Business opposition to dictators

Businesspeople develop personal ties with government officials to protect their assets under a weak property rights regime (Kung and Ma Reference Kung and Ma2018). They perceive such informal and personal connections as safeguards against state predation (Frye Reference Frye2017: 69). More than safety measures, these personal connections also come with lucrative opportunities, and proximity to political power pays off. Connected companies benefit from trade protection (Malik and Eibl Reference Malik, Eibl, Diwan, Malik and Atiyas2019), enjoy relaxed regulatory oversight and tax immunity (Rijkers et al. Reference Rijkers, Arouri and Baghdadi2017), receive favourable treatment in courts (Xu Reference Xu2020) and take the lion’s share of public contracts (Çeviker Gürakar and Bircan Reference Çeviker Gürakar, Bircan, In Diwan, Malik and Atiyas2019; Lu and Wang Reference Lu and Wang2023). They use these privileges to enhance their market position, reflected in higher profit rates and equity values (Diwan et al. Reference Diwan, Keefer and Schiffbauer2020). Autocrats also target foreign businesses to eject them from the market and create monopolies for their cronies, as Viktor Orbán’s government did in Hungary against foreign companies with special price caps and tax rates, especially operating in the retail and banking industries (Savage Reference Savage2022).

It takes two to tango – these crony relationships are quid pro quo. The dictator’s business allies must repay their fair share of what they earn from these arrangements. These proceeds are, in turn, used to fund prestigious mega projects to boost the dictator’s popularity, buy out media outlets to erect a propaganda apparatus, or simply make the ruling family rich (Adly Reference Adly2023: 422; Arat and Pamuk Reference Arat and Pamuk2019: 107). Incumbent autocrats amass wealth with their discretionary power over public goods and arbitrary application of formal rules. One of the many illustrative cases is the sheer size of the Ben Ali family’s business empire at the end of their rule, constituting 14.7% of all net private-sector profits in Tunisia (Arouri et al. Reference Arouri, Baghdadi, Rijkers, In Diwan, Malik and Atiyas2019: 178).

Such quid pro quo presents one co-optative tactic of authoritarian political control (Hassan et al. Reference Hassan, Mattingly and Nugent2022) – patrimonial co-optation. Under this economic order, the business elite secure privileged access to state resources in exchange for tangible benefits accrued to their patron. By patrimonialism, I mean particularistic and selectively enforced transactions: The incumbent wields high discretionary power over a centralized distribution of rents, and the executive control over economic assets is highly personalized. Svolik (Reference Svolik2012: 170) calls this ‘co-optation via transfers’, Gerschewski (Reference Gerschewski2023: 105) ‘informal co-optation’, Josua (Reference Josua2016: 40) ‘material co-optation’, or Hale (Reference Hale2014: 10) calls it ‘patronal politics’. I use ‘patrimonial’ to put more emphasis on this material exchange’s vertically structured, personalist and particularistic nature. The central premise here is that spoils are allocated to business allies without power-sharing via concessions (Meng et al. Reference Meng, Paine and Powell2023: 157), and the dictator appropriates the state apparatus to target productive assets for allocation or confiscation purposes as he deems fit.

This type of co-optation is not a cosy relationship. Autocrats are not perfect agents of economic elites (Albertus and Gay Reference Albertus and Gay2017: 627) – they prey on their allies and consolidate their rule at the peril of their support coalition. An emerging scholarship highlights the downside of co-optation for businesses: politically connected firms face a higher risk of re-nationalization, ownership turnover and decline in stock value, to cite a few (Barraza et al. Reference Barraza, Rossi and Ruzzier2022; Betz and Pond Reference Betz and Pond2023; Li Reference Li2023; Resimic Reference Resimic2021).

The political risk for co-opted businesses gets more pronounced during financial crises. Resource constraints may jeopardize patronage networks under personalist dictatorships, forcing the dictators to cut back spending (Escribà-Folch and Wright Reference Escribà-Folch and Wright2010: 339). In response to declining resources, the dictator may need to shrink the winning coalition’s size or extract rents from allies in order to survive (Blaydes Reference Blaydes and In Shih2020: 23).

