Draft:The Political Economy of Theocracy

The Political Economy of Theocracy is a collection of essays that challenges the notion of theocracy as a purely medieval or anomalous form of governance. Instead, it argues that theocratic rule has emerged in various historical and geographical contexts, often in hybrid forms rather than as a "pure" theocracy.

The volume integrates historical analysis with rational-choice theories to examine the motivations of religious elites in seeking political power, the mechanisms by which they sustain their rule, and the conditions under which theocratic policies may promote or hinder economic welfare. The essays highlight internal contradictions within theocratic governance, such as tensions over moral enforcement, economic development, and factional disputes among believers. These tensions can lead to partial liberalization, power-sharing arrangements, or transitions into authoritarian or democratic regimes.

The book uses Iran as a case study, illustrating its oscillation between strict theocratic governance and pragmatic accommodations for popular participation. It ultimately argues that theocratic politics should be analyzed through conventional frameworks of power dynamics, including institution-building, elite competition, and public opinion. Despite its theological justification, theocratic rule remains deeply political, shaping and intensifying disputes over morality and policy.

Theocracy and the separation of powers

Theocracy and the separation of powers

O'Leary's essay categorizes theocracies into two main types:

• Nominal theocracies, such as many medieval and early modern monarchies, where rulers invoke divine legitimacy but governance is primarily handled by secular authorities like kings, nobles, or councils.
• Hierocracies, where clerics collectively wield direct political authority.

Drawing on Benedict Spinoza's analysis of the Hebrews under Moses, O'Leary argues that monotheistic theocracies often develop a de facto separation of powers. Over time, various institutions - clerical councils, religious courts, secular bureaucracies, and local assemblies - emerge to interpret and enforce religious law. This institutional layering is a practical necessity, as divine law requires human interpretation and application.

O'Leary provides historical examples of this phenomenon, including:

• The early Islamic Caliphate, where political leadership and religious jurisprudence quickly became distinct, despite the theoretical unity of Islamic governance.
• The medieval Catholic Church, in which the papacy asserted moral supremacy but depended on secular rulers for military and administrative functions.

He argues that these internal checks and balances can limit clerical authority, creating pathways for partial liberalization or re-secularization. A contemporary example is Iran, where institutions like the Guardian Council and the elected parliament introduce a degree of political competition.

O'Leary's analysis suggests that purely unitary theocracies are inherently unstable. Over time, they tend to evolve into hybrid systems, where pragmatic governance and power-sharing arrangements mitigate the most rigid aspects of religious rule.

The economics of theocracy

Mario Ferrero's essay explores the strategic considerations that influence whether religious elites choose to govern directly or delegate secular authority. While clerics may fear that worldly rulers will dilute or manipulate religious doctrine, they also face risks when assuming direct political control.

Economist Mario Ferrero proposes a principal-agent framework to explain this decision-making process. In this model, the religious leadership (the principal) seeks to ensure the long-term survival and expansion of the faith. It can pursue this goal through two main governance structures:

Run the government itself (direct theocracy), or

Contract out secular governance to a monarch or council, while retaining a veto on major policy or moral directives.

Each arrangement carries distinct advantages and risks. Direct theocracy allows for stricter enforcement of religious doctrine, reducing the likelihood of moral decline. However, it also makes clerics accountable for economic and administrative failures, potentially damaging their religious legitimacy if the government falters. In contrast, delegating secular governance can shield the clergy from blame in times of crisis, but it also creates risks-secular rulers may gradually undermine religious authority or use political power to weaken the Church’s influence.

Ferrero's analysis identifies key factors that influence these choices, such as risk exposure, monitoring costs, and external threats. If a religion faces existential threats - such as competition from rival faiths or political suppression - clerical rule may be necessary to safeguard orthodoxy. However, when stability returns, religious elites may find it safer to relinquish direct governance, avoiding the burdens and liabilities of political rule. This framework helps explain why full-fledged theocracies are historically rare but tend to persist when external threats remain significant.

Serving God in a largely theocratic society: rivalry and cooperation between church and king

Pierre Salmon's essay examines the historical interplay between religious and royal authorities in medieval and early modern Europe, where Catholicism was deeply intertwined with governance. His analysis presents the Church and the monarchy as two distinct institutional centers, each claiming to serve God's will - whether through punishing heresy, enforcing moral behavior, or shaping laws - but often pursuing conflicting incentives.

Key themes in Salmon’s analysis:

Interpretations of divine law: Religious texts are subject to interpretation, allowing the Church to assert its authority as the most authentic interpreter of God’s will, thereby justifying oversight of secular rulers. Conversely, monarchs often claimed that only they had the means to enforce divine law effectively and maintain stability.

