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Public Choice 48: 37-48 11986).
O 1986 Martinus NijhoJjPublishers, Dordrecht. Printed in the Netherlands.
On the inefficient extraction of rents by dictators
WAYNE T. BROUGH
MWANGI S . KIMENYI*
Center for Study of Public Choice, George Mason University, Fairfax, VA 22030
1. Introduction
Most countries in the world are governed by autocracy; that is, some form
of one man rule - he it monarchy or dictatorship. Dictatorship is a
prevalent form of autocracy, with a majority of the world's population living under this type of rule. Yet when analyzed from an economic point of
view, dictatorships do not appear to be efficient. They are not efficient in
'social' terms, and more strangely, they do not appear to be efficient from
the dictator's viewpoint.
Take one example. In Bulandia, a fictitious country, a general from the
army overthrows the government and establishes himself as the supreme
leader. He promptly places those who helped him in the revolution in key
government positions, as well as granting them favors in the business world.
Such positions and favors are considered rewards for supporting the revolution; they can be considered a cost of the revolution. Suppose the general
appoints his brother, an air force colonel, as head of the newly established
National Mining Industry. His brother, having no background in business
or engineering is, to say the least, not the most qualified man for the job.
But it is assumed that he must be granted the position in order to maintain
a stable coalition he must he paid off. If this is the only problem (the payoff), why does the dictator use such an inefficient method of pay-off? Why
doesn't he, for example, have the industry managed by a foreign mining
company which can actually generate profits, and then use these profits to
pay off the members of the coalition?
Some examples of the inefficient behavior of real-world dictators may illustrate the claim we have made above. In many African dictatorships, appointments to senior management positions are usually based upon the
family lineage or the tribal heritage of the dictator. Such people are not
-
We wish to thank Gordon Tullock for his helpful suggestions. In addition, Gary Anderson
and Phil Coelho provided useful comments on an earlier draft. However, we are the sole
residual claimants of any errors.
necessarily qualified or experienced. Apart from poor management that
leads to inefficiencies, such appointments lower the morale of the junior
workers who are usually more experienced. The overall result is lower productivity, leaving fewer rents for the dictator to extract. Examples of inefficient managers are common in Africa. Nigeria, Kenya, Zaire, Uganda,
Burundi, and Zambia are only a few countries where inefficient managers
hired by the dictator have caused major reductions in the national product.
The former dictator of Liberia, William Tolbert, displayed a common
characteristic of many African dictators - appointing officials who were
members of his family:
Tolbert's brother Frank was president pro tempore o f the Senate; his brother Stephen was
minister of finance; his sister Lucia was mayor of Bentol City; hisson A.B. was a n ambassador
at large; his daughter Wilhclmina was the presidential physician; his daughter Christine was
deputy minister of education; his nicce Tula was the presidential dietician; his three nephews
were assistant minister of presidential affairs, agricultural attache to Rome and Vice Governor
of the National Bank; his four sons-in-laws held positions as minister of defence, deputy
minister of public works, commissioner for immigration and board member of Air Liberia;
one brother-in-law was ambassador to Guinea, anothcr was in the Liberian Senate, a third was
mayor of Monrovia (Lamb, 1982: 10).
The dictator of Zaire, President Mobutu, portrays a clear cut example of
the extensive inefficiency in appointments. In 1973, Mohutu 'Zairianized'
all foreign enterprises, expelled the Asian merchants and Belgian farmers
who kept the economy alive, and replaced foreign managers with low skilled
Africans, most of whom were his close friends and relatives. In 1974 the
economy entered an economic slump which led to a steep drop in per capita
income. By 1980, economic activity in Zaire was almost at a standstill:
Zaire's debt to foreign banks and governments soared to $4 billion in 1980, and shortages of
food and spare parts became critical. The government's news agency shut down for lack of
paper, 360abandoned buses stood rusting near theairport, and the national airline. Air Zaire,
could only afford enough fuel to operate one of every four domestic flights each day. Its Boeing 747 and Douglas DC-I0 were repossessed (Lamb, 1982: 47).
LikeMobutu, Amin, the dictator of Uganda From 1971- 1979 expelled all
700,000 of Uganda's Asians and gave their businesses to his army cronies.
