Investment without democracy: ruling party institutionalisation and credible commitment in autocracies

This paper focuses on the phenomenon of ruling party institutionalisation, a largely overlooked institutional arrangement that promotes investment in non-democracies. The paper argues that party institutionalisation allows autocratic rulers to make credible investment by designating party elite who are expected to invest, and by facilitating collective action by elite in the event of their expropriation.

At the centre of the analysis is a commitment problem common to both democratic and non-democratic rulers. Economic agents invest money, time and effort only with some assurance that the rewards from their investment will not be expropriated, but once investments are made, rulers have an incentive to renege on earlier promise to not expropriate.

While the existing literature shows how democracy can solve this problem by way of accountability and collective action, this paper shows how collective action is possible under autocracy also. It argues that members of institutionalised ruling parties under autocracy form a protected class by virtue of their ability to rebel against an overbearing ruler. Consequently, institutionalised ruling parties can promote ‘investment without democracy.’

Prominent historical examples of this include the institutionalisation of Partido Revolucionario Institucional (PRI) in Mexico and the Chinese Communist Party under Deng. However, this paper shows that the phenomenon is more general.