The Story So Far
Countries aren't poor out of ignorance or laziness
"[I]f ignorance were the problem, well-meaning leaders would quickly learn what types of policies increased their citizens' incomes and welfare, and would gravitate toward those policies." (Why Nations Fail, p.65).
Institutions → outcomes, and politics (the distribution of wealth and power) → institutions
Development and political-economic reform of institutions must be incentive-compatible
In other words, countries remain poor because it is not in the interest of the elites to develop the country
Why Do Elites Permit Reform?
Daron Acemoglu and James Robinson
"To starkly illustrate our framework, consider a society in which there are two groups: an elite and the citizens. Nondemocracy is rule by the elite; democracy is rule by the more numerous groups who constitute the majority–in this case, the citizens. In nondemocracy, the elite gets the policies it wants; in democracy, the citizens have more power to get what they want. Because the elite loses under democracy, it naturally has an incentive to oppose or subvert it; yet, most democracies arise when they are created by the elite," (p.10).
Acemoglu, Daron and James A. Robinson, (2006). Economic Origins of Dictatorship and Democracy
Recall: The Hobbesian View
The State is our commitment device
Citizens (in principle) sign a social contract, i.e. a "constitution" that deliberately restricts their liberties
In each of our interests to give up some liberties that restrict the liberties of others (e.g. theft, violence)
In exchange, we empower the State as our agent to punish those of us that fail to uphold the social contract
Politics: decisions under rules which we agree are legitimate that determine an outcome for all of us, even if we disagree (or are harmed by) the outcome
Recall: The State
Max Weber
1864-1920
"[A] State is a human community that (successfully) claims the monopoly of the legitimate use of physical force within a given territory."
Weber, Max, 1919, Politics as a Vocation
Recall: Madison's Paradox II
- Madison's Paradox: a State strong enough to protect rights is strong enough to violate them at its discretion
Recall: Credible Commitment
Odysseus and the Sirens by John William Waterhouse, Scene from Homer's The Odyssey
Recall: Olson's Roving vs. Stationary Bandits
Recall: State Capacity
Might simply be defined as the State's ability to do things
In the simplest of early states, the stationary bandit just extracts taxes as ruling elite's revenues
Possibly to fund its armies
In more modern states, taxes used to provide public goods
One strong shorthand for state capacity: ability to raise tax revenue
Two Models of State Development
Three Orders of Human History
1. Hunter-gatherers ("stateless")
2. Limited-access order ("natural state")
3. Open-access order
Order I: Hunter-Gatherers
More egalitarian
Rule by consensus or council of elders
Small personal units
Often informal rules
Olson: little incentive to produce or to steal
Order II: Natural States
Limited Access Order (LAO) or "natural state"
Most common form of society for millennia
All societies since Neolithic Revolution of settled agriculture have been natural states until some transitioned in 19th-21st Centuries
Most States (by numbers) today remain natural states!
The Tudors of England
Order III: Open Access Orders
Open Access order or "liberal democracy"
Open competition in both economic and political spheres
Coalitions of multiplicity of groups required to enact national policy
Incumbents and rent-seeking will be opposed and checked by competitors
Rule of law, impartial, impersonal, professional bureaucracy
"The State" survives beyond any one ruler or regime
Patronage I
Patronage: elites with power provide access to political and economic resources to their allies
Entry into politics and the economy is controlled and permitted only to those with connections
People ally with powerful individuals for protection and access
Feudal Europe: lords have duty to protect serfs from invasion
Patronage II
Little/no separation between political, economic, and social spheres
Politics very high-stakes: decisions (or wars) determine who wins and who loses, at everything
Institutions are personal: who is king, lord, bishop matters
- Impossible to have rule of law!
Patronage III
A very clear hierarchy, often immutable
Very unequal society
A person is judged by their status, which is determined by their identity in the hierarchy
- Who they are connected to and who is their patron
Rule by the Clan
The "State" is patrimonial - an elaborate web of personal relationship
An elite group's power to threaten social order comes from their patrimonial relationships
- ability to sway decisions among large group of people
- ability to enforce a boycott, embargo, etc.
- ability to raise an army for rebellion
Strongest connections lie with kin, clan, religious sect, or other ethnic group
- often percieved as a moral obligation
"I am the State"
Louis XIV of France
(1638-1715)
"L'etat c'est moi!"
