The Dictator's Handbook (42 page)

Everyone has an interest in change, but interchangeables, influentials, essentials, and leaders don't often agree on what changes they want. Leaders, given their druthers, would always like the set of interchangeables to be very large, and the groups of influentials and essentials to be very small. That's why the world of business has so many massive corporations with millions of shareholders, a few influential large owners, and a handful of essentials on the board of directors who agree to pay CEOs handsomely regardless of how the company fares. That's why so much of humanity for so much of human
history has been governed by petty despots who steal from the poor to enrich the rich.

The masses—whether members of the selectorate or the wholly disenfranchised—agree that their group, the interchangeables, should be large but they want all other groups to be big as well. Their best chance at having a better life comes from the coalition and the influential group growing in size, such that they have a realistic chance of becoming one of its members and of benefiting from the profusion of public goods such governance provides, even if they remain excluded from the coalition. As we have seen, it is this very hope of improving the people's lot that revolutionaries use as their rallying cry to get them to take to the streets. But even in a large-coalition system, these masses are unlikely to get what they want all the time. Their hope is to get what they want more of the time.

The group whose desires are most interesting from the perspective of lasting betterment is the set of essentials. More often than not, they are the people who can make things happen. You see, they don't like the idea that they might be purged to make the coalition smaller. But at the same time, ending up in a smaller coalition can provide them with fabulous wealth. Remember Saddam Hussein's videotaped takeover: at the outset everyone in the audience was terrified. At the end, those still sitting in the auditorium were thrilled. They knew they had survived to collect their rewards for another day. What political insiders want when it comes to institutional change is complex, but to understand the reforms they can be expected to support and those they will oppose we need to understand their wants.

Coalition members like small selectorates. Their welfare is enhanced if there are relatively few replacements for them. The incumbent cannot use the implicit threat of replacing them with a cheaper backer as a way to keep more benefits for himself rather than paying his essentials their due. This creates tension between a leader and his coalition. The leader would like to establish a Leninist style, corrupt, rigged electoral system that guarantees him an eager supply of replacement supporters. The coalition prefers monarchical, theocratic, or junta style institutional arrangements that restrict those who can be
brought into the coalition to a select group of aristocrats, clerics, or military elites.

Leaders and their essentials share a preference for dependence upon a small coalition, at least so long as the coalition is very small. However, as the coalition continues to expand, a wedge is eventually driven between what a king wants and what his court needs. When that wedge gets big enough we have an explanation for the emergence of a mature democracy that is so stable it will almost certainly remain democratic and not backslide into autocratic rule. The switch in the coalition's desires for institutional change results from tradeoffs between declines in private goods as the coalition expands, and the increase in public goods and societal productivity that accompanies such enlargement.

Given the complexity of the trade-off between declining private rewards and increased societal rewards, it is useful to look at a simple graphical illustration, which, although based on specific numbers, reinforces the relationships highlighted throughout this book. Imagine a country of 100 people that initially has a government with two people in the winning coalition. With so few essentials and so many interchangeables, taxes will be high, people won't work very hard, productivity will be low, and therefore the country's total income will be small. Let's suppose the country's income is $100,000 and that half of it goes to the coalition and the other half is left to the people to feed, clothe, shelter themselves and to pay for everything else they can purchase. Ignoring the leader's take, we assume the two coalition members get to split the $50,000 of government revenue, earning $25,000 a piece from the government plus their own untaxed income. We'll assume they earn neither more nor less than anyone else based on whatever work they do outside the coalition.

Now we illustrate the consequences of enlarging the coalition.
Figure 10.1
shows how the rewards directed towards those in the coalition (that is, private and public benefits) compare to the public rewards received by everyone as more people enter the coalition. Suppose that for each additional essential member of the winning coalition taxes decrease by half of 1 percent (so with three members the tax rate drops from 50 percent to 49.5 percent), and national income
improves by 1 percent for each extra coalition member. Suppose also that spending on public goods increases by 2 percent for each added coalition member. As coalition size grows, tax rates drop, productivity increases, and the proportion of government revenue spent on public goods increases at the expense of private rewards. That is exactly the general pattern of change we explained in the previous chapters.

 

FIGURE 10.1
The Welfare of Essentials and of Ordinary Citizens

What we see in
Figure 10.1
is that as the coalition initially expands, the welfare of its essential members declines. These supporters are made worse off because their share of private goods is greatly diluted as additional supporters are brought onboard. However, as the coalition gets ever larger, the extent of the dilution declines. As a rough approximation, each of the two original coalition members must give up a third of their lucrative private rewards to compensate bringing in a third coalition member. They are in part compensated for this loss by the greater availability of public goods and a more productive society, but they take huge personal losses in exchange for their societal gains. The trade-off works out differently in an initially larger coalition. Again, as a rough approximation, consider the costs and benefits for a coalition of six members. To bring in a seventh coalition member each of the six existing coalition members forsake about a seventh of their private benefits in exchange for the societal gain. As the losses in private rewards from an expanded coalition decline, the coalition's members, far from continuing to oppose expansion,
support additional members being brought into the coalition. From this point onwards, which occurs at a coalition size of around seven members in our admittedly simple example, the essentials prefer to continue expanding the coalition. This puts them at odds with their leader who remains committed to the first rule of staying in power: keep the coalition small.

