No subject

until, say, the time of Louis XVI and Voltaire, there was an impressive 
development of civilization that occurred in large part under stationary 
banditry.6

6. Many of the more remarkable advances in civilization even in historic 
times took place in somewhat democratic or nondictatorial societies such 
as ancient Athens, the Roman Republic, the North Italian city-states, the 
Netherlands in the seventeenth century, and (at least after 1689) Great 
Britain. The explanation for the disproportionate representation of 
nonautocratic jurisdictions in human progress is presented later in the 
article.

THE GRASPING HAND

We can now begin to reconcile the village monarchist's insight and the 
foregoing argument with the case for democracy. Though the village 
monarchist was right in saying that the absolute ruler has as much 
incentive to fix what needs repair as the owner of a house, his analogy is 
nonetheless profoundly misleading. The autocrat is not in a position 
analogous to the owner of a single house or even to the owner of all 
housing, but rather to the owner of *all* wealth, both tangible and human, 
in a country. The autocrat does indeed have an incentive to maintain and 
increase the productivity of everything and everyone in his domain, and 
his subjects will gain from this. But he also has an incentive to charge a 
*monopoly* rent and to levy this monopoly charge on everything, including 
human labor.

In other words, the autocratic ruler has an incentive to extract the 
maximum possible surplus from the whole society and to use it for his own 
purposes. Exactly the *same* rational self-interest that makes a roving 
bandit settle down and provide government for his subjects also makes him 
extract the maximum possible amount from the society for himself. He will 
use his monopoly of coercive power to obtain the maximum take in taxes and 
other exactions.

The consumption of an autocratic ruler is, moreover, not limited by his 
personal capacities to use food, shelter, or clothing. Though the 
pyramids, the palace of Versailles, the Taj Mahal, and even Imelda 
Marcos's three thousand pairs of shoes were expensive, the social costs of 
autocratic leaders arise mostly out of their appetites for military power, 
international prestige, and larger domains. It took a large proportion of 
the total output of the Soviet Union, for example, to satisfy the 
preferences of its dictators.7

7. The theory offered here applies to communist autocracies as much as to 
other types, though the theory needs to be elaborated to take account of 
the "implicit tax-price discrimination" pioneered by Joseph Stalin. This 
innovation enabled Stalinist regimes to obtain a larger proportion of 
social output for their own purposes than any other regimes had been able 
to do. This explained Stalin's success in making the Soviet Union a 
superpower and the great military capacity of many communist regimes. It 
also generated a unique dependence of the system on its management cadre, 
which ultimately proved fatal. For how the offered theory applies to 
communist autocracies and the societies in transition, see Clague and 
Rausser 1992, pref., chap. 4; Murrell and Olson 1991 [1990 was probably 
meant]; Olson 1993.

[Clague, Christopher, and Gordon Rausser, eds. 1992. The Emergence of 
Market Economies in Eastern Europe. Cambridge: Basil Blackwell.

[Murrell, Peter, and Mancur Olson. 1991. "The Devolution of Centrally 
Planned Economies." Journal of Comparative Economics 15:239-65.

[Olson, Mancur. 1990. "The Logic of Collective Action in Soviet-type 
Societies." Journal of Soviet Nationalities 1(2): 8-33.

[Olson, Mancur. 1993. "From Communism to a Market Democracy." Center for 
Institutional Reform and the Informal Sector. Typescript.]

Some writers use the metaphor of the "predatory state" but this is 
misleading, even for autocracies. As we saw earlier, a stationary bandit 
has an encompassing interest in the territory he controls and accordingly 
provides domestic order and other public goods. Thus he is not like the 
wolf that preys on the elk, but more like the rancher who makes sure that 
his cattle are protected and given water. The metaphor of predation 
obscures the great superiority of stationary banditry over anarchy and the 
advances of civilization that have resulted from it. No metaphor or model 
of even the autocratic state can therefore be correct unless it 
simultaneously takes account of the stationary bandit's incentive to 
provide public goods at the same time that he extracts the largest 
possible net surplus for himself.

