Tuesday, April 25, 2006

Domestic vs Foreign incentives

In the "bandit theory" of economic development, a fixed bandit (a ruler who predates but does not move around) is better for a region than roving bandits (rulers who come and go, predating at will). A fixed bandit will want to predate in the future as well, so will steal as much as he can without wreaking the economy completely. Roving bandits, however, will take everything they can because they may never return to steal again in the future.

I don't know how well this model works in real life, but it is true that dictatorships seem to be very stable. Castro, Kim, Saddam (until recently) the ruling party in China, Sheikh Mo in Dubai have all been in their positions forever, even though their performance has varied from awful to quite good. Also, Iraq is a good example of where people may prefer a stable dictatorship to anarchy -- the Arab Muslims currently slaughtering innocent Iraqis there are certainly not interested in preserving or building institutions for the future.

Democracies, however, seem to combine the caretaking role of the fixed bandit along with the changing rulers fairly often element of the roving bandit (and I think competition in rules is good, as is competition in all things). Therefore the incentives they are operating under must be quite different from dictators of all stripes.

In this Jane Galt post I detailed how a state's internal structure should have some influence on its foreign policy, simply because the notion of state survival means one thing to a dictator (namely, his own rule) and other thing to a democracy (rulers change all the time). If dictators are maximizing personal wealth, either over the short or long term, what are democratically elected presidents maximizing? They know their term will come to an end, so they have some short term incentives. They may have some party affinity but their ambitions can often be quite different from the party line (Clinton, Blair, Bush II), so I don't think "keeping their side in power" is the number one goal. I'm honestly not sure what it is.


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