Power and Prosperity: Outgrowing Communist and Capitalist Dictatorships: Summary & Key Insights

My first step in this inquiry draws on my earlier work, *The Logic of Collective Action*. There I argued that individuals, while rational and self-interested, often fail to act in ways that achieve the collective good. In large groups, personal incentives to contribute to public benefits are weak because the gains are shared while the costs are borne individually. The same logic that explains why unions underprovide collective goods or why cartels collapse also helps us understand why states form — and why they either endure or decay.

When a society is small enough, personal ties and repeated interactions can sustain cooperation. But as communities grow, trust becomes thin, and the temptation to free-ride deepens. To overcome this, institutions must arise to enforce rules, resolve conflicts, and provide security. Thus, states can be seen as large-scale collective action devices — solutions to the problem of organizing cooperation among strangers. Yet who designs these solutions, and in whose interest? That is where political power enters the picture. Every institution reflects an equilibrium of interests; every order carries the imprint of the groups that founded it.

In the early stages of political development, power is almost always coercive. Imagine a world dominated by roving bandits — plunderers who seize what they can and move on. In such a world, no one invests, no one saves, and no one trusts. Economic life contracts to bare survival. Yet suppose one bandit discovers a more rational plan: instead of pillaging, he can settle down, monopolize theft through taxation, and offer protection in exchange. I call him the stationary bandit. His motivation is self-interest, but his effect is transformative. By securing his domain, this ruler reduces uncertainty, allowing his subjects to produce more — which increases his future revenue.

This paradoxical relationship shows the first glimmer of civilization. The stationary bandit’s predation is constrained by prudence: he has an incentive to maintain the productivity of his people. Over time, what begins as extortion evolves into administration — collecting taxes, enforcing laws, and providing public goods. Yet we must never forget that his rule rests on monopoly coercion. The growth he fosters remains limited, for his subjects have no guarantee that the next ruler will be so farsighted. Autocracy may produce order, but it rarely produces sustained prosperity.