This is what North, Wallis, and Weingast would call a "mature" natural state
The point is, the State is synonymous with the ruling elite (it has no separate existence)
Multiple Groups Vie for Control
No single person or group rules society
States are weak and unable to project power
Elites may include military specialists, landlords, clergy, traders, etc.
Wealthy and powerful groups can threaten violence, social disorder, or withhold wealth or access
- Threat is often sufficient, fighting is costly
Multiple Groups Vie for Control
There is no territorial monopoly on violence!
- Multiple groups can credibly use or threaten violence
"The State" ≡ dominant coalition of powerful elite groups
Dominant coalition agrees not to fight each other, respect each other's ability to extract rents from society
The Proportionality Principle
Proportionality principle: for a stable political system, rents must be allocated in proportion to groups' capacity for violence
Rational elites will revolt if they believe their relative strength is greater than the rents they are earning
- Other elites need to "buy off" their support or else risk revolt
Dynamics: if distribution of wealth and power changes, the allocation of rents must change!
Power and Personality
Elites are loyal to the king as a person, not as an office!
Loyalty depends on king's ability to distribute booty and rents to elites
"King" or "Warlord" does not control territory, controls vassals based on social networks and bundle of privileges
No formal administration, staff, etc; all private servants to King's household
- The "Office of the Exchequer" was once a trunk of booty under the King's bed
Monarchs are Often Weak Relative to Other Elites I
Monarch is just one ruler with his/her own land
Barons, earls, dukes, etc. have their own realms and sources of power, nominally loyal to the monarch
If unhappy, barons can (and did) revolt against oppressive monarch
"France" in 1477
Monarchs are Often Weak Relative to Other Elites II
"XXIX. NO Freeman shall be taken or imprisoned, or be disseised of his Freehold, or Liberties, or free Customs, or be outlawed, or exiled, or any other wise destroyed; nor will We not pass upon him, nor condemn him, but by lawful judgment of his Peers, or by the Law of the land. We will sell to no man, we will not deny or defer to any man either Justice or Right"
- Magna Carta, 1215
Economies in Natural States
Economy is entangled in monopolies, barriers to entry, rent extraction by elites
Often dominated by large landowners, merchant/craft guilds that set their own rules
Entry in markets requires patronage and protection of powerful elite
Regulated for "national security" - powerful groups not getting their cut ⟹ risk of rebellion and violence
Life for the Non-Elite
Non-elites have few rights and protections
Non-property owners, often work as agricultural laborers, tenants that rent out land from landowners
Often coerced labor: bonded labor, slavery, serfdom
Sometimes free laborers, but with no political or economic "rights" or power
Corruption
Is this "corrupt?"
What would an anti-corruption law achieve?
Important: a successful Natural State wages peace
- Elite groups do not disarm! Always able to threaten violence!
Rule Was Over People, Not Territory
Charlemagne, King of the Franks
(742–814)
Louis XIV, King of France
(1638-1715)
Statebuilding Took Centuries
- Even in 19th century, few "French" citizens spoke French
- Provincial loyalties > national identity
- Second Industrial Revolution (1870-1914): technology allows State to penetrate the isolated countryside:
- judicial systems
- school systems
- army
- railroads/roads
- market access
Power and Professional Bureaucracy I
State capacity and projection of power often requires a formal professional bureaucracy
Max Weber's "ideal types" of bureaucracy:
- Traditional/patrimonial
- rules and power arbitrary (come from ruler)
- hiring/firing/promotion based on personal connection
- Rational and legal
- staffed by professionals
- meritocratic hiring, firing, and internal promotion
- governed by objective legal rules
Power and Professional Bureaucracy II
Puck satirical cartoon of U.S. President Chester Arthur
In United States, political offices were appointed according to the "spoils system" throughout 19th century
Pendleton Civil Service Act (1883): requires positions in the federal government to be awarded based on merit, not on political patronage
Natural States Today? III
The political center in Kabul was not (and has never been) a collection of formal, bureaucratic institutions working in concert to penetrate the unwieldy periphery of wayward warlords, defiant mullahs, and rebellious tribal chieftains.
It was, instead, a political center operating largely in the neopatrimonial image, and, much like many of its predecessors, forging links to the countryside through partnerships with power holders who could sometimes expand the scope of the state by engaging it.