Although the forms that stationary banditry has taken over the course of 
history are diverse, the essence of the matter can be seen by assuming 
that the autocrat gets all of his receipts in the form of explicit 
taxation. The rational autocrat will devote some of the resources he 
obtains through taxation to public goods but will impose far higher tax 
rates than are needed to pay for the public goods since he also uses tax 
collections to maximize his net surplus. The higher the level of provision 
of public goods, given the tax rate, the higher the society's income and 
the yield from this tax rate. At the same time, the higher the tax rate, 
given the level of public-good provision, the lower the income of society, 
since taxes distort incentives.

So what tax rate and what level of public good provision will the rational 
self-interested autocrat choose? Assume for the moment that the autocrat's 
level of public-good expenditure is given. As Joseph Schumpeter (1991) 
lucidly pointed out, and Ibn Kalduhn (1967) sensed much earlier,8 tax 
receipts will (if we start with low taxation) increase as tax rates 
increase, but after the revenue-maximizing rate is reached, higher tax 
rates distort incentives and reduce income so much that tax collections 
fall. The rational self-interested autocrat chooses the revenue-maximizing 
tax rate.

[Schumpeter 1991 is not among the references, but see the footnote.

[Kalduhn, Ibn. 1967. The Mugaddimah. Trans. Franz Rosenthal. Princeton: 
Princeton University Press.]

8. Schumpeter's analysis is in his "Crisis of the Tax State," written in 
the highly taxed Austria-Hungarian Empire late in World War I; Ibn 
Kalduhn's is in his classic, The Mugaddimah.

Though the amount collected at any tax rate will vary with the level of 
public-good provision, the revenue-maximizing tax *rate* for the autocrat 
should not This optimal tax rate determines exactly how encompassing the 
interest of the autocrat in the society is; that is, it determines what 
share of any increase in the national income he receives. He will then 
spend money on public goods up to the point where his last dollar of 
expenditure on public goods generates a dollar's increase in his *share* 
of the national income. At this point, the gain to society will, as we 
know, be the reciprocal of his share.

Though the subjects of the autocrat are better ott than they would be 
under anarchy, they must endure taxes or other impositions so high that, 
if they were increased further, income would fall by so much that even the 
autocrat, who absorbs only a portion of the fall in income in the form of 
lower tax collections, would be worse off.

There is no lack of historical examples in which autocrats for their own 
political and military purposes collected as much revenue as they possibly 
could. Consider the largest autocratic jurisdictions in Western history. 
The Bourbon kings of France were (especially on the eve of the French 
Revolution) collecting all they could in taxes. The Hapsburg kings of 
Spain did the same. The Roman Empire ultimately pushed its tax rates at 
least to the revenue-maximizing level.

THE REACH OF DICTATORSHIPS AND DEMOCRACIES COMPARED

How would government by a rational self-interested autocrat compare with a 
democracy? Democracies vary so much that no one conclusion can cover all 
cases. Nonetheless, many practical insights can be obtained by thinking 
first about one of the simplest democratic situations. This is a situation 
in which there are two candidates for a presidency or two well-disciplined 
parties seeking to form the government. This simplifying assumption will 
be favorable to democratic performance, for it gives the democracy an 
"encompassing" interest rather like the one that motivates the stationary 
bandit to provide some public goods. I shall make the opposite assumption 
later. But throughout, I shall avoid giving democracy an unfair advantage 
by assuming better motivation. I shall impartially assume that the 
democratic political leaders are just as self-interested as the stationary 
bandit and will use any expedient to obtain majority support.

Observation of two-party democracies tells us that incumbents like to run 
on a "you-never-had-it-so-good" record. An incumbent obviously would not 
leave himself with such a record if, like the self-interested autocrat, he 
took for himself the largest possible net surplus from the society. But we 
are too favorable to democracy if we assume that the incumbent party or 
president will maximize his chances ot reelection simply by making the 
electorate as a whole as well-off as possible.

A candidate needs only a majority to win, and he might be able to "buy" a 
majority by transferring income from the population at large to a 
prospective majority. The taxes needed for this transfer would impair 
incentives and reduce society's output just as an autocrat's 
redistribution to himself does. Would this competition to buy votes 
generate as much distortion of incentives through taxation as a rational 
autocracy does? That is, would a vote-buying democratic leader, like the 
rational autocrat, have an incentive to push tax rates to the 
revenue-maximizing level?

