Mejoras en el drenaje vial

In his study on the evolution of governmental systems in history, Professor Olson explains that political groups with force in anarchies and autocracies are analogous to “bandits” since from the perspective of the laypeople, political groups with force exploit them by means of violence.28 However, every bandit is not same – according to Olson, bandits are classified into at least two groups: “roving” and “stationary” bandits.29

“Roving” bandits are usually found in anarchy. As the vocabulary itself explains, they are bandits who are ready to depart from the pillaged place soon after

total plundering.30 _{In anarchy where no single entity dominates the entire domain,}

27 _{Discussion with Professor Curtis J. Milhaupt.}

28 _{MANCUR OLSON, POWER AND PROSPERITY: OUTGROWING COMMUNIST AND CAPITALIST} DICTATORSHIP (BASIC BOOK 2000).

29 _{Professor Olson takes an example from the history of pre-modern China, when many warlords ruled} in certain domains, independent of the central authority. “In the 1920s, China was in large part under the control of various warlords. They were men who led some armed band with which they conquered some territory and who then appointed themselves lords of that territory. They taxed the population heavily and pocketed much of the proceeds. The warlord Feng Yu-hsiang was noted for the exceptional extent to which he used his army for suppressing bandits and for his defeat of the relatively substantial army of the roving bandit, White Wolf. Apparently most people in Feng’s domain found him much preferable to the roving bandits.” Mancur Olson, Dictatorship, Democracy, and

Development, 87 AM.POL.SCI.REV. 567, 568 (1993). 30 _{Id. at 568.}

powerful groups loot a limited number of victims. Facing uncoordinated competitive theft with other groups, it is in their best interest to take every property possible from victims – if they do not loot victims’ total wealth, but leave some of it, competing bandits will take the remainder. As a result, roving bandits do not need to set a long- term goal of theft because they will not come again to expropriate victims who have nothing. Put simply, only “today” is meaningful in the minds of roving bandits.31

This tendency of a roving banditry distorts the incentive of victims. Facing and expecting cruel and short-term oriented vandalism, victims have little or no incentive to produce or accumulate anything32 since endurance of a painful “today” will not generate any fruit “tomorrow,” but will end with total plundering by roving bandits anyway. Victims make every attempt to leave the place in order to avoid the ruthlessness of roving bandits. Therefore, as roving banditry becomes more established, it becomes more difficult for roving bandits to find victims that they can loot. Consequently, the welfare of the entire society (both bandits and victims) will deteriorate as this vicious cycle is formed among roving bandits and victims.

A more desirable story may occur when a “roving” bandit rationally settles down and becomes a “stationary” bandit who resides with his “subjects” (who used to be victims under roving bandits’ reign) and continuously steal from them.33 In this case, a bandit is established as a dictator and monopolizes theft from a certain domain

31 _{Pirates can be defined as “roving” bandits in a similar way. They do not expect to see the same} victims in the future. Thus, when they have chance to plunder, it is in their best interest and the rational choice to take all wealth possible from their victims. This is why they are often ruthless. 32 _{Olson, supra note 29 at 568.}

– thus, it can be said that anarchy turns into autocracy.34 In the absence of competing bandits with whom he must share trophies, a stationary bandit finds that from the long-term perspective, it is optimal for him to thieve in the form of regular taxation rather than occasional and brutal plunder.35 When only a part of their income is taken by a stationary bandit, his subjects have an economic incentive to produce, save, and invest for the future;36 in the long run, “[a rational stationary bandit] will be able to exact a larger total amount of income from his subjects if he leaves them with an incentive to generate income that he can tax.”37

In other words, a stationary bandit has an encompassing interest in the

continuing prosperity of his victims and so will take less than a roving bandit.38 Then, it can be said that the dismal inter-temporal problem under the threat of a roving banditry can be solved by the advent of a stationary bandit; in contrast to a roving bandit, a stationary bandit pursues long-term interest, and “tomorrow” as well as “today” is significant to him. Consequently, subjects under the stationary banditry are able to take the future more seriously into consideration; the economy of the domain will grow and the welfare of subjects will be improved as well.

34 _{Id. at 567-568.}

35 _{Id. at 568.}

36 _{“… the victims of the theft can expect to retain whatever capital they accumulate out of after-tax} income and therefore also have an incentive to save and to invest, thereby increasing future income …,” Id. at 568.

37 _{Id. at 568.}

38 _{See e.g., Noshab, Book Review on “Power and Prosperity: Outgrowing Communist and Capitalist} Dictatorship” by Olson (http://www.issi.org.pk/journal/2002_files/no_2/review/5r.htm); Olson, supra note 28 (explaining that “The stationary bandit, because of his monopoly on crime and taxation, has an encompassing interest in his domain that makes him limit his predations because he bears a substantial share of the social losses resulting from these predations.”)

It is true that by basic definition, there is no fundamental difference between roving and stationary bandits as far as victims are concerned.39 Nonetheless, victims prefer stationary bandits to roving bandits because victims notice that under the reign of stationary banditry, victims and bandits are sailing on the same ship (in other words, the interests of both stationary bandits and victims are generally aligned, which is not observed under roving banditry). Through rationalizing the theft to a moderate extent and a positive process of feedback, the system based on stationary banditry is mutually beneficial to both the bandit and victims – thus, stationary banditry in relation to autocracy can generate much better economic performance than roving banditry in relation to anarchy. Democracy with political legitimacy might be the best situation for the general population in terms of political freedom and economic development.40 However, given the facts that lack of political legitimacy is firmly established and democracy is remote for the current generation, it is almost sure that coexistence with stationary bandits is much more desirable to victims than with roving bandits. Table 2 is the summary of the foregoing analysis.

