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Estimating the Wealth of Absolute Dictators - Implications for Economic Reform in Nondemocratic Societies:

In the post linked below, Jim Lindgren discusses Forbes' estimate that Fidel Castro has a net worth of $900 million. However impressive this figure seems, it actually understates Castro's real wealth. As an absolute dictator, Fidel can appropriate for his use virtually any asset - or person - in Cuba, anytime he wants. His true net worth is the total value of everything in Cuba, possibly subtracting the expenses of the secret police, the military, and the other institutions needed to keep him in power.

This way of looking at Castro's wealth helps explain why Castro and other similar rulers are often reluctant to undertake market-oriented economic reforms that would increase the total wealth of their countries. In order to do so, they would have to give at least some of their subjects enforceable property rights that the dictator could not expropriate at whim.

Let us assume that the total wealth of Cuba right now is X, and Castro effectively "owns" 100% of it. After the introduction of market-based reforms, perhaps total wealth increases to 2X, but Castro now controls "only" 45%. 45% of 2X=0.9X and is of course a smaller amount than 100% of X. In this deliberately oversimplified scenario, Castro's wealth actually goes down, despite the fact that total Cuban wealth has doubled. Clearly, Castro has no incentive to want that to happen! And that doesn't even factor in the danger that allowing the creation of major concentrations of wealth outside Castro's control could provide a material base for opposition activity intended to topple his regime. If that happens, he might lose everything.

The above analysis assumes that the dictator is motivated solely by narrow self-interest. Real-world dictators (Castro included) are sometimes also motivated by ideology. But an ideology that justifies the rule of an absolute dictator (usually some variant of socialism, fascism, or nationalism) is unlikely to look favorably on market reforms, or any other reforms that constrain the power of the state. If it did, it probably would not have appealed to the dictator and his supporters in the first place.

Finally, the theory also helps explain why dictatorial regimes that do institute market-oriented economic reforms usually do so only if either 1) the dictator's power falls well short of being absolute (e.g. - Lee Kuan Yew, or Pinochet), or 2) an absolute dictator dies and is replaced by some form of collective leadership (China after Mao). In such regimes, the rulers have less to lose from market-based reforms because they don't start off owning everything or even controlling everything in the public sector. They might even be able to force their rivals within the government bureaucracy to bear the costs of creating property rights for the citizenry.

I certainly do not mean to suggest that this simplified theory fully explains either Castro's policies or those of other dictators. But it does perhaps identify an important dynamic.

Related Posts (on one page):

  1. Estimating the Wealth of Absolute Dictators - Implications for Economic Reform in Nondemocratic Societies:
  2. Forbes Says that Castro is Worth 900 Million Dollars.--
Erick:
I don't think its accurate to equate his personal wealth with the value of everything in Cuba.

While Castro can appropriate any individual person or assset, he can't appropriate them all. i.e., he can appropriate any single person's car, or any 10 peoples' cars, probably several thousand, but at some point, he will reach a limit. This limit may be the number of people he can piss off before there's a coup, or may simply be limited by his ability to locate and physically appropriate those cars.

Same with people. Any one person can be forced to do whatever he wants, but he can't do it to everyone, at the very least he needs his secret police to like him (and probably needs a lot more than that).
5.7.2006 11:50pm
classmate-wearing-yarmulka (mail):
What I want to know is how much does he have in the bank? If for some reason he flees the country how much will he have to live off of?
5.8.2006 12:02am
Lev:

I don't think its accurate to equate his personal wealth with the value of everything in Cuba.


I agree, because his brother gets a cut.


While Castro can appropriate any individual person or assset, he can't appropriate them all. i.e., he can appropriate any single person's car, or any 10 peoples' cars, probably several thousand, but at some point, he will reach a limit. This limit may be the number of people he can piss off before there's a coup, or may simply be limited by his ability to locate and physically appropriate those cars.


