Economy

The Myth That Strongman Regimes Are Good For Business

Vladimir Putin, the “godfather” of the current batch of strongmen.
Vladimir Putin, the “godfather” of the current batch of strongmen.
Eric Le Boucher

-Analysis-

PARIS — And then, Brazil. The list of countries that are switching to so-called "strongman" regimes keeps growing. Vladimir Putin's Russia, Recep Tayyip Erdogan's Turkey, Narendra Modi's India, Rodrigo Duterte's Philippines, Jair Bolsonaro in Brazil. The "people" leave it up to a candidate who has promised the end of corruption and economic recovery. In Europe, Poland and Hungary have made this choice while in Italy, Matteo Salvini's League has conquered a big piece of power. The momentum is worldwide.

Parallel to these victories, the faith in the higher virtues of representative democracy is lost. In France, according to a survey by the Jean Jaurès Foundation published in July, nearly one in two young people (under 35) believes that democracy "is not the optimum system." And two-thirds of French polled think that politicians are corrupt.

To make politics more effective in more difficult times, strong governments are needed.

The "peoples' who give their votes to nationalists, populists and other "strongmen" have reasons to do so. The level of corruption is appalling in many of these countries and their economies are stagnating. The euphoria born of soaring commodity prices is long finished, and the rise in U.S. interest rates has brutally drained investment flows these past two years.

There's now a widespread feeling that democracy was a regime for sunny times, but that to make politics more effective in more difficult times, strong governments are needed. And the examples of Putin, Xi, and Trump are used to demonstrate just that.

An overlooked twist to consider, however, is the behavior of financial markets. The markets appear enthusiastic about the tax cuts in the U.S. and are said to welcome the would-be "stability" and corruption crackdown that autocrats supposedly bring. The corruption argument is pure deception. A generation ago, Brazilian military leaders distinguished themselves by enriching themselves while in power after 1964.

Viktor Orban's Hungary lost 10 points on the Transparency International index, from 55 in 2012 to 45 in 2017. The NGO is vilified by the person concerned, but the price of public contracts there is 25% higher than average. Corruption has reached new heights in China, to the point that Mr. Xi has had to declare its eradication as his priority and clean up governing bodies.

Hungary's Viktor Orban in Brussels on Oct. 17 — Photo: EPP

The economic argument is a tall tale. China is a model that cannot be replicated. An examination of the results of strong regimes reveals many more failures than successes. Growth rates around 6% are "normal" for countries that are "catching up," so we need to take a closer look. Let's keep Venezuela aside, with a regime that is more mad than strong. But in the Philippines, growth exceeds 6.5%, largely due to the money sent back to the home country by emigrants. President Duterte distributes social assistance, but public investment is insufficient. The short-term prevails over the long term.

Putin is now paying for his obsession with control.

In India, per capita income is rising very slowly, bureaucracy continues to paralyze the country, and the difficult business climate discourages foreign investment. Prime Minister Modi has failed to reform and clean up the financial system, as illustrated by the fiasco of the demonetization of large banknotes in November 2016. India is a difficult country to govern, no one doubts it. But the populist Modi has proven no better than his predecessors.

Turkey still enjoys 3.5% growth, but the country's weaknesses — inflation, high debt, external deficit — are getting worse and the government is locking itself into authoritarianism. As a result, the markets finally reacted negatively this summer. As for Vladimir Putin, the "godfather" of the current batch of strongmen, he's now paying for his obsession with control and his total inability, after 18 years in power, to diversify his economy away from hydrocarbons and allow an autonomous private sector to flourish. Sanctions are affecting growth (1.7%), but Putin himself is the perfect embodiment of a country that wastes its opportunities and remains an economic dwarf.

The numbers and the facts speak for themselves. Against corruption and for the economy? Strong regimes wind up as champions of the exact opposite.

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The Olympic torch is lit at the Archaeological site of Olympia in Greece.

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Asham!*

Welcome to Tuesday, where Pyongyang test fires a suspected submarine-launched missile, Colin Powell is remembered, Poland-EU tensions rise, and yay (or yeesh): it's officially Ye. Meanwhile, our latest edition of Work → In Progress takes the pulse of the new professional demands in a recovering economy.

[*Oromo - Ethiopia and Kenya]

🌎  7 THINGS TO KNOW RIGHT NOW

• North Korea fires missile off Japan coast: South Korea military reports that North Korea has fired a ballistic missile into the waters off the coast of Japan. The rocket, thought to have been launched from a submarine, is the latest test in a series of provocations in recent weeks.