No. Though both the majority and the autocrat have an encompassing 
interest in the society because they control tax collections, the majority 
in addition earns a significant share of the market income of the society, 
and this gives it a more encompassing interest in the productivity of the 
society. The majority's interest in its market earnings induces it to 
redistribute less to itself than an autocrat redistributes to himself 
This is evident from considering an option that a democratic majority 
would have if it were at the revenue-maximizing tax rate. At the 
revenue-maximizing tax rate, a minuscule change in the tax rates will not 
alter tax collections. A minuscule increase in the tax rate will reduce 
the national income by enough so that even though a larger percentage of 
income is taken in taxes, the amount collected remains unchanged, and a 
tiny *reduction* in the tax rate will increase the national income so much 
that even though a smaller percentage is taken in taxes, receipts are 
unchanged. This is the optimal tax rate for the autocrat because changes 
in the national income affect his income only by changing tax collections.

But a majority at the revenue-maximizing tax rate is bound to increase its 
income from a reduction in tax rates: when the national income goes up, it 
not only, like the autocrat, collects taxes on a larger national income 
but also earns more income in the market. So the optimal tax rate for it 
is bound to be lower than the autocrat's. The easiest arithmetic example 
comes from supposing that the revenue-maximizing tax rate is one-third and 
that the majority earns one-third of the national income in the 
marketplace. The rational autocrat will then find that the last dollar in 
taxes that he collects reduces the national income by three dollars. 
One-third of this loss is his loss, so he just breaks even on this last 
dollar of tax collection and is at his revenue-maximizing rate. But if a 
majority mistakenly chose this same tax rate, it would be hurting itself, 
for it would lose two dollars (the same dollar lost by the autocrat plus 
one dollar of market income) from the last dollar it collected in taxes. 
Thus a majority would maximize its total income with a lower tax rate and 
a smaller redistribution to itself than would be chosen by an autocrat.9

9. A mathematical and a geometrical proof of this conclusion and an 
analysis of many other technical questions raised by the present theory is 
available on request.

More generally, it pays a ruling interest (whether an autocrat, a 
majority, or any other) to stop redistributing income to itself when the 
national income falls by the reciprocal of the share of the national 
income it receives. If the revenue-maximizing tax rate were one-half, an 
autocrat would stop increasing taxes when the national income fell by two 
dollars from his last dollar of tax collection. A majority that, say, 
earned three-fifths of the national income in the market and found it 
optimal to take one-fifth of the national income to transfer to itself 
would necessarily be reducing the national income by five-fourths, or 
$1.25, from the last dollar that it redistributed to itself. Thus the more 
encompassing an interest--the larger the share of the national income it 
receives taking all sources together--the less the social losses from its 
redistributions to itself. Conversely, the narrower the interest, the less 
it will take account of the social costs of redistributions to itself.

This last consideration makes it clear why the assumption that the 
democracy is governed by an encompassing interest can lead to 
much-too-optimistic predictions about many real-world democracies. The 
small parties that often emerge under proportional representation, for 
example, may encompass only a tiny percentage of a society and therefore 
may have little or no incentive to consider the social cost of the steps 
they take on behalf of their narrow constituencies. The special interest 
groups that are the main determinant of what government policies prevail 
in the particular areas of interest to those interest groups have almost 
no incentive to consider the social costs of the redistributions they 
obtain. A typical lobby in the United States, for example, represents less 
than 1% of the income-earning capacity of the country. It follows from the 
reciprocal rule that such a group has an incentive to stop arranging 
further redistributions to its clients only when the social costs of the 
redistribution become at least a hundred times as great as the amount they 
win in redistributional struggle (Olson 1982).

[Olson, Mancur. 1982. The Rise and Decline of Nations. New Haven: Yale 
University Press.]

