Bad governments hold on to power not only by controlling fake elections but also the market. Family ties with the few monopolists and threats to defiant businesses allow governments to maintain the business status quo they benefit from. Competition is held in check. And when a foreign company finally manages to set up shop, government officials are quick to throw a monkey wrench into it. This is one major reason why development doesn’t happen in many African countries and beyond.
Yet a few companies have managed to penetrate markets controlled by anti-development leaders. Coca-cola is one example. Another is cell phones. Cell phones are now everywhere in Africa. Prices are lower and coverage better than in Canada. Why did governments let this happen?
Governments can benefit from more business as it generates tax revenues. In the Central African Republic, 40% of tax revenues apparently come from Orange, a French cell phone company. The government surely benefits from these revenues. And so does everyone else (Aker and Mbiti 2010). But in Bihar, India’s poorest state, a "property developer laments how crooked officials in his state prefer “taxing” inputs—the first investments made—to demanding a share in the output of an enterprise, a practice he says is more common in Bengal" (Economist, 4 Nov 2010). If corruption is there to stay, the latter type would at least allow for some competing businesses to flourish.
Development can happen but businesses, and above all foreign companies, must learn how to convince bad governments that they will enjoy the future tax revenues more than the monopolistic rents.