Dictatorship, Democracy, and Development

TLDR

In an anarchic setting, uncoordinated theft by roving bandits undermines investment, but a stationary bandit who monopolizes theft can create order and public goods that boost productivity. The study examines the conditions required for a durable democracy to secure property rights and foster economic growth. When an autocrat anticipates a short reign, he is incentivized to confiscate assets whose tax yield over his tenure is less than their total value. These incentives and succession uncertainty mean autocracies rarely achieve sustained economic performance beyond a single generation.

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.