Trading With Dictators Is a Nash Equilibrium, and Only a Coalition Can Leave It

Nearly every democracy trades with dictatorships. Most go further: they sell them weapons, extend them credit, host their money, and prop up their rulers with the kind of quiet support that keeps a regime in place through a bad decade. Everyone involved knows that this is the opposite of what the democracies say they stand for. It continues anyway, and it has continued for as long as there have been democracies.

The usual explanation is hypocrisy, and hypocrisy is certainly present. But hypocrisy does not explain why the pattern is so stable across so many different governments with so many different values. Something structural does, and the structure has a name.

The Equilibrium

A Nash equilibrium is a situation in which no player can improve his outcome by changing his own strategy alone, given what everyone else is doing. It does not have to be a good outcome. It only has to be one that nobody can leave on his own.

Trade with dictatorships is exactly this. Suppose one democracy decides, on principle, to stop. It loses the contracts, the oil, the market, and the influence. The dictator does not fall; he buys from someone else. The democracy's competitors pick up what it dropped, and it ends up poorer, with less leverage over the regime it was trying to pressure, and with nothing to show for it. Its own voters, or more precisely the businesses that fund its politicians, notice the loss.

So no democracy stops. Not because none of them wants to, but because stopping alone makes you worse off relative to everyone who did not stop, and the dictator no better off at all. Every government looks at the board, sees that unilateral virtue is unilateral loss, and continues. That is the equilibrium, and it is stable for the same reason all Nash equilibria are stable: it is locally rational for every player to stay in it.

How Equilibria Are Left

The way out of a bad equilibrium is not for one player to be brave. It is for enough players to move at once that the payoffs change for all of them.

Imagine a group of nations that agree to treat democracy as the highest value in their foreign relations: no arms to autocrats, no credit, no laundering of their wealth, active support for the people they rule. If the group is large enough, two things happen.

First, the dictator's alternative suppliers disappear. He cannot simply buy from someone else if everyone who matters has agreed not to sell. The pressure that was impossible for one country becomes real for a coalition.

Second, and this is the game-theoretic part, the coalition becomes a new equilibrium for its members. A member that defects, that goes back to selling arms to a dictator, is now defecting against its partners, who can punish it: exclude it from the coalition's own markets, its treaties, its security guarantees. Leaving the coalition costs more than the dictator's contract is worth. So nobody leaves, for the same reason nobody left the old arrangement: it is not in anyone's individual interest to be the one who moves.

The trick is to build the second equilibrium deliberately, so that the choice is never between principle and interest for any single member. That is what alliances are for, and it is what this alliance has never been built to do.

Why Representative Regimes Cannot Build It

Here is the difficulty, and it is the reason I am writing about this on a blog about how we govern ourselves.

Forming such a coalition is a long-term strategy with short-term costs. The first years are years of lost contracts and diplomatic friction, and the benefits, a world with fewer dictatorships, arrive a generation later and are diffuse. No representative government can carry that trade. Its horizon is the next election. Its funders are the exporters who would lose the contracts. Its foreign ministry is staffed by people trained in the cynical, business-first realism that treats every principle as a bargaining chip.

Representative regimes are very good at the current equilibrium because the current equilibrium is what their incentives produce. They are structurally incapable of the coordinated, patient, costly move that leaving it would take. Every one of them would join a coalition that already existed and was already paying off. None of them can be the one who pays first.

Where Direct Democracy Comes In

A public deciding its own foreign policy is not automatically wiser. But it has a property the representative regime lacks: it does not have to answer to the arms exporter, and it does not face re-election in three years.

Publics are, on the evidence, less enthusiastic about arming dictators than their governments are. The trade continues because the public is never asked, and the people who are asked have contracts riding on the answer. A population that could put the question to itself, and commit to the answer for longer than an electoral cycle, could do what its representatives cannot: accept the short-term loss, coordinate with other populations doing the same, and build the second equilibrium.

I do not say this would be easy or quick. I say it is the only kind of political arrangement that could even attempt it. The current form of government is not merely failing to leave the bad equilibrium; it is the reason the bad equilibrium is stable. Change the players' incentives and the board looks different. Keep them and the outcome is already known.