390 ouch and Shughart expand on this theme, and provide the first full mono- graph devoted to a Public Choice analysis of this problem. They describe the bewildering array of New Deal spending and loan programs, offer numerous case studies relating the economic impact and the apparent political motiva tions of these spending sprees, and report the outcome of considerable further c ew across states Couch and shughart 's econometric results show that relief from the effects of the Great Depression played only a relatively minor role in the distribution of New Deal largesse In the debate between the critics and the proponents of activis government, the New Deal is commonly held up as an example of government intervention "done right". This book effectively debunks the popular mythology about the New Deal, and represents a watershed in the application of Public Choice analysis to an important episode in recent economic history GARY M. ANDERSON, Economics, California State University, Northridge, A91330-8245,US.A. References Anderson, G M. and Tollison, R D.(1991). Congressional influence and patterns of New Deal spending, 1933-1939. Journal of Law and Economics 34: 161-175 Arrington, LJ.(1969). Western agriculture and the New Deal. Agricultural History 49: 337- 352 Reading, D. C (1973). New Deal activity and the states, 1933 to 1939. Journal of economic History33:792-810 Wallis, JJ(1987). Employment, politics, and economic recovery during the Great Depression Review of Economics and Statistics 69: 516-520 Wright, G(1974). The political economy of New Deal spending: An econometric analysis Review of Economics and Statistics 56: 30-38 Public Choice 106: 390-395 2001 Mancur Olson, Power and prosperity: Outgrowing communist and capitalist dictators. Foreword by Charles Cadwell. New York: Basic Books, 2000 Xxvii+233 pages. $2800(cloth).' I still remember the year that Mancur Olsons The Rise and Decline of Nations came out. I was visiting at the City University system in New York and had the pleasure of spending the year with some other economists
390 Couch and Shughart expand on this theme, and provide the first full monograph devoted to a Public Choice analysis of this problem. They describe the bewildering array of New Deal spending and loan programs, offer numerous case studies relating the economic impact and the apparent political motivations of these spending sprees, and report the outcome of considerable further econometric analysis on the determinants of New Deal spending and loans across states. Couch and Shughart’s econometric results show that relief from the effects of the Great Depression played only a relatively minor role in the distribution of New Deal largesse. In the debate between the critics and the proponents of activist government, the New Deal is commonly held up as an example of government intervention “done right”. This book effectively debunks the popular mythology about the New Deal, and represents a watershed in the application of Public Choice analysis to an important episode in recent economic history. GARY M. ANDERSON, Economics, California State University, Northridge, CA 91330-8245, U.S.A. References Anderson, G.M. and Tollison, R.D. (1991). Congressional influence and patterns of New Deal spending, 1933–1939. Journal of Law and Economics 34: 161–175. Arrington, L.J. (1969). Western agriculture and the New Deal. Agricultural History 49: 337– 352. Reading, D.C. (1973). New Deal activity and the states, 1933 to 1939. Journal of Economic History 33: 792–810. Wallis, J.J. (1987). Employment, politics, and economic recovery during the Great Depression. Review of Economics and Statistics 69: 516–520. Wright, G. (1974). The political economy of New Deal spending: An econometric analysis. Review of Economics and Statistics 56: 30–38. Public Choice 106: 390–395, 2001 Mancur Olson, Power and prosperity: Outgrowing communist and capitalist dictators. Foreword by Charles Cadwell. New York: Basic Books, 2000. xxviii + 233 pages. $28.00 (cloth).1 I still remember the year that Mancur Olson’s The Rise and Decline of Nations came out. I was visiting at the City University system in New York and had the pleasure of spending the year with some other economists
who were interested in public choice Don Gordon, Hal Hochman and Paul Rubin. What I remember especially is that for the entire time I was there, we talked almost exclusively about Mancur's book. The question, of course, was why some countries were able to grow faster than others The conventional wisdom was that countries grew fast when they had high saving and investment rates. Mancur changed the debate to focus on politics and political structure, particularly the structure of interest groups. As I remember it, all of us disagreed with the central argument, but we were excited by the way Mancur framed the question, we felt that here was a new way of thinking about macroeconomic policy, and we debated his logic constantly This time he has an even bigger subject-the economics of autocracy, and how it compares to democracy and anarchy. For good measure, he throws in a brief history of the forms of government- how autocracy arose out of anarchy and how democracy can arise out of autocracy -and a theory of the logic of power itself. Of course, with