Connected to a Sinking Ship? Firm Performance in a Besieged Autocracy

Doing business in an autocracy that still permits the existence of markets is fundamentally different than operating under a democracy. This variety of state capitalism, termed authoritarian capitalism, requires specific form of political connections to the regime in order to survive and, in some cases, to thrive. However, authoritarian governance has another defining feature—namely paroxysms of political violence of different modalities, a phenomenon that can harm business but may benefit those who are connected to the regime. This paper examines life under a particular authoritarian capitalist state, 19th-century tsarist Russia, via an examination of one politically connected firm, the full-service steamship firm Kavkaz i Merkurii (Caucasus and Mercury). Using never-before-utilized company archival material to examine the firm’s relationship with the tsar, I find that management directly pursued intense business linkages with the government, even appointing tsarist officials and members of the royal family to leadership positions. This behavior increased even as political violence skyrocketed throughout Russia. A formal empirical analysis shows that this strategy was mostly beneficial for the firm, as some forms of political violence were received positively by shareholders as a source of new business. However, military action that drew heavily on the firm—where the government was underpaying relative to market rates—was perceived negatively by investors, and violence, which could have threatened the regime, manifested in higher long-term volatility. This paper shows both the benefits and costs associated with political connections under authoritarian capitalism.