Undercover Economist

Lessons for pirates – from tax collectors

A government official and a bandit both redistribute resources, but an official does so far more efficiently

Here’s a question to puzzle the libertarians among you: what’s the difference between the government tax collector and a plundering bandit? One reasonable answer is that the tax collector, as the representative of a democratically elected government, has the same democratic legitimacy. A more utopian response is that the tax collector, unlike the bandit, serves the greater good. A third answer is that the tax collector is constrained by pre-agreed rules. (British parliamentarians seem not to accept this idea, preferring to haul multinational corporations over the coals for not making an appropriate “contribution”, irrespective of the legal position.)

I am not sure that determined libertarians would be convinced by any of these distinctions. But here’s a fourth that might carry some weight: both the tax collector and the bandit redistribute resources, but the tax collector does so far more efficiently.

It was the economist Mancur Olson who most insightfully explored the similarities and differences between a tax-collecting government and a bandit in his book, Power and Prosperity. Olson should have been 81 this week – and possibly would have a Nobel memorial prize in economics to his name – but an early death, 15 years ago, meant that Power and Prosperity was his last work.



The quintessential roving bandit is the pirate – so what is the cost of piracy? A recent working paper by Tim Besley, Thiemo Fetzer and Hannes Mueller tries to evaluate the costs of piracy off the coast of Somalia by examining the rise and fall of shipping costs alongside the ebb and flow of pirate attacks.



Eventually, the banditocracy becomes a democracy. And a democracy simply cannot afford revenue-raising efforts as wasteful as Somalia’s pirates.

Also published at ft.com.