his tragic passing, we do not know how close to a finished product the book we have actually represents -and there are some obvious minor but blatant errors that ought to be corrected -but the book is certainly well organized and it reads well Is the story as compelling this time round? The central concept is Olsons familiar idea of the"stationary bandit, which explains why even autocratic rulers use their power to at least some extent in the public interest. In the book, this concept is approached through a metaphor about ordinary crime a thief contemplates the optimal level of his activity. Each theft reduces the wealth of society and therefore the amount available for the thief to steal Does this lead the thief to curtail his activity, in order to preserve the wealth of his prey? For the typical criminal, the answer is"no"because his interest is too narrow. The wealth of the society on which he preys is like a public good to the typical small scale criminal, his effort to preserve it would have only a minuscule effect, and so he is better off free riding rather than attempting to conserve it. On the other hand, the mafia and other criminal organizations which have a monopoly on crime in their area do have a sufficiently encom- passing interest in preserving the wealth of the society on which they prey. Thus, Olson asserts, they typically do not steal at all but engage in protection instead, charging the citizens a fee to ensure the safety of their victims both from others and from the protectors themselves This criminal metaphor then becomes the foundation for Olsons logic of government. Taxes are likened to theft. The difference between government by a roving"versus that by a stationary"bandit is that the stationary bandit, unlike the roving one, has an interest in preserving the wealth of the society from which she steals. She therefore limits her theft(taxation)and even
391 who were interested in public choice – Don Gordon, Hal Hochman and Paul Rubin. What I remember especially is that for the entire time I was there, we talked almost exclusively about Mancur’s book. The question, of course, was why some countries were able to grow faster than others. The conventional wisdom was that countries grew fast when they had high saving and investment rates. Mancur changed the debate to focus on politics and political structure, particularly the structure of interest groups. As I remember it, all of us disagreed with the central argument, but we were excited by the way Mancur framed the question, we felt that here was a new way of thinking about macroeconomic policy, and we debated his logic constantly. This time he has an even bigger subject – the economics of autocracy, and how it compares to democracy and anarchy. For good measure, he throws in a brief history of the forms of government – how autocracy arose out of anarchy and how democracy can arise out of autocracy – and a theory of the logic of power itself. Of course, with his tragic passing, we do not know how close to a finished product the book we have actually represents – and there are some obvious minor but blatant errors that ought to be corrected – but the book is certainly well organized and it reads well. Is the story as compelling this time round? The central concept is Olson’s familiar idea of the “stationary bandit”, which explains why even autocratic rulers use their power to at least some extent in the public interest. In the book, this concept is approached through a metaphor about ordinary crime. A thief contemplates the optimal level of his activity. Each theft reduces the wealth of society and therefore the amount available for the thief to steal. Does this lead the thief to curtail his activity, in order to preserve the wealth of his prey? For the typical criminal, the answer is “no” because his interest is too narrow. The wealth of the society on which he preys is like a public good to the typical small scale criminal, his effort to preserve it would have only a minuscule effect, and so he is better off free riding rather than attempting to conserve it. On the other hand, the Mafia and other criminal organizations which have a monopoly on crime in their area do have a sufficiently encompassing interest in preserving the wealth of the society on which they prey. Thus, Olson asserts, they typically do not steal at all but engage in protection instead, charging the citizens a fee to ensure the safety of their victims both from others and from the protectors themselves. This criminal metaphor then becomes the foundation for Olson’s logic of government. Taxes are likened to theft. The difference between government by a “roving” versus that by a “stationary” bandit is that the stationary bandit, unlike the roving one, has an interest in preserving the wealth of the society from which she steals. She therefore limits her “theft” (taxation) and even
