likely that the bosses choose not to enter in the promotion contract and abandon a collectivist
regime. Another theoretical possibility is a reduction in the effective rate of future
discounting, r, due to expectations of sustained economic growth. Higher expected rates of
growth reduce r, and consequently increase the argument of f -1 in (26), shifting the
participation constraint curve upwards. This implies that bureaucratic regimes may be
incompatible with permanent high rates of economic growth.25
It is not only the change in the bosses’ expectations that, by affecting the location of
the participation constraint, can cause regime change but also a downward shift of the supply
curve. Real wage increases are of particular importance in this context. As was noted earlier,
wage setting in a most centralized command economy is a matter of economic decision-
making. This process is institutionally separated from the design of optimal contracts for the
political labor market. The industrial bureaucracy may find it beneficial to increase wages to
stimulate higher productive effort on the part of ordinary workers, especially when the
productivity of activists-supervisors does not yield desirable results. Paul Gregory (2003)
argues that the efficiency wage considerations were not foreign to the Soviet leadership and
their influence on the economic policy was notable. Therefore, economic efficiency and
political support are generally contradictory objectives. While pursuing the former,
bureaucrats-managers can lower boss premiums. This depresses the supply of activists to the
point when the bosses’ participation constraint can no longer be satisfied.
25 This is unconditionally true only if all the bureaucrats and workers expect their rents and wages
respectively to grow at the same constant rate, which is a restrictive assumption. However, low growth
rates are typical of most historical non-democratic regimes. The rates of Soviet GDP per capita growth
seldom exceeded three percent per year, and higher rates of growth did not always translate into
significant increases in per capita consumption (see Gur Ofer, 1987). Therefore, growth rates per se
never appeared to challenge the stability of the regime in the USSR. The future development of the PR
24