Analysis of Olson (1993): Dictatorship, Democracy, and Development

BNQ = Big Normative Question

Questioning Conventional Wisdom

In primitive tribes and preagricultural history, peaceful agreements between people may indeed last. However, in large populations which have undergone substantial agricultural leaps, individuals will not be inclined to advance collective goods, since the costs of providing the collective good will greatly exceed the benefit of the collective good. Thus, according to Olson, no one has ever observed a large agricultural society formed through “social contract,” or, through consensus by all individuals in society (568).

 BNQ: Why do democratic governments form?

Olson finds that stationary bandits are preferred to roving bandits. The latter would ravage the population from time to time, stealing everything that the people made. On the other hand, if the roving bandit settles and monopolizes the theft of a particular area, protecting tax collectors, then anarchy and the threat of roving bandits are eliminated. Olson calls this the first blessing of the invisible hand—that a bandit would “settle down, wear a crown, and replace anarchy with government” (568). The people mainly prefer stationary bandits because they know to what extent the theft by the stationary bandit will be extracted from them, and, the stationary bandit will always take less than the roving bandit, while the roving bandit steals everything from the people from time to time.

 The stationary bandit will collect as much taxes as possible. There is, of course, a level of taxation which will decrease revenues for the dictator and the people. It would not be in the interest of the dictator to surpass this point of equilibrium, for it would lead to the detriment of both the dictator and the people. Also, it is in the interest of the dictator to use some of the theft-through-taxes on public goods. Wise public good investments by the dictator may increase the national income, which would increase tax revenues.

The people prefer a democracy to a stationary bandit because the government and the people will benefit from reducing taxes upon the people. As Olson put it, “…the optimal tax rate for it [democracy] is bound to be lower than the autocrat’s” (570). This mainly occurs because the representatives in a democracy are members of the economy—not a single source tax collector. Thus the autocrat is interested in extracting rents from the people, while in a democracy the government is interested in the expansion of the marketplace. This theory, unfortunately, has many caveats in reality.

Democracies, de facto, may function to advance the interests of a small percent of the population. Indeed, entire categories, such as the poor or underrepresented minorities may be ignored or further exploited. In theUnited States, special interest groups may co-opt and control the peoples’ will, therefore advancing special interests over the peoples’ will. Indeed, “A typical lobby in the United States, for example, represents less than 1% of the income-earning capacity of the country” (571). Thus, the special interests will advance their goal and skew social priorities, even though they will not broker like a dictator and “extract the maximum attainable social surplus from the society to achieve his [i.e. the dictator’s] personal objectives” (571).

Individual rights are best protected by a democracy. As Olson notes, “There is no private property without government!” (572). A democracy is more likely to establish institutions which will protect private property, transactions and contracts over the long-term. However, for a lasting democracy to be viable there must be established assurances of free speech, property rights, contract rights, the rule of law, individual rights, and an independent judiciary. Thus, a King may live-long and uphold the former variables, but once the King is deceased there may be great instability. Established democracies are able to transition power and keep constant the strength of the former variables. Olson concludes, “It is no accident that the countries that have reached the highest level of economic development and have enjoyed good economic performance across generations are all stable democracies” (572-3).

 BNQ: When does a dictatorship die and a democracy become born?

Olson finds that the people within a dictatorship do not rise up and overthrow the dictatorship in order to install democracy, even though it is in their best interest to do so. He calls this a “logical mistake” (573). Instead, democracies are power players in a competitive global environment, and they demand that dictatorships become democracies “as a price for giving independence to the vanquished” in the course of critical junctures (573) (e.g., downfall of fascism after WWII, downfall of communism in 1989).

[Of course, I am curious how Olson would analyze the Arab Spring…]

Mancur Olson. 1993. Dictatorship, Democracy, and Development. The American Political Science Review, Vol. 87, No. 3, pp. 567-576