Surely even the most kleptocratic dictator would be in favor of economic development, right?
Economic development means greater income, greater taxes and more stuff to grab, so what’s not to like about it? But actually, it often doesn’t work that way.
In the early 1980s in Takasera, a village in Rukum District in western Nepal, a group of locals decided to begin a development project and bought a Swiss-made water mill which would power machinery such as a press to make oil and a saw mill. The community sent a group of men to Kathmandu who learned how to dismantle the machinery and then put it back together again. The machinery was brought back and successfully put into operation. In 1984, a government official wrote saying that in autonomously undertaking this project the community had “usurped the role of the king” and the mill would have to be shut down. When the locals refused, the police was sent to destroy the mill. The mill was only saved because the villagers were able to ambush and disarm the police.
So why was the Nepalese government opposed to the mill? The answer is that the monarchy and the elite surrounding it, who controlled the government, were afraid of becoming political losers. Economic progress brings social and political change, eroding the political power of elites and rulers, who in response often prefer to sacrifice economic development for political stability.
The mill in Takasera was not the first time in Nepalese history that Nepal’s rulers had tried to block development. Historically, the Nepalese political elite have clearly preferred political stability and the political status quo to development and this had inhibited them from taking the actions which were needed to promote development. In the 19th century a position of hereditary prime minister, known as the Rana, became the real power in the country and Chandra Shamsher, the Rana between 1901 and 1929, told the British King George V that the British faced the opposition of Indian nationalism because they had made the mistake of educating Indians. He closed down as many as 30 schools in Nepal, not wanting to face a similar opposition in Nepal. He went further and deliberately tried to keep his country isolated, for example by refusing to build a road linking the Kathmandu valley to India in the 1920s. The son of Mohan Shamsher, the last Rana who ruled from 1948 to 1951, infamously argued, “we cannot possibly take steps which in any way may be subversive of our autocratic authority,” and this included economic development. So economic development was out.
Someone made a comment a while back on Unqualified Reservations that a failure to tax at the short-run Laffer maximum was leaving money on the table and thus encouraging someone else to conquer the state.
This argument is of course invalid, because if conquering the state and then taxing at the Laffer maximum is profitable, a conqueror will do it whether the current owner is taxing at the Laffer maximum or not.
However, I recently saw a slightly different, valid, argument, in Nick Land’s The Dark Enlightenment (Part 1), 2nd March 2012:
Assuming that your enemies are within your tax jurisdiction, even in an advanced society it can make sense to tax them to prevent them amassing the resources to oppose you. Dead-weight loss and therefore loss of purchasing power can be worth it if the alternative is loss of power and therefore any tax revenue at all.
I used to rail against the dead-weight losses caused by most taxes, thinking they benefited no one. But maybe they do.
A third variant of this argument is that if you don’t tax at the short-run Laffer maximum you are not spending as much money as you could be on defence. However, this variant doesn’t work: there is no point wasting money on defence that could be safely taken as profit, and you might choose not to take it as profit in order to maximise long-term revenue (i.e. tax at the long-run Laffer maximum).
Might not have been on Moldbug, it might have been on Intellectual Detox or Anomaly UK or somewhere like that.