Sovereign debt crises, in particular, put regime durability at risk. A sovereign default is when a government does not pay back the principal or interest on its debt by the scheduled deadline. Unlike the extant scholarship on elite defection that uses gross domestic product (GDP) growth rates to identify periods of economic downturn (Del Río Reference Del Río2022: 2265; Djuve and Knutsen Reference Djuve, Knutsen, In Dallago and Casagrande2022; Reuter and Gandhi Reference Reuter and Gandhi2011: 93), I focus on sovereign debt crises when autocrats are under severe fiscal duress. It is because autocrats may survive through short-term economic fluctuations (Shih Reference Shih2020: 11) – GDP growth, unemployment and inflation rates reflect the general economic conditions of a country, but they do not directly indicate the incumbent’s fiscal capacity to ride out a crisis. Take the case of Turkey: the Turkish economy has been experiencing a currency crisis since 2018 and serious hyperinflation since early 2021. However, the Justice and Development Party (AKP) government has been able to maintain patronage networks to a certain degree and roll out massive programmes with severe fiscal burdens like the FX-linked deposit programme or the law on the early retirement scheme, for which the government had to earmark billions of dollars (Kozok Reference Kozok2022). Sovereign debt crises have serious implications for businesses: for example, Sinanoglu (Reference Sinanoglu2024) finds that politically connected firms that have secured a public contract are more likely to be financially repressed, even more so during sovereign debt crises. In other words, autocrats prey on their allies when push comes to shove.

How would business allies respond to such financial repression by the autocrat? The business elite’s support for the dictator would be contingent on whether their interests are being served or not (Bellin Reference Bellin2000). One key insight from the scholarship is that high uncertainty about future access to spoils increases the likelihood of defection. For instance, Hale (Reference Hale2014: 66) argues that patronal systems are particularly crisis-prone because of the expectations mechanism: if elites believe the patron will remain in charge, few will challenge him; but if the dictator fails to project public popularity and presidential dominance, elites begin to doubt his future grip on power and become more inclined to abandon him. In a similar vein, Reuter and Szakonyi (Reference Reuter and Szakonyi2019) show that defections are more likely when the regime lacks electoral popularity and there are few institutional constraints on the leader, leaving elites with little assurance of future spoils. Economic crises or election cycles can further facilitate coordination against the regime (Del Río Reference Del Río2022; Reuter and Gandhi Reference Reuter and Gandhi2011), especially when elites have suffered from the dictator’s arbitrary actions, such as the expropriation of business assets by members of the ruling circle (Junisbai Reference Junisbai2012: 901).

There is enough evidence to show how business defection could be consequential, from different contexts like Kenya, Ukraine, Tunisia or Kyrgyzstan (Sinanoglu et al. Reference Sinanoglu, Way and Levitsky2025). As a formidable social group, the business elite can allocate financial resources for mobilizing the opposition and staging anti-regime protests (Arriola Reference Arriola2013: 33; Radnitz Reference Radnitz2012). The ‘disruptive power’ the business elite hold stems from their connectedness to the regime – the more connected they are, the more likely they are to possess compromising material – kompromat – that can endanger the political elites (Rithmire Reference Rithmire2023: 107). Indeed, once leaked, corruption can be politically costly for an autocrat (Carothers Reference Carothers2023).

Despite this disruptive and structural power, business opposition to autocrats is rare. According to V-Dem data (Coppedge et al. Reference Coppedge2023), in 2022, in only 30% of electoral autocracies were the business elite in opposition (mobilized or not), and only in five cases, actively mobilized against the regime. Though the number of electoral autocracies where the business elite have been in opposition has increased over the years, businesspeople are more likely to join the authoritarian support coalition than the opposition (see Figure B1 and Figure B3 in the Supplementary Material).

One potential explanation is the presence of autocratic institutions. An extensive body of scholarship shows that constraining institutions may help resolve the dictator’s commitment problem of credibly sharing spoils with the elite, limit his confiscatory behaviour, regularize his interactions with the elite and facilitate compliance (Blaydes Reference Blaydes2011; Escribà-Folch Reference Escribà-Folch2009; Svolik Reference Svolik2012; Wilson and Wright Reference Wilson and Wright2017; Wright Reference Wright2008). Entrepreneurs indeed seek opportunities within formal institutions, such as seats in legislative bodies, to protect their business interests (Hou Reference Hou2019; Szakonyi Reference Szakonyi2020).

