The late Mancur Olson summed up his life’s work in this short but remarkably insightful book, in which he applies familiar themes from his past work to the late communist world, to the transition from communism to markets, and to the poverty of developing countries. There is first of all the theme of the importance of the "all-encompassing interest" of those in power in the prosperity of the economy. In an insightful metaphor he used in earlier work, a "stationary bandit" is better than a "roving bandit." A roving bandit will take everything; a stationary bandit will have an interest in the continuing prosperity of his victims and so will take less than 100 percent. By the same token, an unstable autocracy will loot more than a stable autocracy, because the stable regime has a longer horizon and thus a more encompassing interest in future prosperity. Olson cites empirical work on developing countries that seems to support his hypothesis that long-lived autocracies perform better than short-lived ones. He devotes a lot of space to one notorious stationary bandit, Joseph Stalin, who offset the disincentives to future wealth creation by engaging in state-led investment. Olson goes into interesting detail on how fiendishly clever Stalin’s system of state terror was combined with production incentives. His insights help us understand how Stalinist communism lasted as long as it did.

But even a stable autocracy is not safe for prosperity, because all autocrats die and create succession crises. In the old days, they tried to solve this problem with the heir to the throne approach, although the royal couple was not always sufficiently fertile and younger brothers didn’t always go along. Autocrats also have the unfortunate habit of trying to expand their revenues by preying on their neighbors. Democracies do not go to war with each other, as others have pointed out. Most important, democracies that handle the succession problem in a legally stable manner create a more encompassing interest in future prosperity. Such democracies do not expropriate investments or break contracts. Olson points out that virtually all of the richest countries are democracies with legally stable succession processes.

The second theme Olson develops is his now famous insight into the logic of collective action. The most original application of his work in this book is the explanation of the collapse of the Soviet Union and its difficult transition to a market economy. Communism suffered from the same sclerosis Olson noted in industrial countries in his earlier work. That is, over time, interest groups organized and diverted resources from the productive economy into their own hands. In the Soviet Union this took the form of state enterprise managers colluding with both their superiors and other managers to divert resources into their own pockets. The scale of corruption grew so great that the center eventually ran out of resources and imploded.

What about the difficult transition to the market economy? Olson draws an interesting contrast between the collapses of fascism in Germany and Japan after World War II and communism. In the case of the fascist collapse, the victorious Allies swept away all the old collective interest groups and imposed constitutional democracy. In the case of the communist collapse, the collective interest groups of state enterprise managers remained in place. They either slowed privatization or retained control of the "privatized" enterprises, continuing to divert productive resources to themselves.

If there is a problem with this book, it is that its two themes are somewhat contradictory. Stable, long-established democracy is good for prosperity because it creates a more encompassing interest in future prosperity. But long-term stability is bad for prosperity because it leads to interest group sclerosis. This leads to an ambiguous prediction for the long-run future of stable democracies. Olson offers one ray of light in saying that the progress of knowledge could slowly educate the public and break the hold of the interest groups. But for the tragedy of his untimely death, I am sure he would still be educating all of those who have long admired his many insights into power and prosperity.