Overview of A warning for business leaders: Aspiring autocrats tank economies
This episode of Masters of Scale (hosted by Jeff Berman) features political scientist Barbara F. Walter, author of How Civil Wars Start and How to Stop Them. Walter explains findings from the CIA’s Political Instability Task Force and uses global examples to show why “partial democracies” (anocracies/inocracies) are the most politically and economically unstable regimes — and why business leaders have a decisive role in preventing democratic decline.
Key points and data
- The CIA’s Political Instability Task Force (1994–Aug 2023) tested 38 potential predictors of political violence; only two were strongly predictive:
- Inocracy (anocracy): a partial democracy with both democratic and authoritarian features.
- Politically mobilized identity groups: political parties formed around race, religion, or ethnicity rather than ideology.
- Countries in the middle zone (anocracy) experience most political violence, policy volatility, and economic dysfunction.
- Outcomes after falling into anocracy:
- ~45% eventually become autocracies.
- ~35% linger in the unstable middle (frequent leadership changes, chaotic politics).
- ~20% return to full democracy — typically via a “U-turn” within 5–8 years.
- The U.S., by the task force’s metrics, slipped into this middle zone in December 2020 (note: the CIA itself cannot monitor the U.S., but the public data and model were accessible to Walter).
- Economic impacts:
- Partial democracies have lower GDP per capita, slower growth, lower investment, and higher policy risk than healthy democracies or—even sometimes—autocracies.
- Small businesses and startups are hit fastest; innovation collapses. Large incumbents may initially benefit (favored by aspiring autocrats) but often lose out later.
Why partial democracies are uniquely risky
- Instability follows an inverted-U shape: stable democracies and stable autocracies show less political violence than mixed regimes.
- Partial democracies combine:
- Weak institutional checks (so leaders can abuse power).
- Enough openness for political contestation and mobilization — which can escalate into violent conflict.
- Identity-based party politics heightens polarization and makes power struggles existential, increasing violence risk.
Case studies and examples
- Brazil (2022): Major industries (manufacturing, finance) ran coordinated pro-democracy public campaigns before the election — emphasizing democracy’s value rather than naming candidates. Result: unusually high turnout and Bolsonaro’s defeat; Bolsonaro later indicted for an attempted coup. Shows business-led mobilization can matter.
- South Africa (early 1990s): Businesses withdrew support for apartheid under economic pressure (sanctions and profit risk). Business abandonment helped end apartheid and enabled transition without civil war.
- Hungary (post-2010): Viktor Orbán’s rapid autocratization shows the cost to elites:
- Of Hungary’s 50 richest before 2010, only ~23% remain on that list 15 years later.
- ~38% had firms crippled by regulation/lawsuits and were bought cheaply by regime allies; ~22% vanished from public life; ~4% died under suspicious circumstances.
- United States: According to Walter’s analysis of the task-force model, the U.S. entered the inocracy zone in Dec 2020 — underscoring urgency for domestic actors.
Business implications — who gets hurt and when
- Immediate losers: small businesses, startups, and innovation ecosystems (funding and new ventures dry up).
- Medium-term: medium-sized firms see decline; volatility in rules/markets increases operational risk.
- Short-term winners: large incumbent firms sometimes gain initial advantage through regime favoritism.
- Long-term: autocratic consolidation eventually harms even favored firms (expropriation, politicized regulation, capture by regime cronies).
Practical recommendations for business leaders and boards
- Treat democratic decline as a strategic business risk; incorporate into enterprise risk management and scenario planning.
- Coordinate with peers to overcome the collective-action problem:
- Joint public messaging on the value of democratic norms and institutions (examples: Brazil).
- Industry coalitions to defend rule of law, independent judiciaries, free press, and fair elections.
- Use economic leverage: make clear that democratic backsliding risks investment, supply chains, and profits (as in South Africa).
- Protect small-business and innovation ecosystems (advocate for policies and safeguards that help startups and competition).
- Define and communicate corporate political engagement policies (clear boundaries on donations, lobbying, and statements).
- Engage boards and investors in long-term governance conversations; fiduciary duty can align with defending stable institutions that enable long-term value.
- Prepare contingency plans for increased political volatility (operational continuity, employee safety, market diversification).
Notable quotes and insights
- “The most unstable place to be as a government is in this middle zone.”
- “Business is probably the most powerful actor in American politics… they have an enormous influence in who gets elected, what policies they pursue.”
- “Once countries fall into this middle zone… about 45% will eventually become autocracies; only about 20% ever return to full democracy.”
- Case evidence: coordinated business intervention in Brazil helped preserve a free election; withdrawal of business support in South Africa helped end apartheid.
Recommended resources
- Barbara F. Walter — How Civil Wars Start and How to Stop Them (book)
- Barbara F. Walter’s Substack (regular analysis; recommended by the host)
- Masters of Scale episode transcript and YouTube video (for full conversation)
Summary takeaway: Partial democracies (anocracies) are the most dangerous political and economic regimes. Business leaders — who have concentrated political and economic influence — should treat democratic stability as a core business risk and coordinate public, policy, and market strategies to defend institutions, protect innovation, and prevent autocratic consolidation.