Abstract
One frequently given explanation for why autocrats maintain corrupt and inefficient institutions is that the autocrats benefit personally even though the citizens of their countries are worse off. The empirical evidence does not support this hypothesis. Autocrats in countries with low-quality institutions do tend to be wealthy, but typically, they were wealthy before they assumed power. A plausible explanation, consistent with the data, is that wealthy individuals in countries with inefficient and corrupt institutions face the threat of having their wealth appropriated by government, so have the incentive to use some of their wealth to seek political power to protect the rest of their wealth from confiscation. While autocrats may use government institutions to increase their wealth, autocrats in countries with low-quality institutions tend to be wealthy when they assume power, because wealthy individuals have the incentive to use their wealth to acquire political power to protect themselves from a potentially predatory government.
Highlights
An important question in economic development is why autocrats in poor countries maintain low-quality economic institutions when a substantial body of literature concludes that specific institutional improvements can produce higher economic growth rates and higher per capita incomes
The observation of wealthy autocrats in poor countries is consistent with the hypothesis that when institutional quality is poor, the wealthy use some of their wealth to seek political power to protect the rest of their wealth from confiscation by the political elite
The results that follow are consistent with the hypothesis that in countries with low-quality institutions, wealthy individuals are attracted to political power, perhaps to protect their wealth from predation that can occur in countries that have a poor record of protecting property rights and establishing rule of law
Summary
An important question in economic development is why autocrats in poor countries maintain low-quality economic institutions when a substantial body of literature concludes that specific institutional improvements can produce higher economic growth rates and higher per capita incomes. Referring to the poor states of Africa, Ayittey (2008: 168) says, “African despots are loath to relinquish control or power. They would rather destroy their economies and countries than give up economic and political power. If autocrats benefit from maintaining low-quality economic institutions, an important question is what benefit autocrats receive. The few systematic empirical studies that have been done have not found evidence that the political elite receive any benefit from low-quality economic institutions. The observation of wealthy autocrats in poor countries is consistent with the hypothesis that when institutional quality is poor, the wealthy use some of their wealth to seek political power to protect the rest of their wealth from confiscation by the political elite. Wealthy autocrats hold political power in poor counties not because those institutions enable them to enhance their wealth, but rather because those governments tend to be more predatory, so the wealthy seek political power to protect their wealth from government predation
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