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May 6 - August 24, 2024
The prime mover of interests in any state (or corporation for that matter) is the person at the top—the leader. So we started from this single point: the self-interested calculations and actions of rulers are the driving force of all politics.
Governments do not differ in kind. They differ along the dimensions of their selectorates and winning coalitions. These dimensions limit or liberate what leaders can and should do to keep their jobs. How limited or liberated a leader is depends on how selectorates and winning coalitions interact.
taxes really are higher in autocracies than in democracies once we compare apples to apples.
That will help explain why per capita incomes are typically much higher in societies with lots of essentials than in those with few.
RULE 1: Keep your winning coalition as small as possible. A small coalition allows a leader to rely on very few people to stay in power. Fewer essentials equals more control and contributes to more discretion over expenditures. Bravo for Kim Jong-Un of North Korea. He is a contemporary master at ensuring dependence on a small coalition. Bravo to Donald Trump. He tried to shrink the coalition by manipulating vote counting in the world’s oldest democracy. That’s not an easy thing to do.
RULE 2: Keep your nominal selectorate as large as possible. Maintain a large selectorate of interchangeables and you can easily replace any troublemakers in your coalition, influentials and essentials alike.
Boo to Donald Trump. He foolishly tried to suppress turnout by America’s interchangeables, inducing more people to turn out to vote in 2020 and swelling the size of the selectorate, which resulted in his unintentionally swelling the size of the essential coalition needed for victory in 2020, making it bigger than had been true in 2016. Big error!
RULE 3: Control the flow of revenue. It’s always better for a ruler to determine who eats than it is to have a larger pie from which the people can feed themselves.
Bravo to Donald Trump. He found a way to tax his foes (Democrats) heavily while lightening the tax burden on his supporters (especially wealthy Republicans).
RULE 4: Pay your key supporters just enough to keep them loyal. Remember, your backers would rather be you than be dependent on you.
Bravo to Zimbabwe’s Robert Mugabe, who, whenever facing a threat of a military coup, managed to pay his army, keeping their loyalty against all odds well into his nineties.
RULE 5: Don’t take money out of your supporters’ pockets to make the people’s lives better.
If you’re good to the people at the expense of your coalition, it won’t be long until your “friends” will be gunning for you. Effective policy for the masses doesn’t necessarily produce loyalty among essentials, and it’s darn expensive to boot. Hungry people are not likely to have the energy to overthrow you, so don’t worry about them. Disappointed coalition members, in contrast, can defect, leaving you in deep trouble.
Politics, however, does not end with becoming a leader. Even as you take up the reins of power and enjoy its rewards, others are gunning for you. They want the same job that you so desperately sought! Politics is a risky business. As we will see, successful leaders manage these risks by locking in a loyal coalition. Those who fail at this first task open the door for someone else to overthrow them.
CEOs, just like national leaders, are susceptible to removal. Being vulnerable to a coup, they need to modify the corporate coalition (usually the board of directors and senior management) by bringing in loyalists and getting rid of potential troublemakers. Usually they have a large potential pool of people to draw from and prior experience to help guide their choices. But, also like national leaders, they face resistance from some members of their inherited coalition, and that may be hard to overcome.
Putting more outsiders on a board translates on average into better returns for shareholders, a benefit to everyone. At the same time, it also translates into greater risk for the CEO.2 Since the CEO’s interest is rarely the same as the shareholders’ interest, CEOs prefer to avoid outsider board members if they can.
Resource-rich nations have worse economic growth, are more prone to civil wars, and become more autocratic than their resource-poor counterparts.
The trend is clear. Nations flush with oil, copper, gold, diamond, or other minerals grow more slowly.
Natural resources don’t require freedoms to be productive, and so they allow a leader to pay her coalition without the risk of empowering the people. A leader who can afford to keep the people isolated, uneducated, and ignorant and chooses not to do so is a fool.
It is ironic that while oil revenues provide the resources to fix societal problems, they create political incentives to make them far worse.
If aid organizations want to help the peoples of oil-rich nations, then the logic of our survival-based argument suggests they would achieve more by lobbying governments in the developed world to increase the tax on petroleum than by providing assistance overseas. By raising the price of oil and gas, such taxes would reduce worldwide demand for oil. This in turn would reduce oil revenues and make leaders of oil-rich countries more reliant on taxation.
Only when facing financial problems are leaders willing to even consider undertaking such politically risky liberalization. They don’t do it frequently or happily. They liberalize, opening the door to a more democratic, representative, and accountable government only when they have no other path to save themselves from being deposed today.
The HIPC program received much misguided criticism for its slow pace in reducing the debt of poor nations. Our criticism of the HIPC Initiative is the opposite: it’s actually too eager to forgive debt. Debt forgiveness simply allows autocratic leaders to start borrowing more money. As we’ll see a little later, financial crises are one of the important reasons that leaders are compelled to democratize. Debt reduction, however, relieves financial pressure and enables autocrats to stay in office without reform, continuing to make the lives of their subjects miserable.
Therefore, we advocate a conservative approach of little or no debt relief as a way to improve the quality of governance and quality of life for people currently living under wretched, oppressive regimes.
