Chapter 11 examines the role of institutions. Specifically, it explores how institutions can be undermined by rent-seeking activities that bias decision-making toward suboptimal alternatives and consume valuable resources. Furthermore, this erosion of institutions leads to a decline, or at best stagnation, in the standard of living of the society by diverting a significant portion of productive forces. The chapter presents two models of war in which the armed conflict is produced by resource inequality (the book also acknowledges other types of causes of war like ethnic, religious, etc.) and offers recommendations on how to prevent them. Specifically, a one-sided transfer of resources from wealthy to less developed countries may provide incentives for peace even in the absence of enforceable agreements.

In Chapter 10, contest models are utilized to illuminate crucial elements of traditional economic problems. These include competition for surplus within divisionalized firms, where inefficient divisions often dominate efficient ones; the significant expenses required to attain a monopoly position, including potentially bribing public officials for the allocation of monopoly rights; and the expenses incurred in obtaining property rights that, once secured (sometimes by violent and costly means), will be efficiently exchanged in the marketplace. In the last two cases, these expenses are so substantial that they might leave no social surplus. Additionally, the cost of political campaigns, in which factions compete for the vote to control a portion or entirety of the public sector through convincing voters of the correct choice, is also examined. Overall, it is shown that contests introduce a substantial and previously unnoticed welfare cost to the traditional issues studied, thereby complementing the existing literature on the subject.

This chapter discusses the difference in allocation of entrepreneurial talents in government and in commerce as well as its impact on the economy and society. The capabilities of those who engage in business activities determine not only the economic growth of a country, but also the size of enterprises, workers’ wages, and society’s morality. The chapter also discusses the type of system that is most favorable to entrepreneurial talents choosing to engage in entrepreneurial activities. Property rights protection is the primary determinant of the allocation of entrepreneurial talents between government and business. This chapter also uses the evolutionary game methodology to analyze the evolutionary equilibrium of entrepreneurial talent allocation and briefly analyzes the rise of China’s contingent of entrepreneurs over the last 40 years.

As scholars and activists seek to define and promote greater corporate political responsibility (CPR), they will benefit from understanding practitioner perspectives and how executives are responding to rising scrutiny of their political influences, reputational risk and pressure from employees, customers and investors to get involved in civic, political, and societal issues. This chapter draws on firsthand conversations with practitioners, including executives in government affairs; sustainability; senior leadership; and diversity, equity and inclusion, during the launch of a university-based CPR initiative. I summarize practitioner motivations, interests, barriers and challenges related to engaging in conversations about CPR, as well as committing or acting to improve CPR. Following the summary, I present implications for further research and several possible paths forward, including leveraging practitioners’ value on accountability, sustaining external calls for transparency, strengthening awareness of systems, and reframing CPR as part of a larger dialogue around society’s “social contract.”

Despite the dominant role it plays in the Beninese economy, the cotton sector has not succeeded in accelerating the country’s economic growth. Yields have been volatile, and production practically stagnated from the mid-1990s to 2016. This poor performance mainly relates to the sector’s unstable management, which has oscillated between public and private monopolies. In its turn, this unstable management relates to several institutional factors including changes in ideology of the donors supporting the sector and the country’s political leader, elite bargaining, and clientelist contracts motivated by rent-seeking. These factors gave way to institutional instability, with the government abruptly overturning policies and planned actions by the previous government or re-assigning the mandates of management organisations in the cotton sector, which caused uncertainty in the sector and increased the cost of agriculture services in the sector.

This chapter focuses on state coordination brought about by the relationship between central and local governments, using local tax collection as a practical example. The dominant fact discussed in this chapter is the vacillation of the Tanzanian government between deconcentration, with centrally appointed civil servants in charge of local affairs, and full devolution to local governments. An ambitious local government reform was voted through in 1998, but never fully implemented. Responsibility for the collection of the property tax has changed three times in the last decade. As capacity is clearly missing at a local level, tax collection should optimally be under the central government for the time being. It is suggested that oscillating responsibilities in the recent past reflect hidden rent-seeking competition between local politicians, central government tax collectors, and ruling party members. In effect, corruption has been observed with both central and local tax collection. An important conclusion that comes out of the chapter and the discussion by Jan Willem Gunning is the role of capacity in the design of institutional structures in developing countries.

Living standards in Benin have remained low over the last decades because of sustained demographic pressures and the absence of a growth-enhancing structural transformation. Its two leading sectors have not been engines of sustained growth. The cotton sector has been constrained by institutional instability and political interference. Cross-border trade with Nigeria has nurtured informality but also corruption, tax evasion, and political capture. Adjustment to the decline of the agricultural sector has been passive, its labour migrating to informal activities and low-productivity sectors. Capital deepening is absent, and misallocation of resources has resulted in efficiency losses and slow technological change. Weaknesses in domestic resource mobilisation and inefficiencies in expenditure management have prevented the government from addressing key challenges of economic and social development, like providing good-quality physical infrastructure, significantly improving the performance of the education and healthcare systems, or fighting persistent poverty and inequality. Benin needs to reorient its development strategy and deal with its specific institutional weaknesses.