Figure 10.1
illustrates numerous features of the logic of institutional changes from Saddam Hussein's purge to the stability of mature democracies. In very small coalition settings, leaders can generate support from some existing members of the coalition to purge other members. In
Figure 10.1
this is exactly the incentive when the coalition is initially sized between one and six. Of course, no coalition member wants a purge unless he is going to survive it. It is for this very reason that Saddam Hussein's videotaped purge initially filled the Ba'ath party members with such fear and why those who were retained were so happy to be kept on. Their survival in the essential group after the purge meant they would get even more private rewards.

If coalition size starts out pretty large, beyond six in the illustrative example in
Figure 10.1
, then orchestrating a purge or a coup gets harder and harder. Leaders, whether incumbents or potential coup makers, find it increasingly difficult to get supporters to go along with reducing their coalition. While, for example, it is possible for a leader with an initial coalition of ten to find supporters who could be better off after a purge, the coalition would have to shrink all the way down to three before those still in it would be better off after the purge. And to benefit from the dirty work entailed in such a contraction, the coalition's members that help perpetrate the purge would have to be absolutely certain that their names were not also on the list of those to be eliminated.

As the coalition gets even larger it becomes nearly impossible for a leader to induce coalition members to perpetrate a purge or for a rival to organize a coup.
Figure 10.1
illustrates this stability of mature democracies. Once the winning coalition size expands to at least twenty-seven, in our example, the leader could not make his supporters better off even if he could convince them to contract the coalition all the way back down to just two members.

The essential facts of political life are that people do what is best for them. Thus, except under extreme duress, leaders don't expand the coalition; the masses press for democratization; and essential supporters vary in what they want. This latter group can be made better off by contractions in the number of coalition members—that is, with coups and purges—provided they are the ones retained. Democratization can also make them better off. It is therefore this group that offers the greatest prospect for constructive, as well as destructive change. With them lies the possibility of both “one step forward” and “two steps back.” The prospect of being dropped from the coalition encourages its members to take the single step forward rather than risk becoming a casualty of the two steps back. Times and circumstances that heighten the risk of coalition turnover engender an appreciation of democracy among political insiders.

Members of a small coalition live in luxurious, but constant, fear: make the coalition smaller, as their leader wants, and they may be out; make the coalition bigger and their special privileges diminish. But decreased privileges are much better than the danger of being out altogether. So, there are two times when the coalition is most receptive to the urge to improve life for the many, whether those are the people or shareholders: when a leader has just come to power, or when a leader is so old or decrepit that he won't last much longer. In these circumstances coalition members cannot count on being retained. At the beginning and the end of an incumbent's reign the danger of being purged is greatest and so, at these times, coalition members should be most receptive to reform. Effective reform means expanding the coalition and that means that everyone, including the current essentials, has a good chance of being needed by tomorrow's new leader.

Not only is there a good time to look for the opportunity for reform. There also are good circumstances when reforms that can improve the people's welfare are welcomed. Coalitions whose leaders face serious economic strains understand that their days of luxury and splendor are numbered. That is one of the reasons companies sometimes commit fraud: CEOs, senior management, and board members believe they will be ousted because of the firm's failure and so they
cover up how poorly the business is doing while they try to fix it and save themselves. Little white lies work well the first year, but if things do not turn around, then each year they need to lie a little bit more until their reports are outright fiction and legally fraudulent.

As we have learned, when a country's economy is in trouble the big problem from a ruler's perspective is that she doesn't have enough money to buy continued loyalty. When the privileges enjoyed by essentials are shrinking they are likely to be tuned in to the possibility of change. They know the leader will want to purge people to use what little money is around more effectively. They, not wanting to be purged, will be amenable to expanding their group, trading their privilege for their future security and well-being. Coalition members are not the only ones willing to contemplate changing the rules when circumstances warrant. If the economic crisis is severe enough (and foreign aid donors stay away), then even leaders must ponder whether they might be better off liberalizing. Democratization jeopardizes their long-term future, but if they don't pay their supporters today whether they can win an election tomorrow is not a salient consideration.

Blind fools don't often get to rule countries or companies. Pretty much any leader worth his salt can see the dangers he faces when economic circumstances leave him bereft of funds to buy loyalty. Under such circumstances even leaders can believe that reform is their best shot at political survival. They might look for a fix even before their coalition does. Consider the experience of Chiang Kai Shek, who certainly was no fool. We might well ask why he encouraged much more successful economic policies on Taiwan than on the mainland of China. In the latter, even with extensive poverty, because there were so many people, there was plenty to enrich himself and his coalition. But when Chiang Kai Shek and his backers retreated to Taiwan, they took over an island with relatively few people and barely any resources. Only economic success could provide the way to reward his coalition. In the process of achieving that success, he also gradually expanded the coalition, perhaps in response to pressure from his essential cronies or perhaps under pressure from the United States, until one day he woke up to a democracy.