The Dictator's Handbook (6 page)

Because the acceptable uses of taxation in a regime that depends on a large coalition are few—just those expenditures thought to buy more welfare than people can buy on their own—taxes tend to be low when coalitions are large. But when the coalition of essential backers is small and private goods are an efficient way to stay in power, then the well-being of the broader population falls by the wayside, contrary to the view expressed by Hobbes. In this setting leaders want to tax heavily, redistributing wealth by taking as much as they can from the poor interchangeables and the disenfranchised, giving that wealth in turn to the members of the winning coalition, making them fat, rich, and loyal. For example, a married couple in the United States pays no income tax on the first $17,000 they earn. At that same income, a Chinese couple's marginal tax rate is 45 percent. That is well above the highest personal income tax rate in the United States and so no one, no matter how high their income, pays that much to the US federal government. And then there are small coalition regimes like Bell, California. Chief Administrative Officer Rizzo's small number of supporters did not complain about the excessively high level of property taxes. They had to pay these taxes, but then so did thousands of others. And unlike others they received the rewards financed by those same taxes. The private gains the few crucial cronies got from their city government more than repaid the high taxes everyone had to pay.

Obviously, self-interest plays a large role in these equations. We must wonder, therefore, why incumbents don't take all the revenue they've raised and sock it away in their personal bank accounts. This question is especially pertinent for corporate executives. Once investors have entrusted money in the hands of a CEO or chairman of the board,
what can the investors do to assure themselves that the money will be invested wisely to produce benefits for them? Investors want increased value. They want share prices to rise, their portion of ownership to go up, and dividend payments to be large and predictably regular. To be sure, focusing on self-interest tells us that rulers and business leaders, and in fact, all of us, would love to take other people's money and keep it for ourselves. This means that the next step in explaining the calculus of politics is to figure out how much a leader can keep and how much
must
be spent on the coalition and on the public if the incumbent is to stay in power.

Staying in power, as we now know, requires the support of others. This support is only forthcoming if a leader provides his essentials with more benefits than they might expect to receive under alternative leadership or government. When essential followers expect to be better off under the wing of some political challenger, they desert.

Incumbents have a tough job. They need to offer their supporters more than any rival can. While this can be difficult, the logic of politics tells us that incumbents have a huge advantage over rivals, especially when office holders rely on relatively few people and when the pool of replacements for coalition members is large. Lenin designed precisely such a political system in Russia after the revolution. This explains why, from the October 1917 Revolution through to Gorbachev's reforms in the late 1980s, only one Soviet leader, Nikita Khrushchev, was successfully deposed in a coup. All the other Soviet leaders died of old age or infirmity. Khrushchev failed to deliver what he promised to his cronies. It is the successful, reliable implementation of political promises to those who count that provides the basis for any incumbent's advantage.

The story of survival is not much different, although the particulars are very different, in political settings that rely on many essential backers. As even a casual observer of election campaigns knows, there is a big discrepancy between what politicians promise when making a bid for power and what they actually deliver once there. Once in
power, a new leader might well discard those who helped her get to the top, replacing them with others whom she deems more loyal.

Not only that, but essential supporters can't just compare what the challenger and incumbent offer today. The incumbent might pay less now, for instance, but the pay is expected to continue for those kept on or brought into the new incumbent's inner circle. True, the challenger may offer more today, but his promises of future rewards may be nothing more than political promises without any real substance behind them. Essentials must compare the benefits expected to come their way in the future because that future flow adds up in time to bigger rewards. Placing a supporter in his coalition after a new leader is ensconced as the new incumbent is a good indicator that he will continue to rely on and reward that supporter, exactly because the new incumbent has made a concerted effort to sort out those most likely to remain loyal from those opportunists who might bring the leader down in the future. The challenger might make such a promise to keep backers on if she reaches the heights of power, but it is a political promise that might very well not be honored in the long run.

Lest there be doubt that those who share the risks of coming to power often are then thrown aside—or worse—let us reflect on the all-too-typical case of the backers of Fidel Castro's revolution in Cuba. Of the twenty-one ministers appointed by Castro in January 1959, immediately after the success of his revolution, twelve had resigned or had been ousted by the end of the year. Four more were removed in 1960 as Castro further consolidated his hold on power. These people, once among Fidel's closest, most intimate backers, ultimately faced the two big exes of politics. For the luckier among them, divorce from Castro came in the form of exile. For others, it meant execution. This includes even Castro's most famous fellow revolutionary, Che Guevara.

Che may have been second in power only to Fidel himself. Indeed, that was likely his greatest fault. Castro forced Che out of Cuba in 1965 partly because of Che's popularity, which made him a potential rival for authority. Castro sent Che on a mission to Bolivia, but towards the end of March 1967 Castro simply cut off Guevara's support, leaving him stranded. Captain Gary Prado Salmon, the Bolivian officer who captured Che, confirmed that Guevara told him that the decision to
come to Bolivia was not his own, it was Castro's. One of Fidel's biographers remarked,

Political transitions are filled with examples of supporters who help a leader to power only to be replaced. This is true whether we look at national or local governments, corporations, organized crime families, or, for that matter, any other organization. Each member of a winning coalition, knowing that many are standing on the sidelines to replace them, will be careful not to give the incumbent reasons to look for replacements.

