Dictatorship, Democracy, and Development

Abstract

Under anarchy, uncoordinated competitive theft by “roving bandits” destroys the incentive to invest and produce, leaving little for either the population or the bandits. Both can be better off if a bandit sets himself up as a dictator—a “stationary bandit” who monopolizes and rationalizes theft in the form of taxes. A secure autocrat has an encompassing interest in his domain that leads him to provide a peaceful order and other public goods that increase productivity. Whenever an autocrat expects a brief tenure, it pays him to confiscate those assets whose tax yield over his tenure is less than their total value. This incentive plus the inherent uncertainty of succession in dictatorships imply that autocracies will rarely have good economic performance for more than a generation. The conditions necessary for a lasting democracy are the same necessary for the security of property and contract rights that generates economic growth.

The logic of hereditary rule: theory and evidence

“…And this lines up with what the theory postulates where continuity is predicated on good performance. 21 20 Our model does not predict when this might come to an end even if a country is in the hereditary equilibrium of Proposition 2. However, it would be di¢ cult to modify the theory to have this possibility.…”

“…We now test one dimension of the mechanism emphasized by the theory, namely that hereditary power is dependent on good economic performance. 20 For this purpose, we de…ne a regime in year t, r t , to be hereditary (r t = 1) if a hereditary leader is in power in t and non-hereditary, (r t = 0) otherwise. We then estimate the probability of an exit from a hereditary regime into a non-hereditary regime.…”

“…This equilibrium can be thought of as a relational contract between the dynasty in power and the selectorate along the lines envisaged in the opening quote from Olson (1993). The hereditary dynasty delivers good policy outcomes in exchange for an assurance that unpopular members of the dynasty are selected to hold o¢ ce conditional on their predecessor having set e t = s t .…”

“…In this section, we develop a model where hereditary rule emerges as a political equilibrium in the spirit of Olson (1993) and induces better performance from leaders who care that their o¤spring will follow them in o¢ ce. We show that this is valuable to whomever maintains the leader in power only if executive constraints are unable solve moral hazard problems in government.…”

“…Moreover, throughout history, the utility of hereditary rule has been much debated. Olson (1993), as the quote above illustrates, argued that hereditary rule could create an incentive for good governance. But others, most notably Paine (1776) who is also quoted, argued strongly against it as a form of government.…”