Mancur Olson showed that kleptocracy at the top stunts the growth of...countries. Having a thief for president doesn't necessarily spell doom; the president might prefer to boost the economy and then take a slice of a bigger pie. But in general, looting will be widespread either because the dictator is not confidant of his tenure, or because he needs to allow others to steal in order to keep their support.Then further down the pyramid of wealth, development is thwarted because the rules and laws of the society do not encourage projects or businesses, which would be to the common good. Entrepreneurs don't establish official businesses (too difficult) and so don't pay taxes; officials demand ridiculous projects for their prestige or personal enrichment; schoolchildren don't bother to acquire irrelevant qualifications...
The rot starts with government but it afflicts the entire society There's no point in investing in a business because the government will not protect you against thieves. (So, you might as well become a thief.) There's no point in paying your phone bill because nobody can successfully take you to court (so there's no point being a phone company). There's no point getting an education because jobs are not handed out on merit (and in any case, you can't borrow money for school fees because the bank cannot collect on the loan, and the government doesn't provide good schools.) There's no point setting up an import business because the customs officials will be the ones to benefit (and so there is little trade, and so the customs office is underfunded and looks even harder for bribes.)...
[China's 'Great Leap Forward'] seemed to make sense, but it was the greatest economic failure the world has ever seen. Mao conducted economic policy based on the hidden premise that if people tried hard, the impossible would happen. Zeal alone was sufficient. Villagers were ordered to build steel furnaces in their backyards but had no iron ore to put into them. Some villagers melted down good iron and steel--tools, even doorknobs--in order to meet the quotas demanded by the state...
If industrial policy was a farce, agricultural policy was a tragedy...Mao ordered the people to kill grain-eating birds, and the population of insect pests exploded as a result. Mao personally redesigned China's agricultural techniques, specifying closer planting and deeper sowing to increase yields. Rice planted so closely together could not grow, but party officials, anxious to please Mao, staged shows of agricultural and industrial success. When Mao traveled by train to admire the fruits of his policy, local officials built furnaces along the railroad and brought rice from miles away to replant, at the officially specified density, in adjacent fields. Even this charade could not be maintained without the use of electric fans, which were used to circulate air and prevent the rice from rotting.
--From The Undercover Economist by Tim Harford, 2007 edition