Mukhopadhyay, Dipali, (2014), Warlords, Strongman Governors and the State in Afghanistan
Natural States Today? IV
Afghan Governors meeting:
- Jamaluddin Badar, Nuristan governor (prosecuted for corruption)
- Lutfullah Mashal, Langham governor (writer & poet)
- Gul Agha Sherzai, Nangarhar governor (major anti-Taliban warlord and US ally, suspected of opium trafficking)
Natural States Today? IV
Hamid Karzai
President of Afghanistan (2001-2014)
"..the mere articulation of a democratic, centralized state would prove inadequate to shift the center of gravity in this state formation project from the provinces to Kabul."
Mukhopadhyay, Dipali, (2014), Warlords, Strongman Governors and the State in Afghanistan
NWW's Typology of Natural States: Fragile
Fragile Natural State: State can barely sustain itself
Constant internal and/or external violence
- Civil war or foreign invasion(s)
Unable to support any organization but the State itself
Small changes upset coalition and cause infighting and repositioning
All politics is high stakes - misstep risk death
NWW's Typology of Natural States: Basic
Basic Natural State: can support some elite organizations, but only within the State
Has public institutions that institutionalize the State: succession, tax rates, common beliefs
Organizations can only endure if connected to State, still personal and not perpetual
NWW's Typology of Natural States: Mature
Mature Natural State: has near-monopoly on use of violence
Has public and private institutions and organizations among elite, not extensions of the State
Rule of law for elite organizations
May be able to sustain perpetually lived impersonal organizations separate from individuals and State
The Transition
How can we get from natural states that benefit the elite to open access orders (that might harm elite?)
It must be in the interest of the elite to reform
But how??? (A BIG question for later!)
Autocracy
Autocracy is an all-encompassing term for any non-democratic/constitutional republic political system
Autocrats might be (hereditary) monarchs, dictators, emperor/ess, military junta, oligarchy
Political Incentives
Every leader's goal is to attain and maintain political power (get and stay in office)
If all leaders have the same goals, why is there so much variation in outcomes?
- Some societies' leaders enact policies that benefit society
- Some societies' leaders enact policies that benefit only themselves
The key variation around the world is in the institutions regarding how the leader is selected
Selectorate Model I
Selectorate theory: characterizes governments by their selection institutions
Goal for the leader is political survival
Political survival can be threatened in three distinct ways: These include domestic challenges to leadership, revolutionary challenges to individual leaders and the political systems they lead, and external threats in the form of military attack by foreign adversaries...the basic tools to cope with each of these challenges are, we believe, the same, but the strategic responses by leaders (and followers) differ depending on the source of the threat," (p.23).
Selectorate Model I
- All societies contain three nested groups:
Residents (N)
Selectorate (S): subset of residents who can potentially select the Leader
Winning Coalition* (W): subset of selectorate whose active support is required* for the Leader to maintain political power
Leadership (L): person(s) constituting the administration
Each person in the selectorate has a small chance of being in the winning coalition
Residents not in Selectorate are disenfranchised
Selectorate Model II
Each society has a Leader and a set of potential substitute leader(s), the Challenger (C)
Winning Coalition controls the resources necessary for Leader to stay in power
If enough members of the winning coalition defect and support a Challenger, the incumbent Leader loses power
Selectorate Model III
Leadership chooses a tax rate (τ) on labor to generate revenue
Spends that revenue on a combination of:
Private Goods (rents) given exclusively to members of the winning coalition (W)
- money, tax breaks, management of state-owned enterprises, political positions, prestige
Public Goods made available for all Residents
- roads, healthcare, education, parks, defense, courts, etc.
Selectorate Model IV
Challenger makes an offer (tax rate, private goods, public goods)
Whomever makes a better offer to the Selectorate is selected as Leader
Leader must keep enough coalition members happy to avoid them defecting
Challenger Often Comes from Winning Coalition
Praetorian guards offering Claudius the Roman Empire in A.D. 41 after they assassinated Caligula, his nephew
Challengers often come from within the "inner circle" or the winning coalition
In the best position to benefit from power, and most plausible to convince new members to defect and join new government
13 known cases of Praetorian Guard assassinations of Roman Emperors
Challenger's Commitment Problem
At first glance, C just has to make a better offer than L
- Provide more private goods to W than the Leader!
But challenger faces a commitment problem
- Current W members obtain private rents because they are in W
- If C comes to power, members of W continue to earn rents only if they are still in W under C's leadership!
- C can promise a member Wi that they will be in the new W under C, but this promise is not credible!