provides public goods- both to the point where the marginal benefit( to her alone) is sufficient to account for her costs in terms of foregone income. The evolution of the forms of government is then simple to derive: autocracy(the stationary bandit) arises out of anarchy as the bandit with the greatest capacity for violence takes over the area and substitutes an encompassing for a narrow interest;democracy arises out of dictatorship if autocracy is overthrown and it turns out that none of the individuals or leaders involved in the coup has sufficient power to make themselves autocrats The first two chapters of the book outline this basic logic. In the end, just two variables are necessary to compare and analyze governments ithe breadth of (how encompassing is )the interest of the ruler ii the length(time horizon) of his interest The theory appears as breathtaking in its simplicity as it is surprising in its power. Thus, in the same way that dictatorship is superior to anarchy because the dictator has an encompassing interest in the society he rules, so democracy is superior to dictatorship because democratic majorities are more encom- passing than the interest of the dictator. Second, dictators or democracies with long time horizons have more of an interest in preserving or enhancing the wealth of the society they rule than those who rule only for the short term Chapters 3-6 contrast the theory of power implicit in this approach with the everything is efficient"school. I found these chapters provocative and intriguing, and their emphasis on the importance of power refreshing, but I leave it to the reader to decide whether Olson really has, as he asserts disproved"the Coase theorem. I do not understand why the losses to the victims do not bear on the outcome, as asserted(p. 61). Chapters 7 and 8 offer a new interpretation of communism as a system for taxing workers while stimulating their effort. The fact that, under Stalinism, the state kept the profits of the enterprises while setting wages low is interpreted as a form of implicit taxation. At the same time, bonuses, progressive piece rates, etc favored work. What Olson refers to as this"invention of stalins does much more than ordinary autocratic revenue-maximizing taxation to raise revenues while at the same time stimulating effort. Finally, Chapters 9 and 10 discuss the implications for the transition from communism to capitalism. These turn out to flow largely not from this frame- work but from that set forth in The Rise and Decline of Nations. Thus the slow Russian transition is interpreted as a severe form of the British disease so well analyzed in that book. The problem is that the organizations left over from the communist era continue to function, and this means lobby for subsidies and otherwise hobble the transition on this line of thought
392 provides public goods – both to the point where the marginal benefit (to her alone) is sufficient to account for her costs in terms of foregone income. The evolution of the forms of government is then simple to derive: autocracy (the stationary bandit) arises out of anarchy as the bandit with the greatest capacity for violence takes over the area and substitutes an encompassing for a narrow interest; democracy arises out of dictatorship if autocracy is overthrown and it turns out that none of the individuals or leaders involved in the coup has sufficient power to make themselves autocrats. The first two chapters of the book outline this basic logic. In the end, just two variables are necessary to compare and analyze governments: i) the breadth of (how encompassing is) the interest of the ruler; ii) the length (time horizon) of his interest. The theory appears as breathtaking in its simplicity as it is surprising in its power. Thus, in the same way that dictatorship is superior to anarchy because the dictator has an encompassing interest in the society he rules, so democracy is superior to dictatorship because democratic majorities are more encompassing than the interest of the dictator. Second, dictators or democracies with long time horizons have more of an interest in preserving or enhancing the wealth of the society they rule than those who rule only for the short term. Chapters 3–6 contrast the theory of power implicit in this approach with the “everything is efficient” school. I found these chapters provocative and intriguing, and their emphasis on the importance of power refreshing, but I leave it to the reader to decide whether Olson really has, as he asserts, “disproved” the Coase theorem. I do not understand why the losses to the victims do not bear on the outcome, as asserted (p. 61). Chapters 7 and 8 offer a new interpretation of communism as a system for taxing workers while stimulating their effort. The fact that, under Stalinism, the state kept the profits of the enterprises while setting wages low is interpreted as a form of “implicit” taxation. At the same time, bonuses, progressive piece rates, etc., favored work. What Olson refers to as this “invention” of Stalin’s does much more than ordinary autocratic revenue-maximizing taxation to raise revenues, while at the same time stimulating effort. Finally, Chapters 9 and 10 discuss the implications for the transition from communism to capitalism. These turn out to flow largely not from this framework but from that set forth in The Rise and Decline of Nations. Thus the slow Russian transition is interpreted as a severe form of the British disease so well analyzed in that book. The problem is that the organizations left over from the communist era continue to function, and this means they lobby for subsidies and otherwise hobble the transition. On this line of thought