He removed all qualified and experienced managers (both domestic and
foreign) and replaced them with illiterate soldiers. Even worse, Amin
removed and killed his close friends and relatives who were educated and
qualified to run the enterprises. The economy of Uganda deteriorated to the
extent that Amin could not finance his own extravagant expenditures from
domestic sources and had to rely on the aid of foreign dictators. Based on
such behavior, it is hard to conclude that dictators are wealth-maximizers,
Can they be depicted more effectively as power-maximizers than as utility
maximizers? Professor Gordon Tullock, one of the few scholars examining
the economics of autocracy, has posed the question of how we should model
a dictator's behavior. The purpose of this essay is to present a model of dictators based upon the standard assumptions of economic analysis: man is
a rational agent pursuing his self-interest. The paper will be divided into five
sections. Section 2 presents a brief analysis of economic actors in government. The next section examines the importance of coalitions and the process of coalition formation, both in the government and in the revolution.
Having examined these points, we then present a model of dictatorial behavior, comparing such behavior to that of a leader in a democracy. This is
done in Section 4. Finally, we conclude with some of the implications of our
model.
2. Economic actors in government
The common view of political agents and government officials holds that
they are guardians of the public interest. Upon taking office, these individuals were assumed to cast aside their private interests in order to serve the
public. Through research in public choice, however, this view has come
under question (see Buchanan and Tullock, 1962;especially Ch. 3). Political
actors are no longer viewed differently than any other actors in society.
They are rational economic agents pursuing their self-interests; the only difference is the constraint which they are facing. Based upon these assumptions, much insight has been gained towards understanding the collective
decision-making processes of a democratic society.
Dictators are commonly viewed as greedy, irrational individuals who,
through corruption and political power, extract rents from the helpless endogenous population. They are power-bent or foolish, and unable to
manage a country effectively. The long run effects of this behavior clearly
devastate the growth of the country in question. Is this an accurate description of a dictator, or are these individuals better depicted as rational
economic men? As with democracies, there has been a tendency to misconceive the political actors in a dictatorship. Granted, the misconception is different than the one associated with democracies, yet nonetheless it does exist. In fact, it is symmetrical to that of the democracy. Rather than the
angelic, selfless individual who is presumed to serve the public in a
democracy, dictators are viewed as diabolical murderers living off their subjects. Both cases exaggerate certain traits found in government officials,
with rational, economic men found between the two hyperboles. It is our
contention that the latter case is just as invalid as the former. There is no
intrinsic reason to assume that dictatorships will be inferior to democracies
in attaining economic growth. For normative reasons we prefer democracy
as a form of government, but in positive analysis we cannot deny that it is
conceptually possible for a dictator to run a country as efficiently as a
democracy. Therefore, we propose that the common description of dictators is unacceptable; dictators must be viewed as purposive self-interested
individuals.
Why then, do weobservesuchinefficient dictators historically? Inanswering this question, we claim that stability is the crucial explanatory variable.
Because of institutional instability, dictators have extremely high time
preferences; much more so than an individual in a stable country. For most
dictators, the future is extremely uncertain. The threat of revolution is
constant, and there is no guarantee that the dictator will be in power
tomorrow. Therefore, the dictator, being a rational individual, focuses his
actions on the present at the expense of the future. This leads to policies
which are extremely inefficient when viewed in terms of long run economic
growth. T o better understand this phenomenon we now turn to a brief discussion of the economics of coalitions and revolutions, relying primarily
on the work done by Professor Gordon Tullock in his monograph, The
Social Dilemma.
3. On coalitions and revolutions
In his book, The Social Dilemma (1974: Ch. 4), Professor Tullock refutes
the common notion of the 'romantic' revolution whereby the masses revolt
against an evil government and establish a new government whose main
purpose is reform. Such a revolution is a public good, and the standard
free rider problems are relevant. The risks of danger from participation
in the revolution are great; there is a probability of injury or death in the
struggle, and should the revolution fail there is always the possibility of
punish~nentfrom the government. Yet if the revolution is successful, then
all can share in its benefits. So the optimal strategy is to let others bear the
risks, while you enjoy the benefits of a successful revolution. That is,
unless you are in a position where victory of the revolution could bring you
great personal gain. Similarly, those that actively oppose the revolution
will be those who would lose the most should the government be overthrown. Thus, in the final analysis the public good aspect of revolution
becomes negligible; participation is determined by expected personal gain
or loss (for the algebraic exposition of this calculus, see Tullock, 1974:
Ch. 5).
This has two important implications. First, the possibility of a popular
revolution is extremely remote. This is borne out historically, as a brief examination of history reveals very few political overthrows which can be considered popular. This leads to the second implication: Those who have the
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greatest possibility of gaining from a revolution will he those in positions
of power. Commonly, these are members of the pre-revolution government.