How naive. Castro owns the country. He can do what he wants with any part of it he wishes to. He doesn't need to "appropriate cars" because he already owns them - the people who use them on a daily basis do so at his sufferance. If for some unfathomable reason he wants to use a particular broken down 45 year old wreck, he uses it. If the "custodian" complains, it's jail for him; if he says how wonderful Fidel is and how happy he is that Fidel commandeered his wreck, Fidel might give the guy an extra pound of rice a month.

The only threat to Fidel, assuming for the sake of argument there actually is one other than death by natural causes, is perturbing his immediate subordinates, who are actually allowed to have guns etc.
5.8.2006 12:20am
Average Joe (mail):
The point that Erick makes has a farily close analogy for capitalist societies. The wealth of extraordinarily wealthy families or individuals ususally includes holdings that are ultimately not very liquid because the of the very size of the holdings. For example, Bill Gates, everyones favorite example of an extraordinarly wealthy individual, has much of his wealth in Microsoft stock. If Gates were to try to sell off quickly all of his Microsoft stock, then the price of Microsoft would tank and he would not be able to get anything close to the full present value of the stock from his sale. This would be roughly analogous to Fidel Castro trying to assert his "ownership" over all of Cuba, although the Gates stock sale is naturally much less violent then the Casto assertion of ownership and power. Similarly, in the real world, Gates can still sell substanital amounts of his Microsoft stock and get epic amounts of money from the sale, and similarly, Castro, in a much less civilized manner, can still lay claim to much of the value of Cuban society and remain in power. Therefore, even though Castro's liquid wealth may not equal the total value of Cuban society, it is still substantial. Ilya's thought provoking idea remains valid.
5.8.2006 12:25am
Lev:

The point that Erick makes has a farily close analogy for capitalist societies.


Oh horse####.


For example, Bill Gates, everyones favorite example of an extraordinarly wealthy individual, has much of his wealth in Microsoft stock.If Gates were to try to sell off quickly all of his Microsoft stock, then the price of Microsoft would tank and he would not be able to get anything close to the full present value of the stock from his sale. This would be roughly analogous to Fidel Castro trying to assert his "ownership" over all of Cuba, although the Gates stock sale is naturally much less violent then the Casto assertion of ownership and power.


You really feel that is an analogy? Even roughly?

Gates owns microsoft stock. He has direct possession of the stock certificates for some of it. He allows stock brokers and 401k custodians etc. to have custody of the rest of it at his sufferance. When he wants to have personal direct possession of the stock held custodially, he takes it back. Why? Because he owns it. If the custodian complains, no more Gates business for him. If the custodian does not complain, maybe he will get to handles Gates' microsoft stock in the future.

Castro owns the country. He can do what he wants with any part of it he wishes to. He doesn't need to "appropriate cars" because he already owns them - the people who use them on a daily basis do so at his sufferance. If for some unfathomable reason he wants to use a particular broken down 45 year old wreck, he uses it. If the "custodian" complains, it's jail for him; if he says how wonderful Fidel is and how happy he is that Fidel commandeered his wreck, Fidel might give the guy an extra pound of rice a month.

One difference is that Gates does not maintain his control of his microsoft stock by force. Another is that he did not steal all the microsoft stock in the country from someone else. Yet another, is that he wants other people to own microsoft stock.

Castro does maintain his ownership of Cuba by force...perhaps you are one of those, like Jimmy Carter, who believes Fidel has been elected and reelected in fair democratic elections. Fidel did steal everything in the country from everyone else. Fidel does not want other people to own any part of his Cuban empire - even EUnuch investors in Cuba finally started figuring that one out.

Gates can still sell substanital amounts of his Microsoft stock and get epic amounts of money from the sale, and similarly, Castro, in a much less civilized manner, can still lay claim to much of the value of Cuban society and remain in power.
5.8.2006 12:52am
Lev:

The point that Erick makes has a farily close analogy for capitalist societies.


Oh horse####.


