Business, authoritarianism, and democracy

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Why do business allies (not) defect from authoritarian regimes? An emerging scholarship shows that connected businesses face high political risk, and the autocrat can financially pressure business allies during economic crises. And yet, despite their disruptive power, the business elite rarely switch to opposition. I argue that this unexpected loyalty does not always stem from credible power-sharing. The more material quid pro quo the business elite engage in with the dictator, the less they can credibly threaten the dictator with defection. I present a bargaining game between the dictatorship and its business allies and test it using a country-year-level dataset of 76 countries for 1992–2019. The results indicate that higher degrees of patrimonial co-optation lower the risk of business opposition. This effect is partly mediated through the government’s control over the media landscape. These findings suggest that even informal, non-institutional tools of co-optation can effectively deter defection.

Why does an autocrat financially repress his closest business allies during an economic crisis? And why does the business elite rarely defect in the face of repression? On the one hand, the financial extortion of the wealthy businesspeople may provide a quick windfall for the regime to survive through a prolonged fiscal crisis. Indeed, the financial shakedown of businesses during economic downturns is quite common across different types of autocratic regimes. However, it is also risky: autocrats may damage their reputation in the international markets with coercive acts like expropriations. Violent repression of political insiders may also trigger collective elite dissent against the regime. Endowed with structural and disruptive power, the business elite may defect from the regime by mobilizing protests and funding the opposition. And yet, despite these inherent risks, dictators choose to financially extort or purge their business allies during economic crises. One might expect dictator’s business allies to defect from the regime in the face of financial repression. However, on average, they do not. The available data suggest that business opposition to autocratic regimes is a rare event. Why? In my dissertation, I argue that autocrats can financially coerce their business allies during sovereign debt crises with little political cost. They do so by relying on less intensive coercive tactics like tax audits. The co-opted business elite also presents a politically expedient target for repression. First, they can be incorporated into the support coalition in exchange for material benefits without institutional power-sharing concessions. That is why they are relatively easy targets for coercion and less likely to defect from the regime during major crises. Second, due to cronyism and corruption, they lack public support, and the dictator can easily mobilize public opinion to justify their repression and frame it as a crackdown on corruption. In other words, co-optation is a poisonous pill for businesses. The politically connected business elite become punching bags for the dictator during major crises without a credible threat of defection. Once co-opted, the cards get stacked against them, despite their structural power.

Presented: APSA 2023 (LA)Funded by IHS Hayek Fund

Why do citizens endorse financial repression in autocracies? An autocrat may financially squeeze the business community, especially during economic downturns. However, such extraordinary taxation may lack broad public support and trigger backlash. I designed novel visual conjoints using AI-generated LinkedIn profiles of businesspeople and measured public support for their repression in Turkey, varying cues of co-optation, and firm’s characteristics. The results indicate that people are more likely to condone the extra-taxation of co-opted business elite perceived as rent seekers responsible for the crisis, suggesting that an autocrat’s business allies may be politically expedient targets. I then discuss the findings’ external validity with illustrative cases from different types of autocratic regimes. This article contributes to growing scholarships on public support for taxing the rich, authoritarian repression, and the cost of political-connectedness.

How do autocrats manage debt crises? While extorting businesses may offer a quick windfall, such coercion may prove costly for autocrats. I argue that during fiscal downturns, autocrats financially target their business allies to reduce the spoils offered to cronies. To mitigate risk exposure, they deploy tax audits as a technical tool of repression. I qualitatively illustrate this with cases from different autocracies and test it using firm-level data from over 32,000 companies in 40 electoral autocracies. Using various estimators, sensitivity analyses, and placebo tests, I show that co-opted firms with public contracts or import permits are more likely to be inspected by the tax authorities, and more frequently during debt crises. The effects are pronounced for regimes without strong propaganda capabilities, suggesting a substitution effect between propaganda and repression. The results have implications for understanding the cost of co-optation under autocracies and regime durability during economic crises.

With Lucan Way & Steven Levitsky

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While capitalism today is widely seen as a threat to democracy, the free market plays a central role in fostering pluralism. A strong and autonomous private sector is critical to the creation of a robust opposition and an independent civil society that are central to democratic resilience. At the same time, even rich and powerful private sectors in high-income countries may be vulnerable to government pressure with regulatory coercion—a fact that makes these countries potentially susceptible to democratic backsliding. Indeed, state capture of business—to a greater degree than business capture of the state— represents the most direct threat to democratic survival.

In order for civil society groups to successfully leverage the private sector's potential in uplifting democratic principles, they must learn to speak the sector's language.