Rivalry and cooperation: At times, Church and monarchy collaborated to uphold Christian norms, such as under the Carolingians and the Holy Roman Empire. However, tensions frequently arose, as seen in the Investiture Controversy and the doctrine of Gelasian dualism, which distinguished between spiritual and temporal authority.

Different forms of theocratic overlap: Salmon uses examples such as Islamic governance (modeled as near-perfect unity of religious and secular spheres, at least in theory) and “Gelasian" or “Carolingian" interpretations within Latin Christendom to illustrate how the Church's capability or activism can shift the equilibrium from rivalry to near-fusion or near-subservience of one side to the other.

Role of local communities: Unlike modern nation-states, medieval polities were decentralized. Local communities could resist both royal and clerical authority, forcing monarchs and the Church to compete for local support. This dynamic limited either institution’s ability to enforce absolute rule.

Theocracy as a dictatorship

Theocracy, natural spiritual monopoly, and dictatorship

Wintrobe and Padovano argue that theocracy should be understood as a subtype of dictatorship, where religious elites exercise authoritarian control similar to secular autocratic rulers. Their analysis builds on Wintrobe's earlier classification of dictatorships, which emphasizes the dual strategies of loyalty (through co-optation and propaganda) and repression (through force and policing) as essential tools for maintaining power.

In a theocracy, these mechanisms are framed in religious terms. Loyalty is cultivated through theological legitimacy and moral authority, while repression is justified as the enforcement of divine law. This perspective challenges views that treat theocracy as fundamentally distinct from secular authoritarian regimes, instead highlighting its structural similarities to other forms of dictatorship.

They claim a theocracy exhibits the features of a “natural spiritual monopoly."

This means the following:

• The ruling clerics possess unique religious expertise and moral authority. By interpreting the sacred texts, they can reinforce claims of divine legitimacy - functionally parallel to how communist parties once claimed a monopoly on “scientific socialism."

• Theocratic elites "sell" spiritual goods - salvation, moral purity, and so forth. Repression is justified as necessary to protect the religious community from heresy, sin, or external contamination.

• The faithful (the "buyers" of spiritual goods) can be relatively easy or difficult to mobilize, depending on the emotional potency of religious symbols.

Using historical vignettes like Savonarola in Florence, John Calvin in Geneva, and Iran under Khomeini, the authors illustrate how an initial religious fervor can vault clerics into power. Once in control, they face the standard dictator's dilemma: how to prevent disloyalty or rebellion without alienating supporters by overusing repression. Over time, the “spectrum" of theocratic types can shift to:

• "Totalitarians": Dictators who try to remake society entirely via religious law (e.g., the early Taliban in Afghanistan).

• "Tinpots": Dictators who rely on minimal ideological fervor or moral policing but use enough force to maintain their rule (less common in openly theocratic states, but possible if religious fervor wanes).

• "Timocrats": Dictators who rely heavily on moral authority and the genuine loyalty of believers, using less brute force (some see Papal States or Calvin's Geneva in these terms).

Overall, Wintrobe and Padovano depict theocracy as a specialized authoritarian regime that centers on religious authority. They note that over the long run, purely coercive theocracies struggle unless they maintain a high level of genuine loyalty - often requiring a careful balancing act of moral leadership and skillful policymaking.

On the economics of the socialist theocracy of the Jesuits in Paraguay (1609–1767)

In this essay Walter Nonneman provides one of the volume's most striking historical case studies, looking at the Jesuit missions established among the Guaraní in Paraguay (1609–1767). This arrangement is sometimes called a “theocracy," although it might equally be described as a centrally planned, missionary-led mini-society. The Jesuits obtained a royal license from the Spanish Crown to convert and “civilize" the indigenous peoples, who were often vulnerable to enslavement by colonial settlers. Over about 150 years, the Jesuit-run “reductions" governed tens of thousands of Guaraní in enclosed mission communities.

Nonneman's analysis centers on economic and organizational factors:

Collective production: The Jesuits organized agricultural and craft labor collectively, forbidding private property to the Guaraní. Surpluses were distributed to maintain mission infrastructure, support the local population's basic needs, and finance some evangelizing expansions.

Work incentives: Despite the paternalistic structure, evidence suggests that the Guaraní were not wholly coerced. Jesuits provided some measure of security (protection from slavers) and ensured that basic needs were met, while using religious appeals and local leadership networks to foster compliance. Moral suasion replaced a wages system.

Redistribution and welfare: The missions provided Christian education, healthcare, and catechism. Although paternalistic, these social provisions improved local health and literacy relative to non-mission areas.

Parallel to Modern "command economies": Nonneman draws analogies between the Jesuit missions and 20th-century experiments in socialist central planning, with top-down resource allocation, heavy moral or ideological oversight, and minimal market exchange. Yet, unlike Soviet regimes, the Jesuits rarely needed lethal force or mass repression to maintain compliance.