39 _{See e.g., Noshab, supra note 38; Olson, supra note 29.}

40 _{However, there is debate whether a democracy is always better for enhancing economic} development than a dictatorship. Some commentators argue that in certain cases, dictatorship achieves more economic prosperity than democracy. See generally, Ronald J. Gilson & Curtis J. Milhaupt,

Economically Benevolent Dictators: Lessons for Developing Democracies (available at

Table 2: Distinctive Features of “Roving” and “Stationary” Bandits

“Roving” Bandits “Stationary” Bandits

Political System in

Which They Prevail Anarchy Autocracy

“Roving” or “Stationary”

They are “roving” in that they depart soon. Often, they will not come to expropriate victims again.

They are “stationary” in that they stay with victims and continuously steal for a long time period.

Method of Theft Cruel Looting (roving bandits take _{all property possible)} Regular Taxation (stationary _{bandits take a part of property)}

Time-Horizon Short-term Oriented Long-term Oriented

Victims’ Incentive Victims have little incentive to _produce Victims have sufficient incentive _{to produce} Victims prefer a stationary bandit to a roving bandit because they can prepare for

“tomorrow” only under the reign of stationary banditry.

2. “Roving” and “Stationary” Controlling Shareholders

I have reviewed political economy analysis on the evolution of government systems – especially anarchy and autocracy – by means of Professor Olson’s framework of banditry.41 From now on, I turn back to the subject on which I am writing, i.e. “controlling shareholder systems with bad-law,” by connecting corporate governance issues and Olson’s analytical framework of political economics. In the context of corporate governance, whoever takes corporate assets to the detriment of

41 _{Another example of stationary banditry can be found in organized crimes. Once a criminal} organization establishes monopolistic dominance in a certain area, it has a long-term horizon for the exploitation of that area. Then, members of the criminal organization will soon understand that it is rational to protect their victims’ property rights to some degree and exploit them moderately for a long

time. Since a moderate level of exploitation of victims will foster an economic incentive for victims to

investors (and/or other constituencies in corporations) can be named as a corporate “pirate” or “bandit.” When the corporate law is not protective in a jurisdiction, a significant issue to victims (i.e., shareholders or other constituencies) is a corporate bandit’s degree of looting a corporation – in other words, whether he is roving or stationary should be a focal point from the standpoint of victims, given the condition that looting is inevitable and law does not protect victims in a bad-law country.

In a jurisdiction where investors are well protected by corporate laws and enforcement systems, minority shareholders are at large insulated from a large scale of expropriation by corporate dictators (professional managers or controlling shareholders). For example, in the United States where a diffused shareholder ownership is the norm, statutes and common laws effectively protect public investors especially from unfair transactions arising from a conflict of interests. In fact, as Professor Fox explains, legal doctrines and jurisprudence of corporate law in the United States have been developed in order to solve problems imposed by corporate “buccaneers” (i.e., “bandits” in my analysis).42 In Sweden, although a limited number of wealthy families dominate the entire economy, it is well known that they do not siphon public corporations’ wealth to their own pockets.43

These law-abiding economies successfully discourage “bandits” from taking wealth from victims – when a bandit appears and is recognized in the market, enforcement agencies or courts will intervene and punish him.44 In that sense, good-

42 _{Discussion with Professor Merritt B. Fox.}

43 _{In this sense, institutions around corporations in Sweden are functionally equivalent to those of the} United States, even though the two countries differ in terms of dispersed and controlling shareholder systems. Gilson, supra note 4.

law countries – whether they adopt the widely-held ownership (Gilson’s first group including the United States) or the dominant shareholder ownership (Gilson’s second group including Sweden) – can be connoted as economies with few bandits.45

By contrast, most developing countries (and even some developed countries) in Gilson’s third group lack well-performing legal infra-structures that are designed to effectively protect investors in the capital markets. Thus, the conventional wisdom (based on law and finance literature) on the taxonomy of ownership systems presumes that the piracy of controlling shareholders in (all) developing countries is a default rule – this view treats all (developing) countries as “one” unified group that is dominated by “roving” bandits, in Olson’s terminology. However, as the notion of a “stationary” bandit shows, it is possible that some controlling shareholders in bad-law jurisdictions do not abuse their power for looting to the full extent even if they can, because paradoxically limiting theft in each period maximizes total theft in the long run.

With this possibility that the extent of stealing may vary, I propose dividing controlling shareholders into two categories: (i) “roving controllers” plunder corporations severely and cruelly (for example through a one-shot deal); and (ii) “stationary controllers” exploit minority shareholders to a moderate extent (for example, through continuous extractions similar to regular taxation). Then, the next question is – what factors make a controlling shareholder become either roving or stationary?

45 _{It is impossible to eradicate every bandit in a society. Even in a good-law country like the United} States, there might be many occasions where corporate insiders take corporate assets, which are not recognized by authorities due to the relatively small magnitude of theft. Of course, there are some large-scale thefts as well (e.g., Enron and WorldCom).

III. WHAT MAKES A CONTROLLER “STATIONARY”? –