393 the disastrous Russian transition becomes yet another flaw of communism and cannot be blamed on specific features of the russian transition like the fawed privatization program or Yeltsins relatively democratic but corrupt regime. The theory outlined here competes with the better known diagnosis that there was a fundamental error in thinking that capitalism could work without appropriate property rights. And the property rights theory also ex plains the difference between the largely positive post-Fascist and largely negative post-communist experience which seems to have preoccupied ol Fascist countries never abolished private property righ The theory also faces other, more basic difficulties. Comparing dictator- ips, the basic implication of Olsons theory is that, the more encompassing, the better. Now, political scientists have a classification that appears to match this: between"mobilizational regimes which encourage political participa- tion and consent among the ruled and regimes which simply try to stamp out opposition. The problem is that, comparing dictatorships, the worst regimes in human history appear to be precisely those such as Nazi germany, soviet Russia, or Cambodia which appear to have been the most encompassing From their record on the environment to their brutal treatment of minorities it is an understatement to suggest that the historical record of these regimes offers little that is to be admired. In this respect, Olsons theory appears to be not just misleading, but capable of getting it wrong"in a spectacular fashion The same problem appears with respect to the second variable, the time horizon of the dictator. In Olsons model, the longer the time horizon the bet ter(i.e, the more the dictator tends to rule in the social interest). But regimes with a long time horizon have been precisely those in which the leaders had a tighter grip on power, and hence were more interested in and capable of mold- ing the society and the individuals within it(i., the mobilizational regimes highly msed). Thus both criteria for comparing dictatorships turn out to be just discus lading. To put it simply, the peasants under Stalin, the Jews under Hitler, and the blacks in South Africa, would all undoubtedly, were they given the choice, have preferred that their bandits were less stationar Are there circumstances under which the implications of the model mak more sense? The stationary bandit appears to make more sense if two as sumptions are made: (1)the dictator has only economic objectives(i.e, she is only interested in money );(2) she is securely in office, and faces no effective competition for her position To see the first point, it is only necessary to observe that, once non- conomic objectives like power are taken into account, the presumed superi- ority of regimes that are more encompassing in breadth, or those where the regime has a longer time horizon vanishes: either of these gives the dictator more ability or more time to exploit minorities, pillage the environment, viti
393 the disastrous Russian transition becomes yet another flaw of communism and cannot be blamed on specific features of the Russian transition like the flawed privatization program or Yeltsin’s relatively democratic but corrupt regime. The theory outlined here competes with the better known diagnosis that there was a fundamental error in thinking that capitalism could work without appropriate property rights. And the property rights theory also explains the difference between the largely positive post-Fascist and largely negative post-communist experience which seems to have preoccupied Olson: Fascist countries never abolished private property rights. The theory also faces other, more basic difficulties. Comparing dictatorships, the basic implication of Olson’s theory is that, the more encompassing, the better. Now, political scientists have a classification that appears to match this: between “mobilizational” regimes which encourage political participation and consent among the ruled and regimes which simply try to stamp out opposition. The problem is that, comparing dictatorships, the worst regimes in human history appear to be precisely those such as Nazi Germany, Soviet Russia, or Cambodia which appear to have been the most encompassing. From their record on the environment to their brutal treatment of minorities, it is an understatement to suggest that the historical record of these regimes offers little that is to be admired. In this respect, Olson’s theory appears to be not just misleading, but capable of “getting it wrong” in a spectacular fashion. The same problem appears with respect to the second variable, the time horizon of the dictator. In Olson’s model, the longer the time horizon, the better (i.e., the more the dictator tends to rule in the social interest). But regimes with a long time horizon have been precisely those in which the leaders had a tighter grip on power, and hence were more interested in and capable of molding the society and the individuals within it (i.e., the mobilizational regimes just discussed). Thus both criteria for comparing dictatorships turn out to be highly misleading. To put it simply, the peasants under Stalin, the Jews under Hitler, and the blacks