This chapter concludes with thoughts about how democratic activists might be able to remove crony capitalism from institutions. The chapter argues that transparency about the depth of corruption is a necessary first step, especially in terms of understanding who controls rents in the regime. Only when these networks of influence are mapped can democratic accountability start to lead to lasting change.

This chapter puts forward a theory to explain how businesses engage in politics following democratic transitions in countries with significant issues with corruption. The most important variable is the centralization of the networks of brokers who supply companies with needed government privileges. If these rent networks are narrow, then businesspeople must work through a single gatekeeper. If they are broad, then business can engage with multiple brokers and obtain rent more easily.

Most democracies are representative. Elected by the people, representatives constitute a legislature and create laws. This is typically done through voting. This raises an interesting question of institutional design: should our representatives vote transparently or by secret ballot? No contemporary philosopher, to my knowledge, has addressed this question. In this chapter I argue that if we take seriously the value of political equality—a normative ideal that nearly all democratic theorists embrace—then voting among representatives in a legislature ought to occur by secret ballot. Representatives should vote just as citizens do in elections. Democratic equality, I argue, thrives in darkness.

Electricity decision-makers often choose to build wind and solar power for economic reasons. Renewable energy development may lead to economic growth, innovation in new sectors, and better employment options. This chapter examines which industrial policies states might choose to encourage these outcomes and whether Brazil and South Africa were successful in this. When private firms are involved – both countries chose private companies to build most of their electricity, through procurement auctions – it creates significant rents for the sector that must be managed to ensurecollective rather than narrow benefits. This chapter works within theoretical literatures on state–business relations. Brazil uses an initial local requirements stage and later public finance to encourage strong growth in wind power installation and manufacturing. The difficulty in developing a solar power industry accounts for its puzzling delay. In South Africa, similar coalitions as in Chapter 2 fight about whether the public or the private sector should produce renewable energy, pitting the powerful labor movement against the state’s industrial policies, in the absence of effective just transition policies.

Developmental states must be politically strong to design, implement, and recalibrate developmental strategies. They must have the capacity to provide rents to firms that nudge them up the innovation frontier, as well as to demand reciprocity, or returns on those rents. Achieving these goals requires effective instruments of control. Analyzing four developmental programs undertaken by various governments during the 1985 to 2018 period – the Manaus free trade zone, the automotive regime, the ethanol program and the Greater Brazil Plan – this chapter demonstrates the endemic weakness of controls. The Brazilian developmental state was ineffective at controlling rents in ways that channeled business energies in strategically productive long-term directions. The causes of weak control included political factors associated with the coalitional presidential system and the weakness of checks and balances, bureaucratic factors such as the fragmentation of oversight, economic factors such as incumbent firm influence, and judicial factors such as the toothless policing of illicit links between firms, the developmental state apparatus, and the political realm.

How and why is nationalization central to the politics of resource-rich countries? This chapter opens with a review of current theories on natural resource wealth and nationalization in political science, economics, and public policy, and then describes why existing theories are unable to answer the questions this book seeks to answer. With these questions in mind, this chapter presents the book’s central theory of why leaders nationalize and how leader survival shapes and is shaped by the choice of nationalization. After describing empirical implications of the argument, the chapter offers initial evidence to support these claims in the form of exploratory case studies of Iran and Iraq. In Iran, the shocking collapse of the Shah in 1979 defied the West’s notion of the “island of stability” in the tumultuous Middle East. In Iraq, the fall of the Hashemite monarchy in 1958 ushered in a decade of instability until the unexpected Ba’athist consolidation in 1968, when Hassan al-Bakr established a 35-year single-party dictatorship. These are precisely the types of outcomes in which the book’s theory predicts nationalization should affect the rise and fall of dictatorships.

In this chapter, I show that the combination of competition and rent-seeking can explain greater willingness to give up sovereignty in the modern world. The chapter uses two strategies. First, using data concerning sovereignty from the Varieties of Democracy data set, I demonstrate that the interaction between contestation and rent-seeking is associated with lower levels of autonomy in a global sample from 1946 to 2009. The chapter then explores why some of the post-Soviet states have been more prepared to integrate with Russia, giving up sovereignty. Regime types associated with higher levels of contestation over rents, such Personalist authoritarian regimes, are more likely to join Russian organizations or sign agreements of the Commonwealth of Independent States. Regimes that manage elite contestation more effectively, such as Party regimes, do not give up as much sovereignty. Similarly, nonauthoritarian regimes that manage rent-seeking more effectively also give up less sovereignty.

Using two case studies, I explore how variation in the political institutions of Georgia and Ukraine across time influenced their changing relationship with Russia since independence. Why have some leaders of these states — sometimes even the same leader at different times — accepted differing levels of Russian authority and control? Changing levels of contestation and rent-seeking explain this variation. I also show that resistance to hierarchy contributed to violent conflict when the dominant state’s demands were rejected.

This chapter explores the relationship between elites and the masses. Even in authoritarian regimes, elites depend on their ability to mobilize support and resources from society to guarantee their political survival. For this reason, the support of society is a potential constraint on elite choices. I show that individuals who perceive high levels of corruption are more supportive of elites surrendering sovereignty. This finding buttresses the idea that rent-seeking and contestation contribute to higher levels of hierarchy. The chapter uses survey data from Georgia and Ukraine to illustrate the point.