Our basic analytic framework is simple. Two groups, the elite rich and the citizens, are in conflict under democratic and nondemocratic regimes. Under democracy, redistributive policies benefit the citizens at the expense of the rich. Under oligarchy the rich keep their wealth but have to create (and pay) a repressive military to maintain them in power. A repressive military is a double-edged sword, however; once created, it has the option of attempting to establish a military dictatorship, seizing power from democratic or oligarchic governments. This is the political moral hazard problem at the core of our framework.Now I see that Richard Baldwin has posted at the Free Exchange blog on The Mafia's economic role. Baldwin says
I write about it here since the logic fits perfectly with the theory that Daron Acemoglu and co-authors recently wrote up in a Vox column. The model they put forward explains the three-way "dance" between the rich, the citizens and the military under democratic and non-democratic regimes.He continues
In fin-de-siècle Sicily, the landed aristocracy (0.1% of the population) owned 99% of the land. Very nice for them, of course, but the peasants were continually revolting. In the absence of a strong state, the aristocracy turned to the Mafia. The exhibit explained that the aristocracy would lease land to Mafia bosses who would lease it out to medium level Mafioso who would in turn set up share-cropping contracts with the peasants. The Mafia used force and terror to make sure the peasants worked hard and didn't cause trouble. Revolts were repressed violently, often with the help of the army and/or police. No wonder so many Sicilians left for America.