Therefore, for an existing dictator, the foremost threat is that of coup
d'ktat. Government officials will he the principal actors, on one side or the
other, for they cannot sit idly on the sidelines. Their lives will be affected
by the outcome of the coup: they must choose to support the government
or join the opposition. The dictator realizes this and must go about a
precarious policy of reward and the allocation of power in order to form
a stable coalition with which to govern. It is very difficult to establish such
a coalition, for it involves granting power to others, which in turn leads to
the imminent possibility of coup d1Ctat. Therefore, the dictator must rely
on granting rents to members of the coalition to ensure the stability of the
government.
Ramon Cao-Garcia (1983) has explained the implications of such behavior. The necessity of granting rents to those in the coalition by definition
entails a certain inequality of treatment of those in the coalition with respect
to the general population. Thus, when a dictator takes power, he will establish and enforce a constitution (either written or implicit) which maintains
this inequality. Bribery and public sector rents will be used to benefit the
ruling coalition. A large level of discretionary power will exist with which
the coalition can extract rents. This discretionary power will lead to inefficiency and repression in order to maintain the favored position of the coalition, which will be the smallest coalition that is able to maintain the government. This way, the rents to he extracted are greater, and they are distributed to a smaller group. Furthermore, because the dictator must monitor
the coalition to maintain his support, he will prefer the smallest possible
coalition. In contrast, the coalition in a democracy will he larger, because
there is more than one point of access to the government. Therefore, ademocratic leader must broaden his coalition to gain support from enough interest
groups to achieve a majority. This majority will include a larger percentage
of the population than does the coalition of the dictator. As Ramon CaoGarcia (1983: 68) states '. . . the conclusion can be reached that a dictator's
supportingcoalition would tend to include a smaller proportionof thecollectivity, as opposed to that of a winning coalition in a democracy.'
When the dictator comes to power he does so through the help of a small
number of supporters who hope to gain from the leadership of the dictator.
The dictator maintains the coalition by distributing not only direct
monetary transfers, but also appointments to managerial positions in
government enterprises. Through such activities the dictator is able to maintain a stable government. He may, however, decide to hire employees from
outside his coalition in order to increase the efficiency of the government.
But this would cause members of the supporting coalition, especially those
who helped the dictator come to power, to feel that the dictator is
distributing benefits unfairly to those who are not members of the coalition.
Furthermore, even if the members of the dictator's supporting coalition are
sharing in the profits of an enterprise run by an efficient manager, some
members may want to take the managerial position themselves, hoping to
share in both the profits as a member of the coalition and also the benefits
that come with the managerial position. Under such circumstances, the
members of the coalition usually overestimate their capabilities and assume
that they can attain at least the same levels of profits as the experienced
managers do.' Most of the time this happens to be false, and the profit levels
decline when the inexperienced members of the dictators coalition take over
managerial positions. Yet when efficient managers are hired from outside,
those in the coalition who were hoping to get such positions themselves are
frustrated by the dictator, who appears to be needlessly enlarging the sharing coalition. While hiring from outside the coalition may actually be
beneficial to all members of the coalition, this also gives some members the
incentive to withdraw their support and attempt to establish a new coalition.
Thus, hiring managers and officials from outside the coalitio~lis done at the
expense of stability: i.e., the dictator is faced with a trade-off between
stability and efficiency.
Perhaps one of the most telling examples of this trade-off is that of
Joseph. Stalin. In 1937, this Soviet leader shot Marshall Tukhachevskiy,
along with the cream of the General Staff Officers. Tukhachevskiy was a
brilliant military strategist who, as Chief of the General Staff, ardently
worked to revitalize the Soviet army and consolidate its leadership. Stalin,
however, felt Tukhachevskiy's ability was dangerous to the stability of his
ruling coalition; consequently he planned for the removal of Tukhachevskiy. This removal was effective, and it did not stop with the execution of
Tukhachevskiy; the purge extended throughout the Soviet officer corps,
eliminating the Red Army's most experienced commanders and destroying
miliiary discipline. In the end, Stalin was left with a General Staff manned
by those in his coalition, yet he paid a high price in terms of efficiency, as
was evidenced in the Russo-Finnish war in the winter of 1939- 1940. Despite
the fact that 700,000 Soviet troops faced only 150,000-200,000 Finnish
troops, it took the Red Army the entire winter to achieve a victory, and the
victory was not nearly as convincing as the Soviets had expected (Carrel,
1964: 208-217).
4. Stability and efficiency
In this section we present a model that explains the apparent inefficiency in
the extraction of rents by dictators. We have indicated that the choice of inefficient employees by dictators is most likely due to the various constraints
the dictator faces. As mentioned earlier, there is no reason to believe that
the behaviour of the dictator is any different from any other utility maximizing individual. The model below illustrates our claim that the dictator's
behavior is consistent with the utility maximization axiom.
