often backed by direct state ownership of the nation’s capital stock; and significant popular
support raised through the channels of the ruling party or other similar institutions.
Most of these regimes have been forcefully removed as a result of military defeat
(from Nazi Germany in 1945 to Iraq in 2003) or overthrown by popular revolutions (Eastern
Europe in 1989-91). The remaining regimes of this kind, such as China, North Korea, or Iran,
are still notable players in the world scenes and the direction of their change is an open
question. The first and the most lasting regime in this row, the Soviet Union, deserves special
attention because of extreme features of its political-economic organization, its influence on
the world political development in 1940-80s, and its rapid and peaceful demise in 1991 that
occurred despite its seemingly uncompromised coercive power and caused little turnover in
the higher tiers of economic management and government.2 The Soviet experience raises
questions about the sources of stability of non-democratic regimes and the limits of their
sustainability, as well as the potential for endogenous institutional change. In particular, the
end of the Soviet regime suggests a possibility of the ruling bureaucracy initiating the change.
The explanation of these developments can be sought for in the political-economic
exchange between the rulers and the population. Non-democratic regimes, both totalitarian
and “traditional” dictatorships, are conventionally viewed as based on coercion. Voluntary
support for the government is often added as a partial substitute to coercion. Support is costly:
the rulers buy it with public goods or transfers. If the rulers value only power per se as in
Grossman and Noh (1994) and Wintrobe (1998), then they can be expected to evolve in the
long run into welfare-maximizing “benevolent” dictators. If the rulers attempt to protect their
2 Relatively high stability in the ranks of economic managers and bureaucracy has been also
established for most East European nations (Best and Becker, 1997).