December 4, 2019 / 8:26 PM / 7 months ago

Breakingviews - Hadas: Autocrats learning “just-enough” economics

LONDON (Reuters Breakingviews) - Back in 2000, Bill Clinton mocked the Chinese government’s plan to keep the internet under political control, saying it was “sort of like trying to nail Jello to the wall.” The American president reasoned that the internet was hard to police. He was also expressing some conventional wisdom about development: that rapid growth naturally brought political freedoms, and that without those freedoms, growth would be short-lived.

A supporter of Venezuelan opposition leader and self-proclaimed interim president Juan Guaido takes part in a protest against Venezuelan President Nicolas Maduro's government in Caracas, Venezuela January 30, 2019. REUTERS/Andres Martinez Casares

Clinton was wrong on both counts. China has shown the internet is a helpful tool for surveillance and oppression. And strongman governments are flourishing in many parts of the world. Indeed, the typical political prediction for 2020 includes further entrenchment of autocratic governments, from Sri Lanka to Bolivia. There are optimists, but they rarely expect much, just a few mildly successful fightbacks from beleaguered supporters of multi-party, minimum-corruption democracy.

Logically, it shouldn’t be so. Governments which crush political opposition are often in symbiotic relationships with corrupt oligarchs. They protect their fortunes, often stunting growth in the process. Even when the leaders are themselves fairly honest, their desire for total control and sycophantic advisers leads to policy mistakes. The currency-cancelling and inept tax changes of Narendra Modi’s Indian government are good examples.

But if economic growth is suffering these days, it is certainly hard to tell. The International Monetary Fund expects a 3.4% increase in the world’s gross domestic product in 2020, up from 3% growth in 2019. All of next year’s increase is expected to come from emerging and developing economies. The growth rate in developed economies is set to be the same modest 1.7% in both years.

This could just be the slow road to disaster. The Soviet Union’s stagnation did not become a big political issue until about five decades after the Communist Party seized power, and the old government clung on for another 20 years.

For now, though, most autocracies are holding on. Whatever their political appeal, they are able to provide enough additional prosperity to keep the people’s economic dissatisfaction below the level that makes rebellion look worth the risk. They have just-enough economies.

Russia is a good example. For President Vladimir Putin, the 1.9% expansion of GDP in 2020 expected by the IMF is likely to keep his constituencies, both the oligarchs and the mass of the population, satisfied. In Brazil, Jair Bolsonaro can take similar comfort in a 2% GDP growth forecast. Sure, growth under less corrupt and oppressive regimes might be faster and fairer, but that’s not the point. From the leader’s perspective, just-enough is good enough.

By that standard, China is in great shape. Political repression and trade wars may drag down growth rates, and an increasingly domineering government may make bad decisions. However, the 5.8% GDP growth forecast by the IMF would be more than enough to keep grumbling about the economy at a controllable level. The same is true of India’s 7% expected growth, even after taking into account the creative interpretations of Indian statisticians.

Is that sustainable? Technological trends mean it might well be. A generation of rapidly declining costs for everything data-related, combined with ever more efficient global production chains, has made more goods more readily available to more people. On the other side, the same globalisation of production has allowed even corrupt and not very competent governments to preside over substantial export growth and modern job creation.

Indeed, just-enough economic growth is so easy that it usually takes a political calamity to create the sort of economic failure needed to embolden dissenters in violent autocracies. Without sanctions, the economic fury of Iranian protesters would probably not have reached anything like the current level. In Iraq and Venezuela, civil conflict is the additional political ingredient.

Dissent is less risky in traditional democracies, so economic discontent can more easily become political. Just-enough growth has not been enough to pacify the left-behind voters in the United States and Britain. And the government in Chile, a South American democracy with a reasonably successful economic record, is struggling to contain widespread economic anger.

Where prosperity does make a difference is in determining whether autocracies lean on carrot or stick. When there is very little to go around, a great deal of brutality will be needed to keep a people subdued. The ultimate example is North Korea – all stick, no carrot. Most strongmen do not really want to go that far. So as the economic carrots of expanding wealth grow more readily available, the more brutal dictatorships give way to hybrid regimes that mix the modern and draconian – like China.

The relative ease these days of delivering just enough is undoubtedly bad for the global expansion of freedom. Clinton should have remembered that technology is no more than a tool. It can be used to promote oppression as well as freedom.


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