Leader Doesn't Have this Problem
Why doesn't L face the same commitment problem?
Current W members recognize they keep getting rents only so long as they remain loyal to L
Winning coalitions are stable over time because Wi members have greater confidence that they will be in W and earn rents into the future under L, unlike the uncertainty with C
To Defect or Not to Defect?
So L and C make competing offers to members of W, and W chooses the candidate with the best (and most probable) offer
Choice to defect for Wi depends on two key factors:
The size of the winning coalition, W
The loyalty norm, WS
The Loyalty Norm I
The probability of being in a leader's winning coalition is WS
Intuition: if enough members of W defect and C wins, forms a new regime
- Draws W members from available S selectorate to form new coalition
- Since W<S, defectors can't be certain they'll be in W
- many inessential defectors won't be part of new regime
The Loyalty Norm II
So a would-be defector faces a tradeoff:
- (Expected) marginal benefit of defecting: being in W under C
- (Expected) marginal cost of defecting: in W now under L, but not being in W under C
As W↑ or ↓S, C is less likely to need any particular member Wi (and less likely to include them in new regime)
- Defecting becomes risker1
Risk of not being in W is (1−WS)
1 Not to mention, if the coup fails, or your defection is discovered beforehand, Leaders are often unkind to traitors!
The Loyalty Norm: Example
In these circumstances [after the rebellion on An Lu-Shan from 756 to 763 AD] the emperors could look for loyal service to one source and one alone - their eunuchs. For eunuchs were absolutely and unconditionally loyal to the emperors. This indeed is true, not only for the Chinese Empire, but for all the others that used the services of eunuchs - Persia, late Rome, Byzantium. Eunuchs had neither lands nor fortunes nor families to fall back upon. To the generals they were half-men, to the mandarines guttersnipes with neither the breeding nor the education of a gentleman. The Emperor, therefore was their sole support and they lived or died, rose or fell, entirely by his favor," (pp. 66-67).
The Loyalty Norm: Visual Comparisons
Loyalty Norm: Small W/S Societies: Example I
GDP is about $12 billion
20,000,000 population (R)
GDP/capita in North Korea: $600
Estimated that Kim Jong Un needs to keep between 250-2,500 generals happy to stay in power, W
Estimated that Kim needs to spend $1.2 billion per year (10% of GDP) to stay in office (and keep those 2,500 people happy)
- About $500,000 per person, but most don't get this much (maybe $6,000)
Loyalty Norm: Small W/S Societies: Example II
Private rents are still >10x greater than the per capita income!
Winning coalition members are fiercely loyal to the regime and want to protect their enormous rents
Leader Discretion I
Mao Zedong
1893-1976
China
- Mao's "Great Leap Forward" is estimated to have killed somewhere between 20-46 million people
Leader Discretion II
Lee Kwan Yew
1923-2015
Singapore
"Lee is recognised as the nation's founding father, with the country described as transitioning from the "third world country to first world country in a single generation" under his leadership."
Leader Discretion III
- Discretion also creates possibility of kleptocracy - not mere corruption (buying off members of coalition for support), but outright theft of state resources
The Haul of Fame I
Mobutu Sese Seko
1930-1997
Zaire/DRC
According to Mobutu's New York Times obituary: "He built his political longevity on three pillars: violence, cunning and the use of state funds to buy off enemies. His systematic looting of the national treasury and major industries gave birth to the term 'kleptocracy' to describe a reign of official corruption that reputedly made him one of the world’s wealthiest heads of state."
Mobutu was infamous for embezzling the equivalent of billions of US dollars from his country. According to the most conservative estimates, he stole US$4–5 billion from his country, and some sources put the figure as high as US$15 billion.
The Haul of Fame II
Ferdinand Marcos
1917-1989
Phillipines
[M]onopolies in several vital industries were created and placed under the control of Marcos cronies, such as the coconut industries...tobacco industry...banana industry...sugar industry...and manufacturing....The Marcos and Romualdez families became owners, directly or indirectly, of the nation's largest corporations, such as the Philippine Long Distance Company (PLDC)...Philippine Airlines (PAL), Meralco (an electric company), Fortune Tobacco, numerous newspapers, radio and TV broadcasting companies (such as ABS-CBN), several banks (most notably the Philippine Commercial and Industrial Bank...
