“When is a State Predatory”James A. RobinsonPolitical economics reading groupCarl Henrik Knutsen17/11-2008

Mobutu to Habyiarama

•“I’ve been in power in Zaire for thirty years, and I never built one road. Now they are driving down your roads to get you” (quoted in Sundstøl Eriksen, 2004:4)

Core argument

•From abstract: “I argue that the impact of development on the distribution of political power in society may create an incentive for a state to become “predatory” and fail to promote economic development.”

•More existing knowledge on how policy affects the economy than on why specific policies are chosen.

•Robinson deals with the latter issue.

General assumptions underlying analysis• The key assumption: Policy affects not only level

of development, but also distribution of political power

• Non-democratic regimes▫“Elite” controls political system

• Selects policy (investment in public goods in model)▫“Predatory” in model: undersupply public goods, but

a wide range of examples outside model framework.• Actors maximize own welfare (consumption)• Dynamic model, infinitely repeated game

Some relevant literature• Robinson (1998): A qualitative presentation of

the argument• Olson (1993/2003) and McGuire and Olson

(1996): Why do some dictators “behave properly”? The discount factor’s importance (political stability, dynasties) and “encompassing interest in society”

• Overland et al. (2000) Growth increases legitimacy of regime Different conclusions from Robinson

• Knutsen (2008): Different motivations (personal power rather than wealth) and different security threats to dictator (internal and external)

• Many more discussed in the paper…

Some underlying thematics

•Modernization theory. Democracy and development

•The separation of efficiency and distribution?

•Economic development and bargaining power social groups

The model Two types of infintely lived agents, P (elite) and N (group out of power) Utility function for agents:

k (capital) and R (natural resources), exogenously given in each period Output: A(g)k +R , where A’(g)>0 and A’’(g)<0 g is investment in public good, which lasts for one period Income P: θ(A(g)k + R) – g

Income N: (1-θ)(A(g)k + R)

The model cont’d

φ is the probability of N gaining power in next period

φ’(g)>0 , φ’’(g)<0 increased public investment destabilizes P’s political power Sequence in the model

o 1) P decides on g o 2) Asset allocation, realization income, consumption o 3) Nature “decides” whether power changes hands

Infinitely repeated game o Analyze the pure strategy Markov perfect equilibria

AnalysisExpected present discounted value for N:

Optimal to take power when given opportunity: π=1, otherwise π=0

Expected present discounted value for P:

Analysis cont’dθ ε [0, θ] π =0 and θ ε [θ, 1] π =1 (If share of income is small enough, N will not take power when given opportunity)

Optimal choice of g if θ ε [0, θ] :

Optimal choice of g if θ ε [θ, 1]:

o Two effects from g taken into consideration

1) “direct effect” on productivity 2) effect of g on probability of staying in power (times the expected

discounted value of staying in power)

After some algebra

Some results (p.12):

More analysis, interaction effects• Comparative statics: How does g respond to increased θ?

When θ< θ dg/dθ > 0 When θ> θ Two effects pulling in opposite directions Relative strength of these two effects depends on several factors dg/dθ

o relatively low when probability of maintaining power depends heavily on g

o relatively high when A’(g) is high (abundance of complementary factors like human capital)

o relatively low when country richly endowed with natural resources

Extended model, a snapshot• φ(g,r); φg>0, φgg<0, φr>0, φrr<0, φgr>0• r is the share of capital allocated by N to contest power• r(φ, g, R).

▫ rR and rθ are positive▫ rg is ambiguous. High g higher opportunity cost of

investing in r, but also higher marginal effect of r on the probability of gaining power

• P would ceteris paribus like a low r. Therefore, the optimal g’s response to the inclusion of r is also ambiguous▫Higher R greater likelihood that rg >0 lower g▫ Inclusion of r in the model does not substantially alter

comparative statics results

Extended model, endogenizing θ (redistribution)

However… (p.19) • Assumption underlying prop 2.2: Effect of r and g on φ

similar.

• “expropriation could be accompanied with a lower supply of public goods… The likely reason for this is that while expropriation may be feasible and profitable for elites, it may severely reduce the efficiency of production”

• Also: Model where g can be accumulated over time. The discount factor and g; two effects from increased patience: ▫ Traditional effect (invest more because higher output in

the future)▫ Novel effect: Invest less because values political power in

the future.

Summing up• “Bad policy” if

▫ Large benefits to holding power▫ Country is well endowed with natural resources▫ Not well endowed with factors that are complementary to

public investment▫ Political instability

• Africa and Asia compared: ▫ Checks on power and the benefits of holding office▫ Natural resources ▫ Human capital ▫ Political legitimacy

• Encompassing interest, the benefits of holding power and development: • Olson (1993) positive effect of encompassing interest on

development • Robinson’s model: Inverse u-shape. Claimed empirical support

for negative effect at high levels of encompassing interest.

Peter Evans:•“[E]xtracting a larger share from a shrinking

pie is not the optimal way to maximize revenues, but it may be the only way consistent with the survival of predatory states ... Generating an entrepreneurial class with an interest in industrial transformation would be almost as dangerous as promoting the political organization of civil society. For predatory states, "low-level equilibrium traps" are not something to be escaped; they are something to be cherished” (1995:248).

Main conclusion

•“while [capital] accumulation may increase total income, it may induce institutional transition which is unfavorable to the autocrat. If a dictator loses political power then he does not gain from development and will oppose it. Thus a dictator may wish to slow accumulation” (Robinson, 1998:24).