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This paper develops a model of political support which it links to economic growth. Governments face a trade-off between wealth creation and rent creation as sources of support. A low rent-seeking option maximizes support only if 'inclusiveness,' as defined here, is high. Otherwise state efforts to promote growth also promote rent seeking, and the rent-seeking effect comes to dominate the growth effect. In particular, rent seeking crowds out innovation and new product R&D. Depending on comparative political advantage, the quest for support can become the road to serfdom, but it can also become the road to an inclusive polity.

In this paper, governments maximize their political support, obtained by creating wealth and also by creating rent. Starting from a support maximum, economic reforms are feasible only when combined with political reforms that make the economic changes support-increasing. A competitive economy with low rent seeking and low protectionism maximizes support only when inclusiveness, as defined here, is high. When support is maximized, political stability depends on the sensitivity of support to changes in rent and wealth, and the quest for support causes inclusiveness to change. Depending on comparative political advantage, it can become either the road to serfdom or the road to an inclusive society. The approach here contrasts with selectorate theory in which political advantage depends on the size of a 'winning coalition.'

This paper investigates the problem of sustaining economic growth, viewed from the perspective of how growth is affected by government policy choices as well as by the nature of government. Special attention is given to the role of rent seeking in limiting growth. Three types of economic growth are identified from the standpoint of the sources of growth, and each type is identified with an element of the aggregate production function. While any of the three types may persist for a time under the right circumstances, it is argued that only one of these can be permanently sustained. Sector-specific interventionist policies that speed up either of the other two types of growth will slow down the type of growth that can be permanently sustained and are therefore likely to lead to a period of slow growth or stagnation following a period of rapid growth. Finally, it is argued that building strong democratic institutions is the best and most basic way to guarantee the type of growth that can be sustained permanently.

Using an extension of a standard rent-seeking model, this paper argues that ―inclusiveness,‖ as defined in the text, is the key property that a polity must have to keep down the costs of rent seeking. The potential for inclusiveness is also related to the nature of a political system, and it is argued that democracies are likely to be more inclusive than dictatorships, although the advantage of democracy is not automatic. Rent seeking can provide a greater benefit at a lower support cost to the government of a less inclusive polity than to one that is more inclusive.

This paper develops a theory of politically-active monopoly, which trades political support to the government in exchange for political favors that increase its profit. Because a larger size means a greater ability to extend support, it also means a greater ability to capture political favors. Thus the monopoly here sets output above the level where marginal cost equals marginal revenue and may produce where price is less than marginal cost, since it faces a trade-off between political and market power. However, the size constraint on monopoly rent-seeking may remove its incentive to minimize cost and could even cause it to waste inputs. In addition, rent-seeking uses scarce resources that could be producing useful products, and the management team able to obtain the most efficient production may not be the management able to earn the highest profit, because efficiency in rent-seeking also counts. Thus while the monopoly here uses more resources than a conventional monopoly, it may still supply less output. However, if the government's political support is sufficiently sensitive to the cost of monopoly, we can expect a relatively optimistic outcome, in which the traditional "deadweight loss" triangle vanishes, although in general the resulting allocation of resources is no better than a second best.