• Poland/EU tensions: Polish Prime Minister Mateusz Morawiecki has accused the EU of "blackmail" and said the European Union is overstepping its powers, in a heated debate with EU Commission President Ursula von der Leyen over the rule of law. The escalation comes in the wake of a controversial ruling by Poland's Constitutional Tribunal that puts national laws over EU principles.

• Colin Powell remembered: Tributes are pouring for former U.S. Secretary of State Colin Powell, after his death yesterday at age 84. Although fully vaccinated, Powell died from complications from COVID-19 as he was battling blood cancer. A trailblazing soldier, he then helped shape U.S. foreign policy, as national security adviser to President Ronald Reagan, then chairman of the Joint Chiefs under Presidents George H.W. Bush and Bill Clinton, and served as the nation's top diplomat for George W. Bush. Powell's legacy is, by his own admission, "blotted" by his faulty claims of weapons of mass destruction to justify the U.S. war in Iraq.

• Russia to suspend NATO diplomatic mission amid tension: Russia is suspending its diplomatic mission to NATO and closing the alliance's offices in Moscow as relations with the Western military block have plunged to a new low. Foreign Minister Sergei Lavrov announced the move after NATO expelled eight diplomats from Russia's mission for alleged spying. Relations between NATO and Russia have been strained since Moscow annexed Ukraine's Crimean Peninsula in 2014.

• Ecuador state of emergency to battle drug crime: President Guillermo Lasso declared a state of emergency amid Ecuador's surge in drug-related violence. He announced the mobilization of police and the military to patrol the streets, provide security, and confront drug trafficking and other crimes.

• Taliban agrees to house-to-house polio vaccine drive: The WHO and Unicef campaign will resume nationwide polio vaccinations after more than three years, as the new Taliban government agreed to support the campaign and to allow women to participate as frontline health workers. Afghanistan and neighboring Pakistan are the last countries in the world with endemic polio, an incurable and infectious disease

• Kanye West officially changes name: Some say yay, some say yeesh, but it's official: The-artist-formerly-known-as-Kanye-West has legally changed his name to Ye, citing "personal reasons."

🗞️  FRONT PAGE

The Washington Post pays tribute to Colin Powell, the first Black U.S. Secretary of State, who died at 84 years old from complications from COVID-19.


💬  LEXICON

Jashn-e Riwaaz

Indian retailer Fabindia's naming its new collection Jashn-e Riwaaz, an Urdu term meaning "celebration of tradition," has been met with severe backlash and calls for boycott from right-wing Hindu groups. They are accusing the brand of false appropriation by promoting a collection of clothes designed for Diwali, the Hindu festival of lights, but giving it a name in Urdu, a language spoken by many Muslims.

📰  STORY OF THE DAY

Work → In Progress: Where have all the workers gone?

After the economic slowdown brought on by the coronavirus pandemic, companies all over the world are taking advantage of loosened lockdowns and progress on the vaccine front to ramp up operations and make up for lost productivity. But the frenetic spurts of the recovery are getting serious pushback. This edition of Work → In Progress looks not only at the coming changes in our post-COVID economy, but also the ways our world is re-evaluating professional obligations.

🗓️ Hail the 4-day week Across the planet, the shorter work week trend is spreading like wildfire. Four is the new five. Spain began experimenting with the concept earlier this year. New Zealand launched a similar trial run in 2020. And in Iceland, efforts to curb working hours date all the way back to 2015, with significant results: 86% of the country's workforce gained the right to reduce work hours with no change in pay.

🚚 Empty seats In the United States, meanwhile, a severe lack of truck drivers has the country's transportation industry looking to hire from abroad. The only problem is … the shortage is happening worldwide, in part because of the e-commerce boom in the wake of worldwide quarantines. The Italian daily Il Fatto Quotidiano reports that companies will be scrambling to fill the jobs of 17,000 truck drivers in the next two years. The article blames low wages and the dangerous nature of the job, stating that Italian companies are making moves to employ foreign workers.

💼 Key help wanted It's all well and good to question current working conditions. But what about 20 years from now? Will we be working at all? A recent article in the French daily Les Echos posed just that question, and posits that by 2041 — and with the exception of a few select jobs — automation and digitalization will decimate employment. The piece refers to the lucky few as "essential workers," a concept that originated with COVID lockdowns when almost all labor halted and only a minority of workers capable of performing society's most crucial in-person tasks were allowed to carry on.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

I'm worried for my Afghan sisters.

— Nobel Peace Prize recipient Malala Yousafzai Nobel Prize tells the BBC that despite the Taliban's announcement that they would soon lift the ban on girls' education in Afghanistan, she worries it "might last for years."

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Are you more yay or yeesh about the artist currently known as Ye? Let us know how the news look in your corner of the world — drop us a note at info@worldcrunch.com!

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