Question

Authoritarian leaders primarily rely on terror, co-optation, and organization proliferation to maintaining power. What are the economic outcomes associated with the use of each method?

Answer 1

Introduction

In economics, the type of government and leadership plays a pivotal role in deciding the level of activity in a nation, its overall welfare and its relations with other countries all depend on how it is managed. The government of the country needs to decide on critical elements such as what goods and services are to be produced in a country, in what quantity these goods and services would be produced and how these will be distributed.

Accordingly, countries are largely classified into three main categories which are Mixed Economies in which there is both government and private players which come into existence, capitalist countries wherein only market-based economics takes place wherein the consumers demand and the producer’s ability to supply the same decides on the prices. Next is a socialist economy which is the core theme of this case study, in which leaders use whatever technique possible to gain power and the economic outcome and meaning of all of the terms listed is as follows: -

Case Specifics

When the leadership of a country is an autocratic one, wherein, leaders go to any extent to grab power, they prefer to have economic decision making to themselves than to the markets which may facilitate economic growth and overall development.

We have seen examples of countries such as North Korea, wherein all of the described methods of maintaining power such as terror, organization proliferation which means governments increased role in business and co-optation wherein we coordinate with other stakeholders to retain power among themselves has been used. The end result of all three is as follows: -

Economic Implications

1) Slow Aggregate Demand: -

In a country wherein government interference is at its peak due to the necessity to gain power, most of the expenditure which the government does is to maintain power than for economic progress. As economic progress is lacking, the overall demand in the economy remains extremely sluggish. For example, in countries such as North Korea, wherein the practices described are common, the overall demand for goods and services apart from agricultural products remains extremely low.

2) Low Gross Domestic Product Growth Rates: -

The gross domestic product is the final value of goods and services which are produced in a country within the span of 1 year. As governments are busy in spending on gaining power through whatever means possible, it leads to instability in the economy wherein companies do not want to invest in these types of countries and the end result is that production rates suffer as well as the overall growth rates are much lesser than the potential possible.

For example, the existence of countries such as Pakistan and Afghanistan and the associated issues of these countries wherein power has been a constant issue, highlights how growth rates in these countries is substantially low as compared to neighbours such as China and India due to power related instability.

3) Lower Wages and Harsh Living Conditions: -

Due to lower rates of production as well as aggregate demand being low, the end result is that the wages which people get in these countries is much lesser than it ideally should be. As wages remain constantly on the lower side, the living conditions in these economies of the world is also extremely low. The economic outcome of this is that people do not earn sufficient income for a sustained living and their access to modern day facilities such as education, health care and nutrition lacks behind by a large margin

4) Bad International Relationships: -

Most economies which follow this type of regime-based power authoritative economies also lack in terms with their relationships with free market countries. As they impose serious restrictions on imports and want all control to be in their hands, the end result is that their relationships in terms of trade and economics is very bad with countries across the globe. The end result is that the currency is undervalued and importing goods becomes very expensive for people.

For example, North Korea follows this authoritative styled economic practice, and in return has bad relationships with United States and almost all other sections of the world due to which its economy does not see what other countries have already seen in terms of consumption and living standards.

5) Rising Debt & Corruption: -

Most of these countries see Nonperforming assets rising in value whereas their debt to tackle situations like depression remains extremely high. The end result also leads to a lot of corruption and creation of black money which raises inequality meaning that the rich get richer whereas the poor remain poor.

The classic example is of Pakistan, wherein debt is a major concern for the country on one hand and on the other it regularly goes through period wherein the army or the government want maximum control of resources and want to create a socialist economy.

Please feel free to ask your doubts in the comments section if any.