It would therefore be wrong to conclude that democracies will necessarily 
redistribute less than dictatorships. Their redistributions will, however, 
be shared, often quite unequally, by the citizenry. Democratic political 
competition, even when it works very badly, does not give the leader of 
the government the incentive that an autocrat has to extract the maximum 
attainable social surplus from the society to achieve his personal 
objectives.

LONG LIVE THE KING

We know that an economy will generate its maximum income only if there is 
a high rate of investment and that much of the return on long-term 
investments is received long after the investment is made. This means that 
an autocrat who is taking a long view will try to convince his subjects 
that their assets will be permanently protected not only from theft by 
others but also from expropriation by the autocrat himself. If his 
subjects fear expropriation, they will invest less, and in the long run 
his tax collections will be reduced. To reach the maximum income 
attainable at a given tax rate, a society will also need to enforce 
contracts, such as contracts for long-term loans, impartially; but the 
full gains are again reaped only in the long run. To obtain the full 
advantage from long-run contracts a country also needs a stable currency. 
A stationary bandit will therefore reap the maximum harvest in taxes--and 
his subjects will get the largest gain from his encompassing interest in 
the productivity of his domain--only if he is taking an indefinitely long 
view and only if his subjects have total confidence that their "rights" to 
private property and to impartial contract enforcement will be permanently 
respected and that the coin or currency will retain its full value.

Now suppose that an autocrat is only concerned about getting through the 
next year. He will then gain by expropriating any convenient capital asset 
whose *tax yield* over the year is less than its *total* value. He will 
also gain from forgetting about the enforcement of long-term contracts, 
from repudiating his debts, and from coining or printing new money that he 
can spend even though this ultimately brings inflation. At the limit, when 
an autocrat has no reason to consider the future output of the society at 
all, his incentives are those of a roving bandit and that is what he 
becomes.10

10. When war erodes confidence about what the boundaries of an autocrat's 
domain will be, an autocrat's time horizon with respect to his possession 
of any given territory shortens--even if he believes that he will remain 
in control of some territory somewhere. In the limit, complete uncertainty 
about what territory an autocrat will control implies roving banditry. The 
advantages of stationary banditry over roving banditry are obviously 
greatest when there are natural and militarily defensible frontiers. 
Interestingly, the earliest states in history emerged mainly in what one 
anthropologist calls "environmentally circumscribed" areas, that is, areas 
of arable land surrounded by deserts, mountains, or coasts (see Carneiro 
1970). The environmental circumscription not only provides militarily 
viable frontiers but also limits the opportunity for defeated tribes to 
flee to other areas in which they could support themselves (as Carneiro 
points out). This in turn means that the consensual democracy 
characteristic of the earliest stages of social evolution is, in these 
geographical conditions, replaced by autocratic states earlier than in 
other conditions.

[Carniero, Robert L. 1970. "A Theory of the Origin of the State." Science 
169:733-38.]

To be sure, the rational autocrat will have an incentive, because of his 
interest in increasing the investment and trade of his subjects, to 
promise that he will never confiscate wealth or repudiate assets. But the 
promise of an autocrat is not enforceable by an independent judiciary or 
any other independent source of power, because autocratic power by 
definition implies that there cannot be any judges or other sources of 
power in the society that the autocrat cannot overrule. Because of this 
and the obvious possibility that any dictator could, because of an 
insecure hold on power or the absence of an heir, take a short-term view, 
the promises of an autocrat are never completely credible. Thus the model 
of the rational self-interested autocrat I have offered is, in fact, 
somewhat too sanguine about economic performance under such autocrats 
because it implicitly assumed that they have (and that their subjects 
believe that they have) an indefinitely long planning horizon.

Many autocrats, at least at times, have had short time horizons: the 
examples of confiscations, repudiated loans, debased coinages, and 
inflated currencies perpetrated by monarchs and dictators over the course 
of history are almost beyond counting.

Perhaps the most interesting evidence about the importance of a monarch's 
time horizon comes from the historical concern about the longevity of 
monarchs and from the once-widespread belief in the social desirability of 
dynasties. There are many ways to wish a king well; but the king's 
subjects, as the foregoing argument shows, have more reason to be sincere 
when they say "long live the king." If the king anticipates and values 
dynastic succession, that further lengthens the planning horizon and is 
good for his subjects.

