Autocratic tensions, cronyism, and the opacity of business information: party newspapers and circulation figures during the Francoist dictatorship (1939–1975)

• Date: 01 January 2017
• DOI: http://doi.org/10.1111/beer.12133
• Author: Manuel Núñez‐Nickel,Susana Gago‐Rodríguez
• Published date: 01 January 2017

Autocratic tensions, cronyism,

and the opacity of business

information: party newspapers

and circulation figures during

the Francoist dictatorship

(1939–1975)

Susana Gago-Rodr

ıguez and Manuel N

u~

nez-Nickel

Department of Business Administration, University Carlos III of Madrid, Madrid, Spain

Autocracies draw their political power from cronyism and organized repression. The opacity of business

information (economic censorship) protects these regimes and their crony firms from any opposition.

However, autocracies might also desire to eliminate cronyism (and therefore opacity) because it dampens

economic growth. Autocracies survive through repression that engenders tensions, as evident in the Spanish

newspaper industry during the Francoist dictatorship. State control over this industry was important because

the press disseminated news to the public. From 1939 to 1957, the autocracy institutionalized both cronyism

and the opacity of circulation figures to sustain the political powers of Franco and the single party state.

Opacity concealed the economic performance of newspapers owned by sole legal party and any distribution of

resources in its favor. Franco authorized voluntary disclosure of reliable circulation figures in 1964, after

eliminating cronyism in favor of a freer market. Repression guaranteed support for this industry until

Franco’s death.

Introduction

Much of current business ethics research has an under-

lying aim, a desire to improve business practices in eth-

ical terms (Campbell & Cowton 2015). However,

relationships between economic and ethical dimen-

sions are, to say the least, controversial (Queiroz

2015). A myriad of factors create tensions in these rela-

tionships. By design, macro-level institutional pres-

sures from the political system prompt different

ethical responses in firms (Abreu et al. 2015). Autoc-

racy is a form of government in which political power

is neither a result of competitiveness over participation

nor a result of a selection process for leaders (Zanger

2000). The political institution of an autocracy, often

imposed by a minority of the population, is unethical

because it is never founded on human rights, such as

freedom, equality, and non-discrimination. Autocra-

cies present a high level of life integrity violations

(Zanger 2000). Today, autocratic regimes persist in

China, Saudi Arabia, Laos, Vietnam, Cuba, North

Korea, Eritrea, and Belarus, among other countries.

Autocracies use repression and political rents to

build up their political power (Wintrobe 1990). They

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doi: 10.1111/beer.12133

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Business Ethics: A European Review

Volume 26 Number 1 January 2017

innately reward their supporters with economic enti-

tlements, which is a form of corruption known as

cronyism (Krueger 2002). Cronyism is as an abuse of

public power for private gain based on personalized

favors, and it adopts multiple forms. Autocracies

favor their cronies by regulating barriers to entry, by

closing rival firms, and, unrestrained by independent

courts, by regulating priority access to resources.

For instance, the Salim Group in Suharto’s regime in

Indonesia benefited from early information about

impending initiatives, and several legislative and

judicial decisions were tailor-made to benefit the

Salim Group’s activity in sectors such as wheat,

cement, and the automotive industry (Dieleman &

Sachs 2008). Currently, Communist Party member-

ship helps private entrepreneurs in China to obtain

loans from banks or other state institutions, and it

affords them more confidence in the legal system (Li

et al. 2008).Economically, cronyism is undesirable. It

provides artificial competitive advantages over rival

competitors to crony firms, and it acts as a barrier to

entry. An example that emphasizes this situation is

the cronyism in favor of stated-owned firms in

China. From 2008 to 2010, these enterprises (in

industries such as property and construction, resour-

ces and heavy industry, and telecommunications)

received 90% of formal finance at discounted rates

(Lee 2011). Ethically, cronyism is objectionable

because is a type of inequity between legal persons

operating in the same marketplace. Only firms

owned or controlled by loyal supporters enjoy the

benefits of these ‘free’ and ‘cheap’ rents (Fisman

2001; Leuz & Oberholzer-Gee 2006). Cronyism

destroys economic efficiency and social fairness. Fur-

thermore, cronyism becomes a means that serves

autocratic ends.

Autocratic power is interested in concealing its

corruption, cloaking it in opaqueness and restricting

business information (Argando~

na 2001). Cronyism

is inherently less efficient than markets, and it inher-

ently privileges some firms over others, to the detri-

ment of consumers and non-crony firms alike. The

transparency of business information counters the

efficiency of crony firms and their use of privileges.

However, business information is a broad and multi-

disciplinary concept. It refers to all types of business-

related information that is useful for the decision-

making of internal users, for example managers, and

external users, for example consumers (Abels 2009).

Although the concealment of cronyism appears to be

an arduous task, political systems have the power to

frame the information environment (Abreu et al.

2015; Nurunnabi 2015). In fact, autocracies usually

resort to opacity; for example, China presents high

opacity (Barth et al. 2001). Opacity consists of ‘the

lack of clear, accurate, formal, easily discernible, and

widely accepted practices in the broad arena where

business, finance, and government meet’ (Barth et al.

2001: 2). Opacity functions at different levels of

deceitfulness regarding data and the manipulation of

information, associated to varying degrees with dis-

honesty (Fisher & Downes 2008); for example,

autocracies impede financial transparency (Bushman

et al. 2004). Opacity is neither ethically desirable,

because the censorship of economic information is a

mechanism of repression that limits the rights of

other firms, markets and citizens to information, nor

economically desirable, because it fosters imperfect

markets. Autocratic political power is aware that

cronyism has negative economic consequences for

the market and often hampers economic growth

(Acemoglu et al. 2005). If cronyism threatens the sur-

vival of the autocracy, then the autocrat wishes to

suppress cronyism. Similar to other types of corrup-

tion, for example, bribery (Emerson 2006), the sup-

pression of cronyism means, ceteris paribus, freer

markets. Crony firms yield no additional economic

rents from their political support, and cronyism is

not a barrier to entry. These freer markets require

credible business information (e.g. accounting infor-

mation) that supports the efficiency of resource-

allocation decisions and economic growth (Bushman

et al. 2004). With no cronyism to hide, restrictions

on the provision of this information should stop. An

end to cronyism also means that supporters abandon

it and that the opposition is strengthened. Autocra-

cies still have recourse to repression, although it

might not always be sufficient to maintain them

(Wintrobe 2001).

Today, capitalism is viewed as ‘the only reliable

economic model’ (Vranceanu 2005: 94); this model

follows the basic principles of private ownership of

resources, specialization in production, and coordi-

nation through free markets. Most contemporary

autocracies follow capitalism (with rare exceptions,

such as Cuba and North Korea, Vranceanu 2005).

Business Ethics: A European Review

Volume 26 Number 1 January 2017

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