Having unstable policy making comes with a lot of disadvantages as well as advantages.
For example, imagine a small poor country somewhere with much of the population living in poverty. Oil is discovered, and a giant multinational approaches the government to seek permission to get the oil. The government offers some kind of deal—tax rates, etc. - but the company still isn’t sure. What if the country’s other political party gets in at the next election? If that happened the oil company might have just sunk a lot of money into refinery’s and roads and drills only to see them all taken away by the new government as part of its mission to “make the multinationals pay their share for our people.” Who knows how much they might take?
What can the multinational company do to protect itself? One answer is to try and find a different country where the opposition parties don’t seem likely to do that. However, its even better to find a dictatorship to work with. If people think a government might turn on a dime, then they won’t enter into certain types of deal with it. Not just companies, but also other countries.
So, whenever a government does turn on a dime, it is gaining some amount of reputation for unpredictability/instability, which isn’t a good reputation to have when trying to make agreements in the future.
Having unstable policy making comes with a lot of disadvantages as well as advantages.
For example, imagine a small poor country somewhere with much of the population living in poverty. Oil is discovered, and a giant multinational approaches the government to seek permission to get the oil. The government offers some kind of deal—tax rates, etc. - but the company still isn’t sure. What if the country’s other political party gets in at the next election? If that happened the oil company might have just sunk a lot of money into refinery’s and roads and drills only to see them all taken away by the new government as part of its mission to “make the multinationals pay their share for our people.” Who knows how much they might take?
What can the multinational company do to protect itself? One answer is to try and find a different country where the opposition parties don’t seem likely to do that. However, its even better to find a dictatorship to work with. If people think a government might turn on a dime, then they won’t enter into certain types of deal with it. Not just companies, but also other countries.
So, whenever a government does turn on a dime, it is gaining some amount of reputation for unpredictability/instability, which isn’t a good reputation to have when trying to make agreements in the future.