Collapse and aftermath: This “theocracy" was dismantled when the Spanish Crown, fearing Jesuit power, expelled the order in 1767. Without their paternal management, mission communities disintegrated, a testament to how closely the “Jesuit project" had depended on the specific presence of missionary administrators and the spiritual worldview they imposed.

Nonneman's study illuminates how a theocratic project, though unusual, can deliver rudimentary public goods effectively in a small, isolated environment. It poses the question of whether paternalist theocracy might sometimes out-perform rapacious colonialism or feudal exploitation - at least in the short run.

Combining autocracy and majority voting: The canonical succession rules of the Latin church

Luisa Giuriato’s essay examines the internal governance of the Roman Catholic Church, focusing on the papal election process and the institutional mechanisms that balance autocratic rule with collective decision-making. While the Church is often perceived as a hierarchical and authoritarian institution, its leadership selection has evolved to incorporate structured input from senior clergy, particularly through the College of Cardinals.

Key themes in Giuriato’s analysis:

Electoral politics: Despite the Pope’s position as an absolute monarch within the Church, his selection follows a majority-vote process among cardinals. This electoral system, refined over centuries, has undergone various modifications to limit external influence, particularly from secular rulers.

Stability and autocracy: The Church has historically faced the challenge of maintaining centralized authority while preventing schisms and succession crises. Over time, canon law has established a quasi-constitutional framework to regulate papal elections, ensuring continuity and minimizing internal conflict.

Strategic institutional design: Giuriato interprets the Church's governance rules as mechanisms that secure loyalty from the clergy while reinforcing the Pope's legitimacy. This institutional balance has enabled the papacy to endure through major political and social transformations, maintaining both stability and adaptability over nearly two millennia.

Theocracy, trust, and moral

Theocracy and the evolution of morals

Donald Wittman discusses how theocracies attempt to legislate morality - yet moral and political judgments inevitably diverge in any large population. Since religion aims at universality (“all humans are equal before God," etc.), but politics inevitably involves winners and losers, Wittman argues that theocracies can become deeply polarizing.

Key considerations:

• Religious absolutism: Strongly theocratic regimes claim near-absolute truths about salvation, virtue, heresy, sin, and so forth. This sense of certainty can foster strong in-group solidarity but also out-group hostility (i.e., those labeled heretics or apostates).

• Repression and legitimacy: If theocratic leaders resort to severe punishments for moral infractions, they may lose moral legitimacy in the eyes of moderate believers who feel uneasy about cruelty or excessive policing. Conversely, if they show leniency, they risk accusations of tolerating moral decay from fundamentalist factions.

• Informal vs. formal enforcement: Wittman also highlights the difference between “communal moral pressure" and institutionalized religious courts or police. He hypothesizes that communal, informal enforcement of religious norms might reduce direct confrontation with the state, whereas formal religious police can provoke resentment. Over time, the tension between strict rules and people's actual behavior can destabilize the theocracy unless it adapts or loosens strictures.

Wittman's overarching conclusion is that theocracies must grapple with a contradiction between universal moral pretensions and the political reality of plural interests and moral perspectives. Many examples - from 16th-century Europe to modern Iran - illustrate that overreach in moral policing can discredit clerics, accelerate calls for reform, or generate intense internal conflicts.

Theocracy as a screening device

Douglas Allen develops a novel explanation for why theocracies occasionally arise in pre-modern contexts. In eras or regions where general bureaucratic oversight is weak, it can be hard for a ruler (or for society at large) to monitor officials' honesty and competence. This is essentially an information and enforcement problem.

Allen proposes that a theocracy, built around a stringent religious framework, can act as a screening mechanism: only officials with high religious commitment and reliability can function effectively in the system. Overt religious tests (e.g., requiring clergy or devout believers to assume public roles) may filter out opportunists who are unwilling to abide by strict moral codes or who fail to demonstrate piety.

He draws parallels with “aristocratic screening" in feudal societies, in which personal honor codes limited who could hold positions of responsibility. In a theocracy, the vow of obedience, religious asceticism, or willingness to uphold a complex set of ritual requirements may signal a capacity for self-discipline and loyalty.

The net effect: theocratic leadership, though potentially harsh, might deliver a more honest government than a corrupt secular monarchy - especially in contexts without well-developed legal bureaucracy. Historically, Calvin's Geneva or the medieval Papal States may fit this logic. However, Allen also acknowledges the weaknesses: once the theocracy is established, it can become more about punishing dissent than ensuring high-quality administration, thereby undermining the original “screening" rationale.

