Limits to Autocracy: An Analysis of China’s Renationalization Zhangkai Huang Lixing Li School of Economics and Management National School of Development Tsinghua University Peking University
[email protected] [email protected] Guangrong Ma Jun “QJ” Qian School of Finance Shanghai Advanced Institute of Finance Renmin University of China Shanghai Jiaotong University
[email protected] [email protected] This version: June 23, 2017 Abstract We document large-scale reversal of privatization in China—local governments taking back shares in a quarter of previously privatized firms. Politicians who are not affiliated with any of the dominant political factions are more likely to waver under pressure and adopt renationalization. The failure to adhere to the privatization scheme reduces productivity and raises labor redundancy and firm leverage. The policy reversal casts doubt on the notion that autocracies have advantages in policy implementation: politicians without factional affiliation are disadvantaged in the promotion process and are more sensitive to unemployment pressure. JEL Classifications: G32, H11, P31, L22 Keywords: Renationalization, privatization, political faction, unemployment, productivity 1. Introduction Are autocracies superior in implementing economic policies than democracies? After all, since autocrats get their power through coercion, not election, it seems they may be good at pushing economically sound policies that might be politically costly under democracy. For example, Gary Becker states that: “Visionary leaders can accomplish more in autocratic than democratic governments because they need not heed legislative, judicial, or media constraints in promoting their agenda…Visionaries in democracies can accomplish much sometimes… However, their accomplishments are usually constrained by due process that includes legislative, judicial, and interest group constraints.” (Becker 2010).