For example, Bill Gates, everyones favorite example of an extraordinarly wealthy individual, has much of his wealth in Microsoft stock.If Gates were to try to sell off quickly all of his Microsoft stock, then the price of Microsoft would tank and he would not be able to get anything close to the full present value of the stock from his sale. This would be roughly analogous to Fidel Castro trying to assert his "ownership" over all of Cuba, although the Gates stock sale is naturally much less violent then the Casto assertion of ownership and power.


You really feel that is an analogy? Even roughly?

Gates owns microsoft stock. He has direct possession of the stock certificates for some of it. He allows stock brokers and 401k custodians etc. to have custody of the rest of it at his sufferance. When he wants to have personal direct possession of the stock held custodially, he takes it back. Why? Because he owns it. If the custodian complains, no more Gates business for him. If the custodian does not complain, maybe he will get to handles Gates' microsoft stock in the future.

Castro owns the country. He can do what he wants with any part of it he wishes to. He doesn't need to "appropriate cars" because he already owns them - the people who use them on a daily basis do so at his sufferance. If for some unfathomable reason he wants to use a particular broken down 45 year old wreck, he uses it. If the "custodian" complains, it's jail for him; if he says how wonderful Fidel is and how happy he is that Fidel commandeered his wreck, Fidel might give the guy an extra pound of rice a month.

One difference is that Gates does not maintain his control of his microsoft stock by force. Another is that he did not steal all the microsoft stock in the country from someone else. Yet another, is that he wants other people to own microsoft stock.

Castro does maintain his ownership of Cuba by force...perhaps you are one of those, like Jimmy Carter, who believes Fidel has been elected and reelected in fair democratic elections. Fidel did steal everything in the country from everyone else. Fidel does not want other people to own any part of his Cuban empire - even EUnuch investors in Cuba finally started figuring that one out.


Gates can still sell substanital amounts of his Microsoft stock and get epic amounts of money from the sale, and similarly, Castro, in a much less civilized manner, can still lay claim to much of the value of Cuban society and remain in power.


The only way that is analogous, is if Fidel wants to sell part of his Cuban empire to someone else. Only a fool would believe he does. Gates likes to sell some of his Microsoft stock to fund his charities. Fidel is his own favorite charity.

Ilya's point is fine and interesting, but it is completely unrelated to anything Erick and Joe are peddling.
5.8.2006 12:54am
Blar (mail) (www):
How much expropriation does Castro actually engage in? Or how much expropriation is he likely to engage in in the futue? I don't know the answer to those questions, but I think that they're the relevant ones to ask. Because if Castro merely retains a theoretical ability to appropriate the assets of Cuban citizens, but he doesn't do much to put that privilege to use, then that doesn't provide him with much of an incentive to retain the current economic structure. Selfishness would not lead a person to maintain a position where he theoretically "owns" all of Cuba's wealth unless he was actually intending to make use of that wealth. Dictators may be motivated by a similarly self-regarding desire, like a desire for status or power, or they may be trying to stay off of a slippery slope where they end up losing everything, but those are different from the motivation that Ilya's model is attempting to clarify.