According to Presidential Commission on Good Government, the Marcos family and their cronies looted so much wealth from the Philippines that, to this day, investigators have difficulty determining precisely how many billions of dollars were stolen. The agency claimed that Marcos stole around $5 to $10 billion from the Philippine treasury. Adjusted for inflation, this would be equivalent to about US$11.16 to US$22.3 billion...in 2017.
The Haul of Fame III
Suharto
1921-2008
Indonesia
In the early 1980s, Suharto's children, particularly Siti Hardiyanti Rukmana ("Tutut"), Hutomo Mandala Putra ("Tommy"), and Bambang Trihatmodjo...were given lucrative government contracts and protected from market competition by monopolies. Examples include the toll-expressway market which was monopolised by Tutut, the national car project monopolised by Bambang and Tommy, and even the cinema market, monopolised by 21 Cineplex (owned by Suharto's cousin Sudwikatmono). The family is said to control about 36,000 sq. km of real estate in Indonesia, including 100,000 sq. m of prime office space in Jakarta and nearly 40% of the land in East Timor.
In early 2004, the German anti-corruption NGO Transparency International released a list of what it believed to be the ten most self-enriching leaders in the previous two decades; in order of amount allegedly stolen in USD, the highest-ranking of these was Suharto and his family who are alleged to have embezzled $15 billion – $35 billion.
Loyalty Norm
Leaders prefer to buy the support of the winning coalition with private goods (rents)
- cheaper
Challengers cannot credibly promise defecting members of W private goods
Size of the Winning Coalition, W III
Alexis de Tocqueville
1805-1809
"In aristocracies those who wish to get to the head of affairs have great wealth at their disposal, and as the number of those by whose assistance they rise is comparatively small, the government is in a sense up for auction. In democracies those who intrigue for power are hardly ever rich, and the number of those who help to give it to them is very great. Perhaps there are just as many men for sale in democracies, but there are hardly any buyers; besides, one would have to buy too many men at the same time to obtain one's end."
de Tocqueville, Alexis, (1835-1840), Democracy in America
Institutions Matter, Intentions of Leaders Don't
Civic-minded leaders confronted with small W, small WS system will produce poor policies to stay in power
- more public goods and fewer private goods risk being replaced by challenger
Selfish leaders confronted with large W, large WS will produce good policies to stay in power
- fewer public goods and more private goods risk being replaced by challenger
Institutions Matter, Intentions of Leaders Don't II
Selectorates and Performance I
Selectorates and Performance II
Selectorates and Performance III
Leadership Turnover and Succession I
In autocracies, new autocrats need to establish their patronage network and convince W that they will deliver the private rents
- High risk of challengers overthrowing early in regime
If leader survives for first 1-2 years in office, very high probability leader will continue until they die in their sleep
- Until/unless it's learned that ruler has a terminal disease
Leadership Turnover and Succession II
Leadership Turnover and Succession III
Hereditary monarchy is a popular solution to the problem of succession
Even then, sometimes multiple legitimate heirs to throne
Need the backing of multiple barons (W) and/or kill rivals!
The children of Henry II contesting for the throne: Richard I the Lionheart, John, Eleanor of Acquitaine, Arthur of Anjou
Leadership Turnover and Succession IV
Leadership Turnover and Succession IV
My Attempt with the Data
| n | Min | Q1 | Median | Mean | Q3 | Max | Std. dev. |
|---|---|---|---|---|---|---|---|
| 814 | 0.0 | 5.1 | 12.8 | 28.9 | 30.4 | 146.9 | 24.9 |
Data from Goemans, Henk E, Kristian Skrede Gleditsch, and Giacomo Chiozza, (2009), "Introducing Archigos: A Dataset of Political Leaders," Journal of Peace Research 46(2): 269-283; c.f. Cox, Gary W, Douglass C North, and Barry R Weingast, (2013), "The Violence Trap," Working Paper
A "regime" is defined following Cox et al (2015, 4) as "a state that experiences an uninterrupted sequence of nonviolent leadership successions." Data covers 192 countries since 1840.
Again: Rent-Seeking is Pervasive in these Societies
Again: Consider the Washington Consensus
Rodrik, Dani, 2006, "Goodbye Washington Consensus, Hello Washington Confusion?" Journal of Economic Literature 44(4): 973-987
Undoing the Glue?
Rents are the glue that hold the dominant/winning coalition together
Remove the rents, threaten violence and civil war
Remember, being exploited by a "stationary bandit" > anarchy under "roving bandits"!