in South Africa, would all undoubtedly, were they given the choice, have preferred that their bandits were less stationary. Are there circumstances under which the implications of the model make more sense? The stationary bandit appears to make more sense if two assumptions are made: (1) the dictator has only economic objectives (i.e., she is only interested in money); (2) she is securely in office, and faces no effective competition for her position. To see the first point, it is only necessary to observe that, once noneconomic objectives like power are taken into account, the presumed superiority of regimes that are more encompassing in breadth, or those where the regime has a longer time horizon vanishes: either of these gives the dictator more ability or more time to exploit minorities, pillage the environment, viti-
394 ate the constitution or destroy anything else which does not register positively in the autocrats preferences. In the same way, the arguments for the alleged superiority of democracy to dictatorship and of dictatorship to anarchy also vanish once this assumption is not made. It is odd, for a book which puts ower front and center, that the only way the predictions of the model make sense is with respect to those dictators who have no interest in power, only in money. And how can a model like that apply to dictators like Hitler or Pol Pot? One can debate whether they were motivated by power or by ideology but certainly not by money. Yet the real problem, I suspect, lies with the second assumption-the lack of emphasis on competition. Olson's dictator remains serenely in of- fice, blissfully untouched by competition for his position. Put differently, he is unaffected by what I have referred to as The dictators dilemma-the problem a dictator has of knowing how much support he really has or, con tersely, how much repression he has to use to stay in office (Wintrobe, 1998) However, once the struggle for power is assumed away, many of the most interesting aspects of the behavior of dictators become idiosyncratic features of their preferences, and hence largely unpredictable, instead of being derived from the principle of competition. Thus the wars among the monarchies are declared simply an aspect of princely consumption. And the same goes presumably, for Stalins war against the peasantry, Hitler's treatment of the Jews, and so on. On the bandit model, the only way to understand these forms of behavior is to take the line that dictators have some monopoly power, and that they use this power to implement their preferences, which happen to be weird preferences The neglect of competition has always been a problem in Olson's thought ginning with his analysis of interest groups in The Logic of collective Action, and later with The Rise and Decline of Nations. Indeed, Olsons view of political processes sometimes resembles Rousseaus"general will more than the public choice begun by Schumpeter and Downs. In their ap- proach, competition is the sine qua non of the economic approach to politics In Olson(and Rousseau), what is important is whether the incentives of decision-maker(s)lead them to act for the common good as opposed to their own narrow self interest, and competition among distributional coalitions (Olson)or factions"(Rousseau) tends to narrow rather than broadening their vision. Of course Olsons approach has yielded important insights. Mancur himself was one of the founders of public choice, and his distinct line of thought has profoundly influenced, not merely the discipline of public choice or the economics profession, but all of social science. It is just that when dealing with dictatorship, perhaps the most serious form of monopoly, ab-
394 ate the constitution or destroy anything else which does not register positively in the autocrat’s preferences. In the same way, the arguments for the alleged superiority of democracy to dictatorship and of dictatorship to anarchy also vanish once this assumption is not made. It is odd, for a book which puts power front and center, that the only way the predictions of the model make sense is with respect to those dictators who have no interest in power, only in money. And how can a model like that apply to dictators like Hitler or Pol Pot? One can debate whether they were motivated by power or by ideology, but certainly not by money. Yet the real problem, I suspect, lies with the second assumption – the lack of emphasis on competition. Olson’s dictator remains serenely in of- fice, blissfully untouched by competition for his position. Put differently, he is unaffected by what I have referred to as “The dictator’s dilemma” – the problem a dictator has of knowing how much support he really has or, conversely, how much repression he has to use to stay in office (Wintrobe, 1998). However, once the struggle for power is assumed away, many of the most interesting aspects of the behavior of dictators become idiosyncratic features of their preferences, and hence largely unpredictable, instead of being derived from the principle of competition. Thus the wars among the monarchies are declared simply an aspect of “princely consumption.” And the same goes, presumably, for Stalin’s war against the peasantry, Hitler’s treatment of the Jews, and so on. On the bandit