This has all happened before, it will all happen again

From the book Why Nations Fail (p. 143):

The Maya experience illustrates not only the possibility of growth under extractive institutions but also another fundamental limit to this type of growth: the political instability that emerges and ultimately leads to collapse of both society and state as different groups and people fight to become the extractors.

In their book, Acemoglu and Robinson paint the picture of societies that rise, partially due to the benefits provided government — protection and enforcement of rule of law — then fall, after government is taken over by people who convert political power of law and order into institutions that extract value from society for the bureaucrat’s own benefit.

In this post, I wrote:

I like to think of government as a partner in the prosperity of its citizens. The more prosperous the citizens, the better this partner does. If you had a similar partnership with someone and you kept demanding more from him as if you were entitled to the produce of his talents, at what point do you think he would say enough is enough?

When the partnership turns into a lord-serf relationship, that’s when.

This story is consistent in other human organizations, not just overall societies. Matt Ridley wrote about it at the firm level in the Rational Optimist. I excerpted him in this post.

Far from being able to spend their way into novelty and growth, companies are perpetually discovering that their R&D budgets get captured by increasingly defensive and complacent corporate bureaucrats, who spend them on low-risk, dull projects and fail to notice gigantic new opportunities, which thereby turn into threats.

Bureaucrats gain control over a successful business and extract value from it for their own benefit, and their own extractive actions reduce innovation — which eventually kills the business.


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