The historical prevalence of dynastic succession, in spite of the 
near-zero probability that the son of a king is the most talented person 
for the job, probably also owes something to another neglected feature of 
absolutisms. Any ruler with absolute power cannot by definition, also have 
an independent source of power within the society that will select the 
next ruler and impose its choice upon the society. An independent capacity 
to install a new ruler would imply that this capacity can be used to 
remove or constrain the present autocrat. Thus, as is evident from modern 
dictatorships in Africa and Latin America, most dictatorships are by their 
nature especially susceptible to succession crises and uncertainty about 
the future. These uncertainties add to the problem of short time horizons 
that has just been described. In these circumstances, it may be 
advantageous to a society if a consensus emerges about who the next ruler 
will probably be, since this reduces the social losses arising from the 
absence in an autocracy of any independent power that could ensure a 
smooth succession. Given autocracy, then, dynastic succession can be 
socially desirable, both because it may reduce the likelihood of 
succession crises and because it may give monarchs more concern for the 
long run and the productivity of their societies.

DEMOCRACY, INDIVIDUAL RIGHTS, AND ECONOMIC DEVELOPMENT

We have seen that whenever a dictator has a sufficiently short time 
horizon, it is in his interest to confiscate the property of his subjects, 
to abrogate any contracts he has signed in borrowing money from them, and 
generally to ignore the long-run economic consequences of his choices. 
Even the ever-present possibility that an autocracy will come to be led by 
someone with a short time horizon always reduces confidence in investments 
and in the enforcement of long-run contracts. What do the individuals in 
an economy need if they are to have the maximum confidence that any 
property they accumulate will be respected and that any contracts they 
sign will be impartially enforced?

They need a secure government that respects individual rights. But 
individual rights are normally an artifact of a special set of 
governmental institutions. There is no private property without 
government! In a world of roving bandits some individuals may have 
possessions, but no one has a claim to private property that is enforced 
by the society. There is typically no reliable contract enforcement unless 
there is an impartial court system that can call upon the coercive power 
of the state to require individuals to honor the contracts they have made.

But individuals need their property and their contract rights protected 
from violation not only by other individuals in the private sector but 
also by the entity that has the greatest power in the society, namely, the 
government itself. An economy will be able to reap all potential gains 
from investment and from long-term transactions only if it has a 
government that is believed to be both strong enough to last and inhibited 
from violating individual rights to property and rights to contract 
enforcement. What does a society need in order to have a government that 
satisfies both of these conditions?

Interestingly, the conditions that are needed to have the individual 
rights needed for maximum economic development are exactly the same 
conditions that are needed to have a lasting democracy. Obviously, a 
democracy is not viable if individuals, including the leading rivals of 
the administration in power, lack the rights to free speech and to 
security for their property and contracts or if the rule of law is not 
followed even when it calls for the current administration to leave 
office. Thus the *same* court system, independent judiciary, and respect 
for law and individual rights that are needed for a lasting democracy are 
also required for security of property and contract rights.

As the foregoing reasoning suggests, the only societies where individual 
rights to property and contract are confidently expected to last across 
generations are the securely democratic societies. In an autocracy, the 
autocrat will often have a short time horizon, and the absence of any 
independent power to assure an orderly legal succession means that there 
is always substantial uncertainty about what will happen when the current 
autocrat is gone. History provides not even a single example of a long and 
uninterrupted sequence of absolute rulers who continuously respected the 
property and contract-enforcement rights of their subjects. Admittedly, 
the terms, tenures, and time horizons of democratic political leaders are 
perhaps even shorter than those of the typical autocrat, and democracies 
lose a good deal of efficiency because of this. But in the secure 
democracy with predictable succession of power under the rule of law, the 
adjudication and enforcement of individual rights is not similarly 
short-sighted. Many individuals in the secure democracies confidently make 
even very-long-term contracts, establish trusts for great-grandchildren, 
and create foundations  that they  expect will last indefinitely  and 
thereby reveal that they expect their legal rights to be secure for the 
indefinite future.

