have over the years imposed economic sanctions on authoritarian regimes. This has made investment climate more hostile. Other emerging economies like Iran have stagnated as a result of the United States of America’s

9 sanctions. From the above, it is apparent that the development of an economy relies largely on the levels of investments both, by local and foreign investors but authoritarian countries scares away investors (Orenstein, 2009).

Authoritarian governments are responsible for the dwindling performance of their economies. Often, the primary role of a government is to formulate and implement policies that are in the interest of the public. However, this is never the case with authoritarian governments. This is because such governments are often driven by the interests of a few persons who seek to benefit at the expense of the larger folk. Trade and development of both emerging and developing economies have been hampered by the failure of authoritarian regimes to adopt liberal policies that could ease the exchange of goods and services between borders. These regimes have also gagged innovations by making the transfer of information from one country impossible through the adoption of rigid policies (Spechler, 2009).

Conclusion It is apparent from the above discussion that authoritarian rulers and governments mess up the economies under their watch. In addition, it is evident that their antics that are guided towards the defense of their private interests hamper trade and development. Third world countries that are still under the leadership of such rulers might fail to meet the millennium development goals by the year 2015. This is relatively because these states are unable to attract the mercy of developed economies that could otherwise advance grants and aid to foster this goal. On the other hand, emerging economies led by authoritarian rulers such as Iran might stagnate economically as most countries are shying off from dealing with such countries due to the United States’

10 sanctions levied against them. Trade liberalization through the disbandment of protectionist measures enhances trade and development of a state. It is, therefore, prudent for both emerging and third world countries to embrace sound trade policies if they are seeking to position themselves well globally. In addition, governments need to nurture an entrepreneurial environment that will attract both local and foreign investments. These investments do not only translate to government revenues, but will also go an extra mile in improving the living standards of a country. Finally, it will enhance innovation and discourage the emergence of black markets.

11 References Bingman, C. (2006). Why governments go wrong: Essays about pathological and corrupt governmnets and how they got that way. Bloomington, IN: iUniverse.

Orenstein, M. (2009). What happened in East European (political) economies?: A balance sheet for neoliberal reform. East European Politics & Societies, 23(4), 479-490.

Pike, A., Andres, R., & Tomaney, J. (2006). Local and Regional development. London: Taylor & Francis.

Schlumberger, O. (2007). Debating Arab authoritaritarianism: Dynamics and durability in nondemocraticregimes. Stanford: Stanford University Press.

Spechler, M. (2009). Human rights in Central Eurasia: the unexpected sides of economic growth and authoritarian rule. Problems of Post-Communism, 56(2), 316.

Umpleby, S., Medvedeva, T., & Oyler, A. (2004). The technology of participation as a means of improving universities in transitional economies. World Futures: The Journal of General Evolution, 60(1), 129-136.