The Putin Cycle (9-5-2020)

Written by: Jan Luiten van Zanden

I learned this morning that May 9 is the national holiday of Russia, in which they celebrate the victory on Nazi-Germany. I could not help wondering what the economic situation of Russia is at the moment, and in particular how well the Putin regime has obeyed the predictions of the hypothesis of the ‘dictator cycle’. This requires explanation. In 2015 Jason and I published a paper on the economic effects of dictators, where we developed the idea of a dictator cycle. During the first years of a dictatorship, the actual economic effects might be rather positive – he (it is always a he in our dataset) cleans up the mess of his predecessor, suppresses the corruption related to the ‘old regime’, still listens to advice from his ‘comrades in arms’ with whom he seized power. But this all changes during the ‘dictator cycle’. The corruption of the new regime becomes bigger and bigger, he becomes estranged from his mates, and kicks out anybody with independent advice. Moreover, there is a psychological dimension to it as well: the dictator does not trust anyone anymore, relies increasingly on his family (until he does not trust them anymore), he strongly believes he is the only one who can govern the country etc. We tested the hypothesis by looking at the link between years in office of dictators and economic performance, and found strong evidence that after about 8 to 10 years economies grew less, inflation increased and the quality of institutions deteriorated.

We mentioned Putin’s Russia as an example, but could not test the link as his regime – he came to power in 1999 – was still too young (our data ended in 2010). But now we have more years, until 2019, and the idea of the dictator cycle can simply be tested for Russia as well. Firstly, Putin has been so kind to follow the hypothesized pattern of the average dictator: he has increasingly suppressed the opposition, marginalized the free press, undermined democratic procedures; opposition members were put in prison and sometimes ‘mysteriously’ murdered. Striking is also the way in which he dealt with constitutional rules about limits to the number of years the president is allowed to be in office. 12 years ago he still swapped his office with that of Medvedev to conform to this rule; recently he simply changed the constitution in a few weeks, and eliminated all restrictions. His second ten years were without doubt much more autocratic than the first ten years.

Russia’s growth performance also perfectly fits the model. The Maddison dataset (and data from the Worldbank for most recent years) shows the following pattern. The 1990 reforms had dramatic effects; in 1988-1998 GDP per capita (in 2011 international prices) declined by 54%. This is necessary to understand the success of Putin during his first ten years (1998-2008), when GDP per capita doubled, and in 2007-2008 briefly surpassed the level of before the fall of the Berlin Wall. From an economic point of view, his first ten years were highly successful. Consistent with the hypothesis of the dictator cycle, during the second decade things changed for worse; Russia’s economy showed almost no growth in the long run, but a kind of stagnation that resembles the ups and downs of the 1980s, when growth was also close to zero. Comparing 2018 with 2008 gives an average rate of growth of 0,6% per year, or 6% in total. If Putin will stick to power – and most dictatorships are relatively stable, independent of what happens to the economy – and copy the next decade of the cycle from illustrious examples like Mugabe or Mobutu, the Russian economy will start to shrink from this point onwards. One thing is different, however: Russia has enormous reserves of natural resources which gives the economy its own dynamics (in the paper we also found that oil exports may ‘disturb’ the model predictions). But as I pointed out in a blog about the resource curse, this may be a mixed blessing – it may further economic growth, but may as well result in Dutch disease and bad, very bad institutions.

To put this into perspective, a comparison with Poland is illuminating. Poland did not have the huge reserves of minerals, oil and natural gas that dominated Russia’s growth path, but did much better in the long run. Its decline in the early 1990s was more limited and its recovery more persistent (average growth rates for 1988-98 of 1,4%, 1998-2008 of 4,2% and 2008-2018 of 3,4%). In the 1980s Poland’s GDP per capita was about 60% of the Russian level, now it has surpassed it easily. But Poland is also dangerously moving away from pluriform institutions….

Historical reality does not often offer the opportunity to carry out a neat experiment, but in this case we should almost be grateful to Putin that he allows us to test the dictator model so nicely. He closely followed the ‘rules of the game’ of the dictator cycle as predicted. He probably thought that he was the only one with real power, with agency in Russia, but in a way he was really caught by the internal logic of hybris, by the gradual corruption of uncontrolled power. And as predicted, the economy recovered first, and began to stagnate during the second decade of the cycle. But there is no need for further confirmation of the model, not by the Russians, nor by Hungarians, Poles or Belarussians. Enough is enough.

Continue reading: A little blogje about a tiny issue (15-5-2020)

Source:

PAPAIOANNOU, K., & VAN ZANDEN, J. (2015). The dictator effect: How long years in office affect economic development. Journal of Institutional Economics, 11(1), 111-139. doi:10.1017/S1744137414000356