A leader - despotic or democratic - may appoint managers and other
officials of public enterprises either from within his supporting coalition or
from outside the coalition. A democratic leader may appoint officials who
are members of other political parties. Similarly, the dictator may appoint
officials who are not members of thesmall coalition. It is rational to assume
that a leader is able to hirc more efficient managers the larger the population
from which he makes his choice. Thus, we may present efficiency as a
positive function of the number of employees hired from outside the supporting coalition. Figure 1 below demonstrates this relationship.'
Probably the most important constraint facing a dictator is that of maintaining the supporting coalition. If the leaders faced no constraints, they
would he expected to hire employees from outside the coalition up to the
point that maximizes their efficiency. Furthermore, if dictators and
democratic leaders faced the same constraints we would expect them both
to hire employees from outside in such a way that the democracy and the
dictatorship would be equally efficient.
However, this is not the case, and dictators tend to be far less efficienL3This
implies that they face strong constraints which limit the number of outside
employees they can hire.
Two major differences exist that make the nature of the constraint facing
the dictator different from that facing a democratic leader. First, the supporting coalition in a dictatorial regime is relatively small compared to coalitions in democratic governments, so that the hiring practices of the dictator
are closely monitored by the members of the coalition. In this case, monitoring the behavior of the dictator's hiring procedures is a private good. In the
case of a democracy, the supporting coalition includes many voters and
monitoring what types of employees the leader hires is basically a public
good with the associated free rider problems. Second, most of the members
of the supporting coalition in a democratic government reward the leader
in the form of votes not because of direct rewards such as employment positions, but because of the outcome of his policies; e.g., higher profits, better
public services, etc. Thus, although some members of the supporting coalition in a democracy may desert the leader, he may attract members of other
parties into his coalition. However, continued employment of officials who
are not members of the leader's coalition may erode his support to the point
where the party would select a new candidate. For a dictatorship, most of
the members of the coalition continue to support the leader because of direct
rewards and from the positions they hold in the government. Although
democratic leaders lose support (increased instability) due to hiring from
efficiency
I
Number of Employees Hired
from Outside the
Coalition
Figure I
outside the coalition, such loss is far less than that which the dictator faces
when hiring from outside the coalition.
Figure 2 below shows the trade-off that leaders in a democracy and a dictatorship face between stability and hiring employees from outside the coalition. DDO~S the trade-off faced by the dictator and DD' is the trade-off faced by the democratic leader. Note that the trade-off that the dictator faces
is steeper than the one faced by the leader of the democracy; i.e., the dictator has to sacrifice more in terms of stability when hiring from outside the
coalition. Each head of government will hire outside employees up to the
point where his highest indifference curve is tangent to the slope of the
trade-off between stability and outside hiring. 1' is the highest indifference
curve attainable by the dictator, while I'is the highest curve attainable in a
democracy. From this figure, thedictator hires OMoemployeesfrom outside
his supporting coalition, with an associated stability of 0s'. The democratic
leader hires OM' employees from outside his supporting coalition, with the
stability given by 0s'.
If we combine Figures 1 and 2 we are able to derive the level of efficiency
that each of the leaders is able to attain, given the trade-off between stability
and the number of employees hired from outside the supporting coalition.
Figure 3 shows that the dictator is only able to attain a level of efficiency
shown by OEo and the democratic leader can attain OE1. Thus, the dictator
is constrained to an extent that doesn't allow him to hire as efficient
managers as a democratic leader.
The foregoing analysis illustrates the constraints that compel a dictator
to remain at lower a levei of efficiency than is possible for democratic
leaders. This is consistent with the observed behavior of dictators as cont-
f r ~ mo u t s i h e ihe
coalition
Figure 2
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pared to that of democratic leaders. However, we still need to explain why
some dictators are more efficient than others, and why a particular dictator
over time, may begin to hire relatively more efficient employees.
To understand why some dictators are moreefficient than others, it is important to realize that dictators are not the same, differing in various
aspects, including how they get into power, the size of the supporting coalition, etc. We hypothesize that in dictatorships where the sharing coalition
is large the monitoring of the dictator by the members of the coalition is less
efficient and the dictator is able to achieve higher levels of stability by hiring
from outside the coalition. Furthermore, should the dictator's policies lead
to economic growth, then many will support the dictator regardless of
whom he hires. Under such circumstances the dictator's trade-off curve
DDO rotates outward to DD' so that he is able to reach a higher indifference
curve, I' in the figure below. The dictator is able to employ more people
from outside the coalition without sacrificing as much in terms of stability;
whereby he is able to attain a higher level of efficiency, EL.