In order to define what Castro "owns" under the status quo so that we can figure out his incentives, we shouldn't say that it's 100% of Cuba's wealth (just because Cuban law is written that way), and we shouldn't say that it's the maximum amount that he would be able to expropriate if he tried (which, as Erick notes, would be significantly lower), we should look at the amount of that wealth that he is actually expected to use. That is the expected value of his current position atop the unreformed Cuban economy.
5.8.2006 1:10am
A. Zarkov (mail):
Trying to define wealth in a command economy is difficult. I'm not sure we can assign a number to Castro's wealth in the way we can for(say) Bill Gates. Castro is above the law in the sense that he is the law as an absolute dictator. On the other hand, Gates, for all his great wealth is still subject to the law. For example, he can't openly kill his wife and not at get charged with murder and face trial. On the other hand, Castro can kill his wife without legal action against him. So Castro's wealth is in a sense infinite because he wields absolute power. It's true he can't piss off everyone at the same time; he needs a loyal following of some kind. Stalin used the KGB and the GRU to wield power. He appointed the head of one from the other, so each was suspicious of it's own leader from the other service. Thus Stalin could maintain a stable equilibrium of power by creating rivalries in his power base. I assume Castro does something similar.
5.8.2006 1:58am
Fishbane (mail):
Um, Lev: I think you missed the point, which was a comment on the nature of liquidity. Much as a hypothetical complete sell-off of all of Mr. Gate's wealth would drive down the stock and destroy much of the value of his holdings, so too would Castro destroy most of the value of his "holdings", if he attempted to monetize them. This isn't a moral judgement - it is a statement of reality.
5.8.2006 3:30am
Average Joe (mail):
Fishbane's interpretation of my earlier post is exactly correct. I was pointing out that Ilya's point remained valid even if Erick's post had some truth to it. I work in the finanical industry and have to worry about the effects of liquidity on price, so the analogy just jumped out at me.

The intent of my remarks is exactly the opposite of the intent that Lev imputes to me. I was trying to defend Ilya's point against an argument that ran something like "Castro isn't that rich because he would face revolution if he literally tried to expropriate his entire island ..." by pointing out that Bill Gates, who no one doubts is extraordinarily rich, faces a similar problem if he wants to monetize all of his wealth. Not only was I not trying to defend Castro, I was trying to argue against possible Castro defenders. I hoped that the tone of my remarks, which contrasted the violence of a Castro expropriation with the civilization of a Gates stock sale, established my general distain for the Communist dictator. For the record, I think Castro is a violent, brutal thug who has destroyed Cuban society.

Zarkov also makes an excellent and related point. The problem he brings up goes way beyond just the ruler. The high levels of society in a command economy, think of the old Soviet nomenklatura as a concrete example, often enjoy an extravagent, privilged lifestyle, yet they "officially" make only a little bit more than the general (frequently impoverished) population. Apologists for these command economies often point to the offical figures and claim that the command economies have a more level income distrubution than market economies, when, in fact, much of the real wealth in the command economies comes in the form of perquisites.
5.8.2006 8:30am
Freder Frederson (mail):
What a ridiculous notion. Castro doesn't "own" anything. To own something, you have to have legal title to it. He is head of state of a Communist country. I am sure the Constitution says that the people of Cuba jointly "own" everything.

Where is the evidence that Castro is exploiting his people? The people of Cuba, as a whole, are certainly better off than they were under the Mafia backed corrupt government that preceded Castro's revolution. And if the U.S. hadn't followed such a boneheaded policy on Cuba, Castro probably would have fallen with all his compatriots in Eastern Europe in the late '80s (and then we would have seen he really doesn't have a penny to his name). He certainly doesn't spend lavishly on clothing. For all his faults, he seems to be a true believer in socialism. I guess it is just beyond Ilya's comprehension that a dictator (or anyone) could be motivated by reasons other than naked greed.
5.8.2006 10:17am
frankcross (mail):
I'm not sure the Cuban people are certainly better off. While Batista was a corrupt dictator, the country had very high literacy rates under him (best in Latin America) and good public health (second in Latin America) and a surprisingly free press. The country was economically prosperous, and according to the International Labor Organization, its wage scale for industrial and agricultural workers was top ten in the world.

I'm not suggesting it was nirvana, but I think the Cuban people were doing better before Castro
5.8.2006 10:55am
Seamus (mail):
Anyone tempted to think Mr. Frederson knows what he's talking about should check out this article.

