Good Dictators

Come on guys, read a little history.

Parliaments only came about when people had the power to resist monarchies. When does this happen? When they have the material resources to do so. This seems is pretty basic. You guys really need an economics paper to show you what history tells repeatedly? Sorry, maybe I should direct that comment to policy makers in DC.

As for Russia, I would say Mancur Olsen Power and Prosperity gives a good account of what happened. A pretty good way to keep economic power out of the hands of the common man is to inflate the hell out of your currency and steal the capital base at the same time.

"Our evidence suggests in contrast that the Lipset-Przeworski-Barro view of the world is more accurate: countries that emerge from poverty accumulate human and physical capital under dictatorships, and then, once they become richer, are increasingly likely to improve their institutions."

If this were the case, then America would have a Prime Minister as well as a Parliament and most American would probably speak a "proper English".

The excess of monarchic privilege is what sparked the three most significant revolutions of the 18th and 20th centuries (America and France, Russia.)

These examples were revolutions not evolutions.

Still, today is today. The current excesses are not monarchic but dictatorial. The mess in Iraq shows clearly how difficult it is for people to adopt democratic processes. But, let us all take note of one important fact: When the Iraqis were allowed to vote fairly, they came out in great numbers.

Is that what is called "human capital"? I doubt it. I'd rather call it a simple, innate notion by which humans sense naturally what is best for them. And, dictatorship has little favor.

Nonetheless, the question put is worth considering. Just what does it take to promote democracy in countries within which there is neither any experience in the matter nor any prevalent will or desire for it? A great many countries throughout the world are precisely in that condition. The Middle East is one case of mostly dysfunctional government and the Latin/South America quite another.

Caveat: The above is NO justification for the US invasion of Iraq, though admittedly it appears to be.

The missing link is culture. I think you'll find a lot of answers in the new studies that link culture and economics.

The problem in Russia was the lack of institutions necessary to protect private property. As a result, the mafia dominated the economy for a decade.

But why do institutions differ across countries? Culture.

Arnold writes:

So, the best way out of a bad idea trap is not to write a Madisonian Constitution. It's to get the dictator to promote education and saving.

The Glaeser/La Porta/Lopez-de-Silanes/Shleifer paper is excellent, but their data do not cover an informing and important subset of countries: the Middle East. That missing subset highlights a major qualification to the conclusions they draw.

In much of the Middle East, the market for savings is almost entirely precluded by religious and legal restrictions on paying interest. Distorting the market for savings so severely distorts many other emergent or potential markets--education (human capital), new businesses, real estate (apartments, housing), investment, creativity, and more--anything that relies on saving, investment, borrowing or lending.

Encouraging savings in a nation where market interest rates are restricted by religious proscriptions--usury laws so extreme that in many cases charging, and hence paying, interest on a loan is prohibited--is doomed to failure. Who would save when there is no gain and more likely a loss? The route to saving can easily be co-opted by a dictatotorial group or individual offering services instead of interest. Education is one of those services, resulting in a self-perpetuating cycle enriching the dictatorial leaders at the expense of the economic improvement of the population. Funds to rebuild in the face of catastrophe are another such non-market service. Hezbollah can easily take acclaim by contrasting its speedy supply of funds to south Lebanon by substituting itself--and Iranian funds that cement a political relationship between Hezbollah and Iran--for a capital market.

The Hezbollah and Hamas model of promoting education--by offering it to the poor and then dicatorially taking it over to educate a generation of children to be willing even to commit suicide in the name of nationalistic religious pride--shows that the route to economic improvement via promoting education may not be quick or reliable. Perhaps a taste for education will eventually overtake the sub-state-based educational model, but it's not going to happen soon.

Promoting education and savings may be long-run keys, but in the short run--which I'd argue is as long as three generations, or 75 years or more--there may be something to be said for a Madisonian constitution as an additional tool to jump-start an economy. A constitution may offer an alternative to those who want to find ways to get around an existing stranglehold of customary or religious mores.

The ongoing poverty of much of the Middle East relative to the West and East since the 1400s can be traced to the fundamental, religiously-based proscription against market-based rates of interest. If a market for savings is proscribed from springing up naturally--regardless of whether by dictatorial, historical, religious, democratic, or constitutional grounds--the conclusions from the Glaeser-et-al paper do not follow because they rely on the natural tendency of market rates of interest and markets for savings to spring up.