Not surprisingly, then, capital often flees from countries with continuing 
or episodic dictatorships (even when these countries have relatively 
little capital) to the stable democracies, even though the latter are 
already relatively well supplied with capital and thus offer only modest 
rates of return. Similarly, the gains from contract-intensive activities 
such as banking, insurance, and capital markets are also mainly reaped by 
stable democracies like the United States, the United Kingdom, and 
Switzerland. Though experience shows that relatively poor countries can 
grow extraordinarily rapidly when they have a strong dictator who happens 
to have unusually good economic policies, such growth lasts only for the 
ruling span of one or two dictators. It is no accident that the countries 
that have reached the highest level of economic development and have 
enjoyed good economic performance across generations are all stable 
democracies. Democracies have also been about twice as likely to win wars 
as have dictatorships (Lake 1992).

[Lake, David A. 1992. "Powerful Pacifists: Democratic States and War." 
American Political Science Review 86:24-37.]

THE IMPROBABLE TRANSITION

How do democracies emerge out of autocracies? It is relatively easy to see 
how autocratic government emerges and why it has been the predominant form 
of government since the development of settled agriculture: there is never 
a shortage of strong men who enjoy getting a fortune from tax receipts. It 
is much harder to see how democratic government can emerge out of 
autocracy.

It is a logical mistake to suppose that because the subjects of an 
autocrat suffer from his exactions, they will overthrow him. The same 
logic of collective action that ensures the absence of social contracts in 
the historical record whereby large groups agreed to obtain the advantages 
of government also implies that the masses will not overthrow an autocrat 
simply because they would be better off if they did so. Historical 
evidence from at least the first pharaohs through Saddam Hussein indicates 
that resolute autocrats can survive even when they impose heinous amounts 
of suffering upon their peoples. When they are replaced, it is for other 
reasons (e.g. succession crises) and often by another stationary bandit.11 
What special circumstances explain the cases where a more or less 
democratic12 or at least pluralistic government emerges out of an 
autocracy?

11. For more examples of other types of reason, see Olson 1990.

[Olson, Mancur. 1990. "The Logic of Collective Action in Soviet-type 
Societies." Journal of Soviet Nationalities 1(2): 8-33.]

12. In the interest of brevity, democracy is here defined as competitive 
elections, social pluralism, and the absence of autocracy, rather than in 
terms of universal suffrage. Although how a narrower suffrage turns into a 
wider suffrage can be explained by straightforward extensions of the logic 
of the theory offered here, developing these extensions and testing them 
against the historical evidence would not be a small undertaking.

One obvious special circumstance is that, partly for the reasons just set 
out, the richest countries are democracies, and democracies have usually 
prevailed in the competitions with their major autocratic competitors, 
whether fascist or communist. The triumphant democracies have sometimes 
encouraged or subsidized transitions to democracy in other countries. In 
some cases, such as Germany, Japan, and Italy after World War II, the 
victorious democracies more or less demanded democratic institutions as a 
price for giving independence to the vanquished nations. The theoretical 
challenge is to explain not these transitions but rather those that are 
entirely internal and spontaneous.

Easy as it would be to argue that the initially or spontaneously 
democratic countries were blessed with democratic cultures or selfless 
leaders, this would be an ad hoc evasion. The obligation here is to 
explain the spontaneous transitions to democracy from the same 
parsimonious theory that has been used in the rest of this essay.

The theory suggests that the key to an explanation of the spontaneous 
emergence of democracy is the absence of the commonplace conditions that 
generate autocracy. The task is to explain why a leader who organized the 
overthrow of an autocrat would not make himself the next dictator or why 
any group of conspirators who overthrew an autocrat would not form a 
governing junta. We have seen that autocracy is a most profitable 
occupation and that the authors of most coups and upheavals have appointed 
themselves dictators. So the theory here predicts that democracy would be 
most likely to emerge spontaneously when the individual or individuals or 
group leaders who orchestrated the overthrow of an autocracy could not 
establish another autocracy, much as they would gain from doing so. We can 
deduce from the theory offered here that autocracy is prevented and 
democracy permitted by the accidents of history that leave a balance of 
power or stalemate--a dispersion of force and resources that makes it 
impossible for any one leader or group to overpower all of the others.

