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Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships
The late Olson was known for dissecting complex social phenomena with simple answers and bringing his economic training to bear on numerous political issues. Here he asks why countries differ so greatly in their productivity. Casting aside explanations that highlight a country's natural resources or free markets, he looks at transactions over time (like loans) and the necessary social machinery for making and enforcing contracts -- a quintessential role of government. Harking back to his earlier works on the evolution of government, Olson argues that even autocratic rulers have an interest in treating their subjects better, simply because prosperous and content citizens will pay more in taxes. Democracies are more conducive to growth than other forms of government because they are more likely to accord and protect the rights of individuals, including time-dependent property rights. Olson concludes that democracy is not an inefficient luxury that only rich countries can afford (as many analysts have suggested) but a system that promotes growth in the long run by respecting individual rights. His two chapters on the postcommunist transition to capitalism are especially worth attention.