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Political Parties in Business

Listed author(s):
  • Berhanu Abegaz


    (Department of Economics, The College of William and Mary)

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    Why have some mono-parties in emerging market economies (such as Taiwan’s KMT and Ethiopia’s EPRDF) established formidable business empires while powerful ruling parties in socialist economies invariably decried them? The phenomenon of party-owned business (Parbus), much like military-controlled businesses, is an integral part of the drive for a total "capture," by an insurgent vanguard party, of key state and societal institutions in weak market economies. A Parbus-based fusion of political power and economic power is a conundrum for traditional conceptions of corruption, public enterprises, bona fide private enterprises, or oligarchy. Party-state capitalism is a novel phenomenon that is quite germane to the debate on developmental states and neo-patrimonialism especially in Asia and Africa. At the extreme ends of economic and political governance, the Parbus can be viewed as a market-defying institutionalization of grand corruption or as a market-facilitating strategy of shared growth. The parasitic rent-seeking interpretation is that the Parbus is an ingeniously disguised mechanism for tunneling public assets and for creating and redistributing economic rent in resource-poor, post-conflict societies where the state is the biggest economic prize. The alternative, developmental-vanguard, interpretation is that party-owned business empires constitute an innovative third way for responding effectively to paralyzing mix of market failure and government failure. The Parbus stem coordination failures and informational failures (such as investment pooling and allocation, and discovery of new products and markets) where the private sector itself engages in rent seeking as much as in profit seeking. The Parbus thus provide the ruling party investable funds to underwrite shared prosperity and, hence, legitimacy. The war chest of patronage finance can also be tapped to ward off political contenders. This paper makes a modest contribution to the scanty literature on a touchy subject by offering a theoretical framework buttressed by analytical studies of two canonical cases. It identifies key explanatory variables and outlines the conditions under which developmentalism or parasitism is likely to dominate. We argue that the overall impact of Parbus on long-term wealth creation and distribution revolves around four empirically measurable regime characteristics: insecurity, organizational capacity, ideology, and degree of centralization of inherited state. Self-confidence and organizational capacity are most decisive in determining the magnitude of socialization of economic losses and privatization of economic benefits. Three possible paths of evolution emerge: a paragonist path favoring transition to an open system, a parasitic path toward a poverty-tyranny trap, and a mutualist path of unstable equilibrium among state, party, and private competitors.

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    Paper provided by Department of Economics, College of William and Mary in its series Working Papers with number 113.

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    Length: 69 pages
    Date of creation: 20 Apr 2011
    Handle: RePEc:cwm:wpaper:113
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    1. Dani Rodrik & Arvind Subramanian & Francesco Trebbi, 2004. "Institutions Rule: The Primacy of Institutions Over Geography and Integration in Economic Development," Journal of Economic Growth, Springer, vol. 9(2), pages 131-165, June.
    2. Mkandawire, Thandika, 2001. "Thinking about Developmental States in Africa," Cambridge Journal of Economics, Oxford University Press, vol. 25(3), pages 289-313, May.
    3. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
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