Economics of territory. Ukraine, the South China Sea and democracy.

What motivates governments?

Economics has long struggled with this question.

Public choice theory argues government leaders want to create big organisations they control. The more money and people controlled by the leaders, the more powerful they feel.

Other theories argue leaders are motivated by the preferences of voters / citizens.

Crimea and its capital Simferopol

The question is extremely pertinent when a government decides it wants to expand its borders. What does a government gain by controlling more land? More sources of revenue, sure, but also more costs. How do voters weigh those?

In the case of Crimea, a little peninsula on the south side of Ukraine, Russia’s annexation has obtained it a sizeable store of energy deposits, making the adventure potentially valuable in cash terms. But the leading explanation of the decision to occupy does not revolve around Putin doing the math on oil.

Occupying more land  – empire building – is a time-honoured strategy for leaders. From Rome via the Mongols and on to the British Empire a measure of greatness is territorial control. Perhaps the sort of people who can be bothered climbing the greasy pole of political leadership are never tired of attempting to gain more power. So when they rule, they feel they must rule more.

Invasions in order to annexe are now uncommon. (Invasions for other reasons remained popular in America until recently, and will probably swing back into vogue in time.)

Partly this is because the international community has arranged itself to try to raise the cost of territorial expansion and diminish the benefits. Sanctions can follow.

But partly it is because dictatorship is in decline.

The best way to prevent land grabs and invasions is probably democracy. The characteristic common to Putin’s Russia and China (with Tibet in its back pocket, the south China Sea Islands almost in its grasp, and its eyes on Taiwan), is that the leaders need not fight to win votes. Once in power, their will to rule more can only be fed by expanding the territory they control.

In democracies, empire-building is defined by ruling for more than one term. Gerry-mandering, pandering to voters and rorting electoral funding rules in order to win the next election might not be ideal behaviour, but it is less damaging than rolling squadrons of tanks over the border.

From the perspective of the global economy, land grabs are destabilising. Any chance they will spark a war makes them a major risk to global output and standard of living. The sinking of a Vietnamese ship in the South China Sea, for example, is a risk to the balance of power in Asia, a balance in which the US and Australia are involved.

The motivations of powerful non-democracies remain a threat to our well-being.

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Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

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