But this deduction does *not* give us any *original* conclusion: rather, 
it points directly toward one of the major inductive findings in some of 
the literature in history and in political science on the emergence of 
democracy. If the theory here is right, there must be a considerable 
element of truth in the famous "Whig interpretation" of British history 
and in the explanations of democracy offered by political scientists such 
as Robert Dahl (1971) and, especially, Tatu Vanhanen (1989). If the theory 
offered here is right, the literature that argues that the emergence of 
democracy is due to historical conditions and dispersions of resources 
that make it impossible for any one leader or group to assume all power is 
also right.

[Neither Dahl 1971 nor Vanhanen 1989 are among the references.]

Yet it is also necessary to go back again to the theory for a crucial 
detail. Even when there is a balance of power that keeps any one leader or 
group from assuming total control of a large area or jurisdiction, the 
leader of each group may be able to establish himself as an autocrat of a 
small domain. A dispersion of power and resources over a large area can 
result in a set of small-scale autocracies but no democracy. If, however, 
the different contending groups are scrambled together over a wide and 
well-delineated domain, then small autocracies are not feasible. They may 
not be feasible also if each of the leaders capable of forming a 
small-scale autocracy believes that a domain of that small scale would not 
be viable, whether because of aggression by other autocrats or for any 
reason.

If scrambled constituencies or any other reason rules out division of a 
domain into miniautocracies, then the best attainable option for the 
leader of each group when there is a balance of power is power sharing. If 
no one leader can subdue the others or segregate his followers into a 
separate domain, then the alternative is either to engage in fruitless 
fighting or to work out a truce with mutual toleration. The provision of a 
peaceful order and other public goods will, in these circumstances, be 
advantageous for all of the groups; thus, the leaders of the different 
groups have an incentive to work out mutually satisfactory arrangements 
for the provision of such goods. Given peaceful conditions, there are 
great gains to leaders and other individuals in each group from being able 
to make mutually advantageous contracts with others and thereby a common 
interest in establishing a disinterested and independent judiciary. With 
several groups, it is not certain in advance how elections will turn out, 
yet each group can, by allying with other groups, ensure that no one other 
group will continually dominate elections. Thus elections as well as 
consensual agreements among the leaders of the different groups can be 
consistent with the interest of the leaders and members of each group.

Though there are a fair number of democracies, there have not been many 
spontaneous and entirely autonomous transitions from autocracy to 
democracy. Most of the democracies in the English-speaking world owed a 
good deal to the pluralism and democracy that emerged in late 
seventeenth-century Britain and thus they usually do not offer a 
completely independent test of the argument about the transition to 
democracy offered here.

Happily, the initial emergence of democracy with the Glorious Revolution 
of 1689 in England (and its very gradual transition from a democracy with 
a highly restricted franchise to universal suffrage) nicely fits the logic 
of the democratic transition predicted by the present theory. There were 
no lasting winners in the English civil wars. The different tendencies in 
British Protestantism and the economic and social forces with which they 
were linked were more or less evenly matched. There had been a lot of 
costly fighting and, certainly after Cromwell, no one had the power to 
defeat all of the others. The restored Stuart kings might have been able 
to do this, but their many mistakes and the choices that ultimately united 
almost all of the normally conflicting Protestant and other political 
tendencies against them finally led to their total defeat.

None of the victorious leaders, groups, or tendencies was then strong 
enough to impose its will upon all of the others or to create a new 
autocracy. None had any incentive to give William and Mary the power to 
establish one either. The best option available to each of the leaders and 
groups with power was to agree upon the ascendancy of a Parliament that 
included them all and to take out some insurance against the power of the 
others through an independent judiciary and a Bill of Rights. (The spread 
of the franchise is too long a story to tell here. But it is not difficult 
to see how, once the society was definitely nonautocratic and safely 
pluralist, additional groups could parlay the profitable interactions that 
particular enfranchised interests had with them--and the costs of 
suppression that they could force the enfranchised to bear--into a wider 
suffrage.)