Theocracy, economic development, and Islam

Learning and imitation by theocracies

In this chapter, Amihai Glazer tackles a crucial question: are theocracies inherently resistant to innovation and economic progress? One common accusation is that strongly religious regimes, bound by rigid dogma, fail to adopt productivity-enhancing technologies or new ideas - leading to relative stagnation, especially compared to secular or more open societies.

Glazer first notes that “learning by observation and imitation" is one of the primary vehicles of technological transfer and economic growth. If a theocracy insists on strict doctrinal conformity, it may discourage or forbid contact with outside communities and new ideas, hindering imitation.

On the other hand, he cites cases where religious communities (including strongly hierarchical ones) selectively adopt innovations that appear to serve their interests or do not violate core religious rules. For example:

• Historical catholic orders, such as the Benedictines or Cistercians, that employed agricultural or architectural innovations so long as they saw them as conducive to monastic discipline.

• Modern Islamic finance, which creatively reinterprets Sharia-based bans on interest to allow profit-sharing instruments.

Glazer's conclusion is nuanced: theocracies do not universally reject innovation. Instead, they are more likely than purely secular regimes to filter and block innovations that conflict with official doctrine. Over time, however, successful theocracies tend to adapt selectively, adopting (or rebranding) outside practices that can be made “doctrinally compliant."

An essay on the Muslim gap: Religiosity and the political system

Martin Paldam examines cross-national data to assess the so-called “Muslim gap" - the hypothesis that Muslim-majority countries have lagged behind Western countries in economic and political development, including the spread of democracy. He asks whether “theocratic" or quasi-theocratic governments in the Muslim world have systematically impeded modernization.

Key points include:

• Empirical trends: Paldam compares clusters of countries by majority religion (Christian, Muslim, etc.) to see how they score on metrics such as GDP per capita, measures of democracy, educational attainment, or women's rights.

• Interpretations: He finds a consistent correlation between Muslim majority status and slower or incomplete democratization, fueling debate about whether Islam itself is the causal factor. Paldam cautions against simplistic conclusions, noting potential confounds like colonial history, oil dependence, or geography.

• Gender and demographic variables: One line of argument is that Islamic tradition can be more restrictive of women's economic and social participation in some regions, which in turn correlates with slower human capital development.

• Transition experiences: In separate comparisons, Paldam examines how ex-communist countries fared after the Soviet collapse, concluding that many faced “transition shocks" but eventually liberalized. By contrast, Muslim-majority states, though starting from varied baselines, faced additional constraints from clerical or religious norms.

Overall, Paldam's analysis suggests that regimes with strong religious legitimations - if not fully theocratic - often create or preserve institutional barriers to certain forms of modern liberal democracy. The data, however, do not show that all Muslim countries follow the same path, highlighting the importance of local political and cultural variation.

The political economy of a semi-industrialized theocratic state: The Islamic Republic of Iran

Frederic Pryor highlights that while Iran labels itself an “Islamic Republic," it is also a semi-industrialized economy heavily dependent on oil revenues, a multinational society with major ethnic cleavages (Persian vs. Azeri vs. Kurd vs. others), and also a politically hybrid regime with elected bodies (President, Parliament) overshadowed by unelected clerical councils (Guardian Council, Supreme Leader).

Pryor addresses how well Iran fits various theories of theocracy:

• Multiple power centers: Although the constitution invests ultimate authority in a faqih (jurist), real policymaking involves negotiations among the Supreme Leader's circle, the Parliament, the President's administration, and influential bodies like the Revolutionary Guard. This arrangement resonates with O'Leary's earlier notion that monolithic theocracy is often undermined by an internal separation of powers.

• Economic consequences: Iran's reliance on oil revenue means the clerical elite can finance broad patronage networks. This can offset public anger at times of economic mismanagement, but it also fosters corruption and inefficiency. Conservative factions within the clergy may be more willing to isolate Iran economically rather than embrace globalization that might weaken their authority.

• Social policies and liberalization: Post-revolution Iran has oscillated between moral conservatism (strict dress codes, stifling of dissent, moral policing) and periods of partial reform (some relaxation of cultural restrictions under reformist presidents like Khatami). Pryor highlights that changing demographics - especially the large, educated, and underemployed youth population - make the status quo volatile.

• Comparison to other theocracies: Pryor underscores that while Iran is in many respects “theocratic" (clerics wield real power, Islamic law is a constitutional reference), it retains significant modern institutions. It is not a uniform “dictatorship of mullahs." Instead, it is a distinct hybrid: a theocratic framework layered over populist and technocratic elements, plus an unpredictable factional politics among conservative, moderate, and reformist clerics.

Reference

Category:Autocracy Category:Dictatorship Category:Political economy Category:Theocracies