However, the institutional account does not explain the full picture. We still do not know much about the impact of non-institutionalized co-optation on elite defection, that is, quid pro quo without such commitment devices (Gerschewski Reference Gerschewski2023: 96). For example, a handpicked group of businesspeople has always been taken on official foreign visits with Turkish President Erdogan’s plane to secure contracts abroad. Being ‘on board’ has been an indication of how close these businesspeople are to Erdogan. One example is the CEO of a large real estate company in Turkey – he has been ‘buddies’ with Erdogan for years. He has hosted him multiple times at his resort in Antalya for vacation and publicly expressed his support for the 2017 referendum that solidified autocratization in Turkey. In return, the Ministry of Environment and Urbanization worked around legal injunctions and environmental regulations to give him a real estate deal in Istanbul worth a billion dollars (T24 2020). Another example is a businessperson Erdogan famously owed TL2 million in 2018 (Duvar 2018). Rumoured to be an old friend of the Erdogan family and having had business dealings with them, his company has contracted lucrative real estate projects in national parks despite public uproar against their environmental destruction.

To add another example, back in 1994, Orbán knew patrimonial co-optation could work for his regime in Hungary and prevent defection. Criticizing the former prime minister, József Antall, during an interview, he said:

It might work for the autocrat, but patrimonial co-optation is a losing game for the business elite. While they pursue these personal connections to reap benefits and hedge against predatory behaviour, they do not have many manoeuvres for an exit strategy once locked in. The more dense these crony relationships, the less likely they are to defect, even without constraining institutions. Even when the dictator preys on them to extract rent in times of crisis, the balance of power is tilted in favour of the dictator in this co-optative relationship.

There are two interrelated reasons why the cards are stacked against the business elite. First, the more financially dependent the business allies are on these patronage networks, the more they would lose should they confront the regime. That is especially the case in late developing economies where state contracts constitute a major source of revenue. In other words, the cost of defection amplifies with the extent of co-optation. When rents are concentrated and distributed centrally by the executive authority, and there are limited economic prospects outside the system, defection becomes a huge gamble (Markowitz Reference Markowitz2017: 109).

Second, once a businessperson exploits their connections to attain economic leverage, they make themselves susceptible to future legal repression and criminal charges (Zhang Reference Zhang2021), as they lose their public support and tarnish their reputation, leading to coordination problems with opposition forces. The autocrat can galvanize public support for repressive acts by presenting them as crackdowns on corruption with intense anti-business and anti-corruption public sentiment. That would especially be the case for regimes with a strong propaganda apparatus, which would blame corrupt business allies for the country’s economic difficulties. Their financial coercion would resonate with the public and boost the autocrat’s popularity, despite there being a severe economic downturn. For instance, Sinanoglu (Reference Sinanoglu2023) shows that people are more likely to condone the financial repression of co-opted businesspeople than others during economic downturns, if they owe their entrepreneurial success to the regime and are perceived as rent seekers responsible for the economic crisis. Overall, the risk of severe financial loss and potential public backlash thus serve as strong deterrents against defection.

The reasons for the rarity of business defection under patrimonial capitalism also explain why business allies are ineffective in ousting the dictator, even when they defect. Take the case of Lajos Simicska. He has been cited as one of the major reasons behind Orbán’s electoral success. In exchange for lucrative government contracts for his construction company, his media outlets lent Orbán indulgent support. But in the aftermath of a public disagreement between them, when Simicska publicly humiliated Orbán because of the government’s crippling advertisement tax, he defected from the regime (Kovách et al. Reference Kovách2022: 266). His media outlets published damning stories and leaked information about the extent of corruption under Orbán’s regime. They were ineffective: a few weeks after these revelations, Orbán’s party won a landslide victory in the 2018 parliamentary elections. Despite his defection, Simicska was not publicly popular due to his history of corrupt dealings with the regime. He could not find allies among the opposition parties, as they tried to distance themselves from him, rejecting claims that Simicska was funding their parties (Andras and Szabo Reference Andras and Szabo2019). In the end, it was not a fair fight for Simicska. He lost his media empire, and his construction company was banned from public procurement. He was practically replaced by a childhood friend of Orbán, Lőrinc Mészáros, who became a billionaire with dizzying speed.