Pay special note to these facts:


In 1958 Cuba had a higher per-capita income than Austria and Japan. Cuban industrial workers had the 8th highest wages in the world. In the 1950's Cuban stevedores earned more per hour than their counterparts in New Orleans and San Francisco. Cuba had established an 8 hour work-day in 1933 -- five years before FDR's New Dealers got around to it. Add to this: one month's paid vacation. The much-lauded (by liberals) Social-Democracies of Western Europe didn't manage this till 30 years later.
5.8.2006 11:11am
Anon1ms (mail):
Those crazy Cubans! Throwing out Batista when they already had it so good. They must have been misled by the MSM.
5.8.2006 12:35pm
American Psikhushka (mail) (www):
Anon1ms-

Uhhh, care to point out any factual inconsistencies with the linked article? Where is it wrong?
5.8.2006 1:53pm
Anon1ms (mail):
Uhh, umm, er, maybe I wasn't being facetious. Then again, maybe I was.

Fontova is hardly an impartial scholar on the subject (anyone who's book on Cuba gets rave reviews from Lincoln Diaz-Balart and David Limbaugh, is suspect from the get-go).

Fontova tries to convince the [gullible] reader that the Cuban Revolution was nothing more than a coup, changing the government from one group of elites to another.

Both contemporary and subsequent events show this not to be the case.

As to the factual accuracy of Fontova's film review, there are others who would differ.
5.8.2006 2:51pm
Seamus (mail):

Fontova is hardly an impartial scholar on the subject (anyone who's book on Cuba gets rave reviews from Lincoln Diaz-Balart and David Limbaugh, is suspect from the get-go).


That's very interesting, but what I'd like to know is, is he wrong? Did he, for example, make up those statements about Cuba's per-capita income being higher than those of Austria or Japan, or about the hourly wages of Cuban stevedores? If he wasn't making up his facts, then I'm not sure what relevance his alleged partiality has.
5.8.2006 3:36pm
frankcross (mail):
There are lots of extremist and unreliable anti-Castro types. But the data from sources like UNESCO and ILO make clear that Cuba was doing pretty well under Batista.
5.8.2006 5:05pm
dwillo:
I for one am curious about Fontova's assertions. Curiously absent from his article are any citations. A google search of the text he quotes only turns up endless iterations of his own movie review and other righty websites quoting each other. I'm not saying it isn't accurate, but it would be nice to see this analysis in actual context rather than in a hysterical rant. Literacy rates seem like an odd choice, too; a quick perusal of UNESCO's current stats shows Cuba to hold a 99.8% literacy rate--a good 10% above the regional average. Link.

As for the main thesis of this post, I question the utility of analyzing the "wealth" of dictators (or any political figure) based on their political control. Aside from the obvious difficulties of assigning market value to vague things like "control of assets"--and that in an economy with no real free market to begin with--It seems basically to assume that all power is at bottom economic power. Shouldn't the lesson from places like Castro's Cuba be that there are other other axes of power than mere wealth? One can only say Castro "owns" all of Cuba by invoking an absurdly reductionist view of power.

In short, this seems like a rather pointless exercise in rearranging the meanings of terms in order to arrive at a preconceived conclusion. Or maybe it's just the compulsion in some circles to analyize everything under the sun in terms of market value. It's the proverbial night when all cows are black, I'm afraid.
5.8.2006 9:11pm
Lev:
Fishbane - I hate to be the one to break it to you, but when you own a country as Fidel does, liquidity of the country is completely and totally irrelevant. And it is completely and totally different from owning stock in a publically traded company in the US. Do try to pay some attention sometimes.
5.9.2006 1:26am
Freder Frederson (mail):
While Batista was a corrupt dictator, the country had very high literacy rates under him (best in Latin America) and good public health (second in Latin America) and a surprisingly free press.

And now Cuba has even better literacy rates (still the best in Latin America and probably better than the U.S.} and good public health (now the best in Latin America--probably third in the hemisphere after Canada and the U.S.--heck maybe arguably better than the U.S.). And really, when your two biggest backers and best friends are Lucky Luciano and Meyer Lansky and they practically owned Havana, do you think the press was "free" in a real sense?
5.9.2006 10:52am