With a carefully constrained monarchy, an independent judiciary, and a 
Bill of Rights, people in England in due course came to have a relatively 
high degree of confidence that any contracts they entered into would be 
impartially enforced and that private property rights, even for critics of 
the government, were relatively secure. Individual rights to property and 
contract enforcement were probably more secure in Britain after 1689 than 
anywhere else, and it was in Britain, not very long after the Glorious 
Revolution, that the Industrial Revolution began.13

13. For striking evidence on how the growth of cities was much greater in 
medieval and early modern Europe in democratic or less autocratic regimes, 
see DeLong and Schleifer 1992. In effect, the DeLong and Schleifer paper 
is a test of the advantages of democracy that I put forward.

[DeLong, J. Bradford, and Andrei Schleifer. 1992. "Princes and Merchants: 
European City Growth before the Industrial Revolution." Harvard 
University. Mimeo.]

Though the emergence of a democratic national government in the United 
States (and in some other areas of British settlement, such as Australia 
and Canada) was partly due to the example or influence of Great Britain, 
it also was due in part to the absence of any one group or colonial 
government that was capable of suppressing the others. The 13 colonies 
were different from one another even on such important matters as slavery 
and religion, and none of them had the power to control the others. The 
separate colonies had, in general, experienced a considerable degree of 
internal democracy under British rule, and many of the colonies were, 
because of the different religious and economic groups they contained, 
also internally diverse. Many of the authors of the U.S. Constitution 
were, of course, also profoundly aware of the importance of retaining a 
dispersion of power (checks and balances) that would prevent autocracy.

THE DIFFERENT SOURCES OF PROGRESS IN AUTOCRACIES AND DEMOCRACIES

Since human nature is profoundly complex and individuals rarely act out of 
unmixed motives, the assumption of rational self-interest that I have been 
using to develop this theory is obviously much too simple to do justice to 
reality. But the caricature assumption that I have been using has not only 
simplified a forbiddingly complex reality but also introduced an element 
of impartiality: the same motivation was assumed in all regimes. The 
results are probably also robust enough to hold under richer and more 
realistic behavioral assumptions.

The use of the same motivational assumption and the same theory to treat 
both autocracy and democracy also illuminates the main difference in the 
sources of economic growth and the obstacles to progress under autocracy 
and under democracy. In an autocracy, the source of order and other public 
goods and likewise the source of the social progress that these public 
goods make possible is the encompassing interest of the autocrat. The main 
obstacle to long-run progress in autocracies is that individual rights 
even to such relatively unpolitical or economic matters as property and 
contracts can never be secure, at least over the long run.

Although democracies can also obtain great advantages from encompassing 
offices and political parties, this is by no means always understood 
(Olson 1982, 1986); nor are the awesome difficulties in keeping narrow 
special interests from dominating economic policymaking in the long-stable 
democracy. On the other hand, democracies have the great advantage of 
preventing significant extraction of social surplus by their leaders. They 
also have the extraordinary virtue that the same emphasis on individual 
rights that is necessary to lasting democracy is also necessary for secure 
rights to both property and the enforcement of contracts. The moral appeal 
of democracy is now almost universally appreciated, but its economic 
advantages are scarcely understood.

[Olson, Mancur. 1982. The Rise and Decline of Nations. New Haven: Yale 
University Press.

[Olson, Mancur. 1986. "A Theory of the Incentives Facing Political 
Organizations: Neo-corporatism and the Hegemonic State." International 
Political Science Review 7:165-89.]

Note:

I am grateful to the U.S. Agency for International Development for support 
of my research on this subject through my Center for Institutional Reform 
and the Informal Sector.

References

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DeLong, J. Bradford, and Andrei Schleifer. 1992. "Princes and Merchants: 
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Olson, Mancur. 1982. The Rise and Decline of Nations. New Haven: Yale 
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Olson, Mancur. 1986. "A Theory of the Incentives Facing Political 
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Olson, Mancur. 1990. "The Logic of Collective Action in Soviet-type 
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[I am sending forth these memes, not because I agree wholeheartedly with 
all of them, but to impregnate females of both sexes. Ponder them and
spread them.]