In the next section, I formalize these strategic interactions between the dictator and his business allies, and model the businesses’ cost of defection and the dictator’s cost of repression as a function of degree of co-optation and the extent of anti-corruption public sentiment.

Model

There are two players: the Dictator (D) and his Business Ally (B). The prehistory of this escalation/bargaining game is that under a sovereign debt crisis, D decides to shift the financial burden to B. Without loss of generality, I set this cost to −1.

The game begins with B deciding on how to respond. B may yield to D’s pressure and accept the fiscal burden. Then, B and D receive a payoff of (−1, 0), respectively. Alternatively, B may decide to oppose the government. Should B oppose the regime, then the conflict becomes public. In response, D either doubles down with repression or concedes to B. If D concedes, then he receives a payoff of (−k − p) while B’s payoff is (0). k denotes the additional cost that D pays upon B escalating the conflict, k ∈ (0, 1). p denotes the intensity of anti-business/anti-corruption public sentiment as p ∈ Z+. Higher values of p imply more public hostility towards co-opted businesses. When D yields, there is an additional cost of public backlash to concessions.

If D decides to double down, B faces two options: yielding to D’s pressure or escalating further to challenge the regime. If B concedes, then his payoff is (−1 − k). In addition to the burden of the debt crisis, B incurred k for escalating the conflict. On the other hand, when B yields to D’s coercion, D’s payoff is (k + p). Essentially, D extracts an extra k from successfully repressing B following escalation on top of the electoral popularity of the repressive act.

If B continues to defy the regime, his payoff is (−r_bc). r _b indicates the cost of open confrontation with D with a uniform probability distribution. c refers to B’s degree of co-optation as c ∈ Z+. The higher c, the more co-opted is B. In other words, the more engaged B is in quid pro quo with D, the more he would lose. When B confronts the regime, D’s payoff is (−r_dc). r_d expresses the cost of antagonism against one of his allies with a uniform probability distribution. The cost gets more pronounced with higher degrees of B’s co-optation. The more entrenched crony networks between B and D, the more likely B possesses leverage against D. The extensive form of this game is depicted in Figure 1.

Figure 1. Game Tree

The model presents the cost of defection and repression decisions as a function of the degree of co-optation and public sentiment. The model also considers the popularity of repressive acts against crony elites. Under a setting of incomplete information, both B and D observe their own relative costs but not their rival’s; however, their probability distributions, F_b and F_d, are common knowledge. The solution concept for the game is perfect Bayesian equilibrium (PBE). The equilibrium strategies are solved for r_b and r_d and their beliefs over each other’s strategies. Proofs for complete and incomplete information and the equilibrium strategies are available in the Supplementary Material.

In the subgame perfect equilibrium, the model yields the following predictions. First, even for relatively high costs of repression for the Dictator, the probability that the Business Ally’s opposition induces the Dictator to yield is small; the equilibrium path typically escalates to open confrontation. In subgames where the Dictator’s decision to repress depends on the degree of co-optation, if the crisis cost is sufficiently low and anti-business public sentiment is moderately high, the Dictator’s probability of repression dominates the Business Ally’s probability of opposition. Second, comparative statics show that the Business Ally’s equilibrium probability of opposition decreases as anti-corruption public sentiment intensifies and as the degree of co-optation rises. Last, when the fiscal crisis cost is low, and the Dictator’s decision is independent of the co-optation level, the Dictator doubles down with certainty, given a modest level of anti-business public sentiment. In other words, the Dictator enjoys a strategic advantage in this co-optative arrangement.

Empirical setting

To probe this hypothesis, I use a country-year-level panel dataset of 76 countries (see Table B1) from 1992 to 2019, based on the V-Dem dataset (Coppedge et al. Reference Coppedge2023). First, I excluded small, non-independent and oil-rich regimes with oil income per capita higher than USD500. Resource-rich regimes can fiscally survive through debt crises thanks to accumulated oil wealth in the state coffers. In the regimes under scrutiny here, governments face severe debt crises when their hands are forced to downsize the winning coalition, so the political risks are real and substantive. Second, the listed countries experienced authoritarianism, but at least with one multiparty election with high competition. The lack of active opposition by businesses to the autocratic regime would be the main expectation in closed, opaque regimes like Saudi Arabia or Cuba. The scope condition here is that the business elite could afford political manoeuvres to defect to the opposition. Last, the analysis focuses on the post-Cold War period, when businesses started to play a major political role, especially following market liberalization.

