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How costly are dictators?
Shawn Hagedorn, MoneyWeb
March 15, 2011

http://www.moneyweb.co.za/mw/view/mw/en/page492379?oid=533387&sn=2009+Detail

The greater a nation-s mineral wealth, the less well aligned will be the interests of school leavers and the nation-s ruling elites. Dictators will amass great fortunes not so much to fund personal consumption but to dissuade coups. A dictator-s primary focus is to stay in office. Once the dictator is much wealthier than would-be contenders, they and prospective defectors are discouraged from mounting a challenge - particularly if there is little prospect of accessing hard cash if the coup is successful. Hence, often state coffers are poorly stocked while personal offshore accounts are well funded. Gaddafi is able to indefinitely fund today-s mercenaries and Libyian soldiers know that if oil production is crippled he has the cash to also finance their payroll whereas his replacement may not.

Toppling a dictator through a violent coup can be quite expensive but much less so than a civil war. According to Oxford economist Paul Collier-s research, civil wars tend to last for seven years and are many times more expensive than coups. Both Tunisia-s or Egypt-s coups have thus far been quite inexpensive relative to a civil war. Let-s hope that Libya is similarly fortunate.

But toppling a dictator through a bloodless coup is not the same as defeating an incumbent in a genuine multi-party election. The most common desires among protesters are for jobs and lower food prices. Policies which promote job creation accelerate middle-class growth. It is a disaffected urban middle class which is most likely to rise up and revolt. Hence dictators favour policies which discourage rural-urban migration and minimise higher education. Where arable land can be made available, land give-aways become very appealing to dictators. The higher the percentage of people on smallholdings the better as those people will be permanently marginalised economically and politically - unless the election dynamics are quite robust.

In short, dictators are hostile to middle-class growth while genuine elections much more closely align policies with the interests of the masses.

Democracy is a more natural form of government in countries with few natural resources and high standards of living from producing finished goods. In resource poor countries, such as Japan, South Korea or Israel, governments have long adapted to assisting their people to be more effective at competing globally as their work and consumption are important for growing the tax base. This is seldom the case in Africa or the Middle East. When dictators can skim mineral wealth there is no need to grow jobs or finished goods exports to increase taxes. Subsistence farmers do not produce surpluses therefore their value to dictators is not significant.

Oddly enough, the most prohibitive cost of dictators is often replacing them. If they are followed by another dictator, then the new dictator will also seek to build a war chest of offshore funds thus further depleting the nation-s savings. But even if a fervently pro-the-people democrat is chosen through an ideal multiparty election process, youthful protests for jobs will go unanswered for many years if not decades. Reversing a tyrant-s anti middle class policies will take many years and the risk of a generation of school leavers being permanently marginalized is high.

As well as jobs, today-s North African protesters also want affordable food. When food prices increase reflecting strong global economic growth, then the value of commodity exports should be on the rise and despots or their replacements should be able to subsidise their country-s food bill. But there are many scenarios where food price go up while a country-s mineral or energy export revenues stagnate or decline. The core problem is that decades of patronage politics will have fostered policies leading to a large crony class with very high income expectations and a much larger percentage of the population for whom food is their largest expense item.

Even if a tyrant can be toppled quickly and at a low cost, reversing his anti-skill development and anti-business formation policies will be very expensive and take many years, if not decades, to correct.

*Shawn Hagedorn is an independent analyst

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