model, the only way to understand these forms of behavior is to take the line that dictators have some monopoly power, and that they use this power to implement their preferences, which happen to be weird preferences. The neglect of competition has always been a problem in Olson’s thought, beginning with his analysis of interest groups in The Logic of Collective Action, and later with The Rise and Decline of Nations. Indeed, Olson’s view of political processes sometimes resembles Rousseau’s “general will” more than the public choice begun by Schumpeter and Downs. In their approach, competition is the sine qua non of the economic approach to politics. In Olson (and Rousseau), what is important is whether the incentives of decision-maker(s) lead them to act for the common good as opposed to their own narrow self interest, and competition among “distributional coalitions” (Olson) or “factions” (Rousseau) tends to narrow rather than broadening their vision. Of course Olson’s approach has yielded important insights. Mancur himself was one of the founders of public choice, and his distinct line of thought has profoundly influenced, not merely the discipline of public choice or the economics profession, but all of social science. It is just that when dealing with dictatorship, perhaps the most serious form of monopoly, ab-
stracting from the effects of competition is that much more prone to lead one in a misleading direction As the reader can see. i do not think this is mancur's best. but it is still very much worth reading. Among the parts I found most thought provoking, I would pick the concept of market-augmenting government, and the placing of power front and center in the analysis of economic processes. And there is much to agree with as well, in the analysis of bureaucratic competition under the Soviet system(a welcome exception to his general disregard of competition), the kinds of markets needed for prosperity, and the importance of proper governance for economic growth. Mancur once said to me that he had had only one big idea in his life. That is only half true, as the reader of any of his books knows. And in any case, he played it like a Stradivarius. We will all miss his music RONALD WINTROBE, Economics, University of Western Ontario, London Ontario Canada N6A 5C2 Note 1. I am grateful to Roger Congleton, Gianluigi Galeotti and Pierre Salmon for helpful comments on this review. Any remaining errors are solely my responsibility References Olson, M, Jr (1965). The logic of collective action. Cambridge: Harvard University Press Olson, M, Jr (1982). The rise and decline of nations. New Haven and London: Yale University Wintrobe, R (1998). The political economy of dictatorship. New York: Cambridge University Press Public Choice 106: 395-399. 2001 Gunther G. Schulze, The political economy of capital controls. Cambridge Cambridge University Press, 2000. Xiv 282 pages. $64.95/f40.00(cloth) This books consists of three parts, each of deals with a particular aspect of capital controls or international movements. In Part I a political economic model of capital controls is developed. The evasion of capital controls is modeled in Part Il, while Part Ill contains empirical work aimed at determining the extent of international capital mobility. Each
395 stracting from the effects of competition is that much more prone to lead one in a misleading direction. As the reader can see, I do not think this is Mancur’s best. But it is still very much worth reading. Among the parts I found most thought provoking, I would pick the concept of “market-augmenting government”, and the placing of power front and center in the analysis of economic processes. And there is much to agree with as well, in the analysis of bureaucratic competition under the Soviet system (a welcome exception to his general disregard of competition), the kinds of markets needed for prosperity, and the importance of proper governance for economic growth. Mancur once said to me that he had had only one big idea in his life. That is only half true, as the reader of any of his books knows. And in any case, he played it like a Stradivarius. We will all miss his music. RONALD WINTROBE, Economics, University of Western Ontario, London, Ontario, Canada N6A 5C2 Note 1. I am grateful to Roger Congleton, Gianluigi Galeotti and Pierre Salmon for helpful comments on this review. Any remaining errors are solely my responsibility. References Olson, M., Jr. (1965). The logic of collective action. Cambridge: Harvard University Press. Olson, M., Jr. (1982). The rise and decline of nations. New Haven and London: Yale University press. Wintrobe, R. (1998). The political economy of dictatorship. New York: Cambridge University Press. Public Choice 106: 395–399, 2001 Günther G. Schulze, The political economy of capital controls. Cambridge: Cambridge University Press, 2000. xiv + 282 pages. $64.95/£40.00 (cloth). This books consists of three parts, each of which deals with a particular aspect of capital controls or international capital movements. In Part I, a political economic model of capital controls is developed. The evasion of capital controls is modeled in Part II, while Part III contains empirical work aimed at determining the extent of international capital mobility. Each