How significant is the business community in this sample of cases? First, V-Dem measures which groups are the most powerful in affecting regime duration and change. In the selected time period, in 14 countries, the business elite is cited at least once as the most powerful group. In addition, a descriptive analysis of private sector investment data by the World Bank shows that in 2022 the average gross fixed private capital investment constitutes roughly 17% of GDP in a subset of these cases, depending on data availability. In some notable cases, this share exceeds 25% of GDP (see Table B3). Overall, the governments would have the motivation to politically control the business community for the purposes of regime durability.

There has been a major debate regarding the accuracy of expert-coded measures; however, expert-coded data can still be highly informative (Bergeron-Boutin et al. Reference Bergeron-Boutin2024). This is especially true for phenomena like business opposition to dictators with little or no ‘smoking guns’. The business elite’s active and mobilized opposition is rare, and it is challenging to identify ‘objective’ comparable indicators across countries. Thus, expert insights are crucial for making sense of such opposition dynamics that go on behind closed doors.

Main findings

Figure 2 shows the exponentiated coefficients of explanatory variables from the main GLM PL-FE models with executive corrupt exchanges as the measure of co-optation. Table C1 in the Supplementary Material reports full regression tables for the main models. Results with alternative model specifications with the best model fit are reported in Tables C2 and C4. Figure 3 illustrates the average marginal effect of co-optation on business support and defection.

Notes: Co-optation Is operationalized with executive corrupt exchanges. All models include a lagged dependent variable (DV). Full regression tables are reported in Table C1 in the Supplementary Material.

Figure 2. The Exponentiated Coefficients from the Main GLM PL-FE Models for Business Support and Opposition

Notes: Co-optation is operationalized with executive corrupt exchanges.

Figure 3. The Average Marginal Effect of Co-optation on Business Support and Opposition

The higher degrees of co-optation are significantly associated with a lower likelihood of business opposition. This finding is robust to different specifications. The effect size is also substantive: Depending on the model specification, one standard deviation increase in the level of executive corrupt exchanges decreases the odds of opposition by 55–69.6%. Similarly, co-optation is statistically and positively associated with business support for the regime, which is a consistent finding across different models. The marginal effects on the likelihood of support are also considerable: one standard deviation increase in the level of co-optation increases the odds of support by a factor of 2.59 to 3.16, depending on the model. In other words, co-optation may have symmetrical effects on business opposition and support.

Experiencing a debt crisis is negatively associated with the probability of opposition only in some models. The marginal effect of one unit increase on the odds of opposition is as high as 59%, but the coefficient estimate is statistically insignificant for some model specifications, and it is not robust across different model specifications for the main measure of co-optation. Debt crisis is not significantly correlated with business support for the regime in the main regressions.

I discuss other covariates in the Appendix.

Mediation analysis

One potential mechanism for the lack of business opposition to autocrats is their tarnished reputation and a growing anti-business sentiment. The public often sees the co-opted business elite as corrupt (Sinanoglu Reference Sinanoglu2023). Autocrats may exploit their lack of popularity by framing financial coercion as part of a broader anti-corruption campaign. Especially governments with effective propaganda machinery and extensive control over the media landscape would find it easier to blame their business allies for the country’s economic hardships. Financial crackdowns on these figures would not just reap short-term windfalls for the regime, but also resonate with the public and boost the autocrat’s popularity during an economic crisis.

To assess whether the effect of patrimonial co-optation on business opposition is mediated by state propaganda, I use an indicator from V-Dem that shows whether major print and broadcast media represent only the government’s perspective. I estimated a Bayesian causal mediation model with one-period lags, and country- and year-level random intercepts, controlling for regime duration, state ownership of the economy, judicial constraints, the regime’s support group size, and level of polarization. Figure 4 presents the posterior distributions of direct, indirect through government control over media, and total effects of co-optation with 95% credible intervals. The direct effect remains substantial even when accounting for the mediator. There is also a credible indirect effect via propaganda (median = −0.10), suggesting that co-optation partially tames the business actors through the government’s control over the media (see also Figure C1).

Figure 4. Posterior Distributions of Effect Size with 95% Credible Intervals, Bayesian Causal Mediation Analysis with Weakly Informative Priors