Vladimir's Secret

With your best interests at heart

Why are some leaders adept at seizing a window of opportunity to successfully catalyse large-scale change while others fail? This, in a nutshell, is what CESifo Network researcher Sharun Mukand and his colleague Sumon Majumdar wanted to elucidate, given that, as they put it, economists have paid relatively little attention to analysing the role of leaders in bringing about broad-based institutional or organisational change. Their findings are reported in their latest CESifo Working Paper.

To research the matter, they set up a framework which emphasises the nature of the two-way relationship between a leader and his/her potential followers in having a transformational impact on the prospects for change. As they point out, Mahatma Gandhi’s effectiveness in transforming a novel form of protest—his famous defiance of the British monopoly on the collection of salt by simply picking up a lump of natural sea salt—into a broad movement for change relied on his ability to draw on a cadre of committed followers.

There are many other examples of this synergy between a leader and his followers: think of Apple’s Steve Jobs, who brought back the company not only to profitability but to cult status after taking over the reins once again in 1997 (ten years earlier he had been elbowed out from the company, which he had co-founded). Despite having been described variously as aggressive, temperamental, terrorising, and egomaniac, Jobs manages to attract a devout followership. His yearly presentations of new products are legendary.

Or Silvio Berlusconi who, despite his conflicts of interest and his not-so-sterling record the first time around, has been re-elected as Italy’s president. Or Vladimir Putin, whose words can send the Moscow stock exchange tumbling and those who cross him to face the tax police or worse, but who still manages to be hugely popular.

As the authors note and these examples show, such transformational leadership can be for the better or worse. “For every leader such as Nelson Mandela,” they point out, “there is a Robert Mugabe.”

Given this, the authors ask whether individuals may prefer to become followers of a leader who is ambitious and unscrupulous or one with whom they have congruent preferences. Does followership empower or handicap attempts by such leaders at change, either for good or bad?

Examining a wide range of cases, the authors show that the change in status-quo occurs only through the voluntary and coordinated switch of actions by a large number of individuals. Indeed, they assert, it is in resolving this mass coordination problem across followers that the leader plays a crucial role: not only spotting a right window of opportunity for change, but also in communicating it to the population.

The leader’s effectiveness is best understood by dissecting the two-way relationship between the leader and his followers. On the one hand, good leaders attract a cadre of committed followers. Conversely, having a cadre of committed followers empowers the leader: as one researcher quoted in the study puts it, “he has a most malleable instrument to use at will.”

So, the authors built a model in which people choose to become followers, which is costly for them so that they will only become followers if they expect gains from following the leader. This creates a demand for leadership and, by empowering the leader, it affects the supply of leadership by the leader. These two forces together determine the probability of successful change.

They show that only if a combination of the leader’s ability and the underlying structural conditions satisfy a certain threshold is change possible. In particular, if the leader’s ability is higher than the threshold, he attracts a core group of committed followers which is of sufficient size to even encourage participation by non-followers. This explains the critical role that the Bolshevik party had in boosting Lenin’s effectiveness and the Nazi Stormtroopers in transforming Hitler’s political prospects.

The model shows that, under a broad set of conditions, the people may prefer to follow an ambitious leader whose interests may not always be congruent with theirs, throwing light on why “good” as well as “bad” leaders may both have a sizable following.

In any case, after digesting the paper, you cannot but feel a certain "aha" when you read, for instance, on Fidel Castro's revolution in Cuba or Deng Xiao-Ping's swerve towards capitalism. Or Vladimir Putin's nearly omnipotent position in his country.

Sumon Majumdar and Sharun Mukand: The Leader as Catalyst – on Leadership and the Mechanics of Institutional Change, CESifo Working Paper No. 2337

• Other CESifo Working Papers dealing with leadership
• Other CESifo Working Papers by Sharun Mukand
• CESifo Working Papers published in the past three months