This was the relationship Louis XIV managed so well. If a small bloc of backers is needed and it can be drawn from a large pool of potential supporters (as in the small coalition needed in places like Zimbabwe, North Korea, or Afghanistan), then the incumbent doesn't need to spend a huge proportion of the regime's revenue to buy the coalition's loyalty. On the other hand, more must be spent to keep the coalition loyal if there are relatively few people who could replace its members. That is true in two circumstances: when the coalition and selectorate are both small (as in a monarchy or military junta), or the coalition and selectorate are both large (as in a democracy). In these circumstances, the incumbent's ability to replace coalition members is pretty constrained. Essentials can thereby drive up the price for keeping them loyal. The upshot is that there is less revenue available to be spent at the incumbent's discretion because more has to be spent to keep the coalition loyal, fending off credible counteroffers by political foes.

When the ratio of essentials to interchangeables is small (as in rigged-election autocracies and most publicly traded corporations), coalition loyalty is purchased cheaply and incumbents have massive discretion. They can choose to spend the money they control on themselves or on pet public projects. Kleptocrats, of course, sock the money away in secret bank accounts or in offshore investments to serve as a rainy-day fund in the event that they are overthrown. A few civic-minded autocrats slip a little into secret accounts, preferring to fend off the threat of revolt by using their discretionary funds (the leftover tax revenue not spent on buying coalition loyalty) to invest in public works. Those public works may prove successful, as was true for Lee Kwan Yew's efforts in Singapore and Deng Xiaoping's in China. They may also prove to be dismal failures, as was true for Kwame Nkrumah's civic-minded industrial program in Ghana or Mao Zedong's Great Leap Forward, which turned out to be a great leap backwards for China.

We have seen how the desire to survive in office shapes some key revenue generation decisions, key allocation decisions, and the pot of money at the incumbent's discretion. Whether the tax rate is high or low, whether money is spent more on public or private rewards, and how much is spent in whatever way the incumbent wants dictates political success within the confines of the governance structure the leader inherits or creates. And our notion of governing for political survival tells us that there are five basic rules leaders can use to succeed in any system:

 

Rule 1: Keep your winning coalition as small as possible.
A small coalition allows a leader to rely on very few people to stay in power. Fewer essentials equals more control and contributes to more discretion over expenditures.

Bravo for Kim Jong Il of North Korea. He is a contemporary master at ensuring dependence on a small coalition.

 

Rule 2: Keep your nominal selectorate as large as possible.
Maintain a large selectorate of interchangeables and you can easily replace any troublemakers in your coalition, influentials and essentials alike. After all, a large selectorate permits a big supply of substitute supporters to
put the essentials on notice that they should be loyal and well behaved or else face being replaced.

Bravo to Vladimir Ilyich Lenin for introducing universal adult suffrage in Russia's old rigged election system. Lenin mastered the art of creating a vast supply of interchangeables.

 

Rule 3: Control the flow of revenue.
It's always better for a ruler to determine who eats than it is to have a larger pie from which the people can feed themselves. The most effective cash flow for leaders is one that makes lots of people poor and redistributes money to keep select people—their supporters—wealthy.

Bravo to Pakistan's president Asif Ali Zardari, estimated to be worth up to $4 billion even as he governs a country near the world's bottom in per capita income.

 

Rule 4: Pay your key supporters just enough to keep them loyal.
Remember, your backers would rather
be
you than be dependent on you. Your big advantage over them is that you know where the money is and they don't. Give your coalition just enough so that they don't shop around for someone to replace you and not a penny more.

Bravo to Zimbabwe's Robert Mugabe who, whenever facing a threat of a military coup, manages finally to pay his army, keeping their loyalty against all odds.

 

Rule 5: Don't take money out of your supporter's pockets to make the people's lives better.
The flip side of rule 4 is not to be too cheap toward your coalition of supporters. If you're good to the people at the expense of your coalition, it won't be long until your “friends” will be gunning for you. Effective policy for the masses doesn't necessarily produce loyalty among essentials, and it's darn expensive to boot. Hungry people are not likely to have the energy to overthrow you, so don't worry about them. Disappointed coalition members, in contrast, can defect, leaving you in deep trouble.

Bravo to Senior General Than Shwe of Myanmar, who made sure following the 2008 Nargis cyclone that food relief was controlled and sold on the black market by his military supporters rather than letting
aid go to the people—at least 138,000 and maybe as many as 500,000 of whom died in the disaster.
⁴

At this point, you may be saying, Hold on! If an elected leader followed these rules she'd be out of the job in no time flat. You're right—almost.

As we'll see throughout the chapters to follow, a democratic leader does indeed have a tougher time maintaining her position while looting her country and siphoning off funds. She's constrained by the laws of the land, which also determine—through election procedures—the size of the coalition that she needs in order to come to power. The coalition has to be relatively large and she has to be responsive to it, so she does have a problem with Rule 1. But that doesn't mean she doesn't try to follow Rule 1 as closely as she can (and all of the other rules too).

Why, for example, does Congress gerrymander districts? Precisely because of Rule 1: Keep the coalition as small as possible.

Why do some political parties favor immigration? Rule 2: Expand the set of interchangeables.

Why are there so many battles over the tax code? Rule 3: Take control of the sources of revenue.