The case of a dictator hiring more efficient managers over time can be
analyzed with the same diagram. A dictator who faces constraint DD' at the
beginning of his regime with an efficiency level of EOmay be able to reach
a higher level of efficiency over time if the trade-off curve DDOrotates
toward the right. This is indeed a possibility, for as time progresses members
of the sharing coalition may want to forego managerial positions for higher
economic growth that would be forthcoming if the dictator hires more efficient people. Thus, it is not surprising that dictators may become more efficient overtime. We should add however, that it is just as possible for the dictator to become less efficient over time, moving from DDLto DDO.
5. Conciusion
In this paper we attempted to explain the seemingly irrational behavior of
dictators exemplified by the inefficiency in the management of public sector
enterprises. We have tried to show that, despite what at first glance appears
to be an ability to hire whomever they want, dictators generally tend to
employ rather inefficient managers. To understand this 'paradox' in the
behaviour of dictators, we have rejected the premise that dictators are irrational. We have argued that they are not able to reach a higher level of efficiency due to the constraints they are subject to. There is no paradox in the
behavior of a dictator; they are like any other leaders, attempting to maximize their own utility under certain constraints.
The threat of a coup is a serious and constant constraint which all dictators face. This element of uncertainty leads dictators to have a high time
preference, whereby long-run economic growth is foregone in favor of
short-run maximizing. To mitigate this threat, the dictator must attempt to
establish a stable supporting coalition. To keep the coalition intact, it is
necessary for the dictator to distribute benefits to the coalition. Such
benefits take the form of direct monetary transfers and employment in the
public sector. Coalition members are usually inexperienced and lack the
skills required to maximize profits. Yet these individuals often overestimate
their capabilities and see no reason to hire managers from outside the coalition, which needlessly expands the sharing coalition. Therefore, the dictator
is compelled to hire from within the coalition if he wants to maintain support. These two factors, the dictator's emphasis on the short-run and the
coalition members' overestimation of their management capabilities, lead
to inefficiency in the public sector. Rather than fostering economic growth,
these factors lead to a gradual depletion of the capital stock and economic
stagnation.
The model presented in this paper is useful for explaining the behavior
of dictators. The model tells us that a dictatorship could be as efficient as
a democracy if the constraint on outside hiring were lessened. It also shows
how a government may change over time from being very inefficient to being efficient under the same dictator. This is accomplished through shifts
in the constraint. This confirms our claim that dictators are not irrational;
they try to maximize their utility subject to the constraints at any given time.
Our paper is only a preliminary analysis of an area of study that has not
been given much attention in the public choice literature. More remains to
be done in the study of dictators. Because it is the most prevalent form of
collective decision-making, an understanding of the dynamics of dictatorships would be a valueble addition to our body of knowledge.
the
the
Coalition
Figure 3
NOTES
1. This phenomena, known as 'self-serving attribution' has been a topic of discussion among
psychologists for some time. For a survey of this literature, see Miller and Ross (1975).
2. Thereis however, aliniit to this inreality. If theleader hires too many people fromoutside,
stability will decrease, for these outsiders may form their own coalition and remove him
from office.
3 . Although ne clpim rllar dlaalorrhipr ore morc incfficienl thau dsniocracics, this docs rlot
mean ti,ar demu;racies arc nc;r,sarily efficient. I r is true that drmucracier hate 3 largcr
choice set from which to hire public sector employees, yet salaries in the public sector are
much lower than similar management positions in the private sector. Consequently, the
better managers willend upin the privatesector, leaving the publicsector open for less efficient managers. Inefficiencies can exist in democratic governments as well; our point is
simply thatdictators are relatively more inefficient.
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Buchanan, J.M., and Tullock, G. (1962). Thecalculus of consent. Ann Arbor: The University
of Michigan Press.
Cao-Garcia, R. (1,983).Explorations rowardan economic theory ofpolitical systems. Lanham,
Md.: University Press of America.
Carrel, P. (1964). Hiller moveseast. 1941-1943. (English transl.) Boston and Toronto: Little,
Brown.
Lamb, D. (1962). The Africans. New York: Random House.
Miller, D.T., and Ross, M. (1975). Self-servingbiases attribution of causality: Fact or fiction?
Psychology Bulletin 82: 213-225.
Tullock, G. (1974). Thesocialdllemma. George Mason University, The Center for Study of
Public Choice.