Why Diversification Is a Prisoner's Dilemma Algeria Is Playing Against Itself

Why diversification is individually rational to oppose, even if collectively catastrophic

Here is the point where most analysis goes wrong, and I want to be precise about it.

Most people assume that the ruling class is simply short-sighted, or corrupt in a stupid way, or just doesn’t care about the country’s future. That framing misses what’s actually happening. The people running this system are not stupid. Many of them understand perfectly well that the current trajectory ends badly. The problem is not lack of understanding. The problem is that the incentive structure makes reform individually irrational even for people who understand it’s collectively necessary.

Walk through the game theory carefully.

Suppose you’re a senior figure in the Pouvoir. You understand that oil revenues will eventually decline whether from price volatility, global energy transition, or just depletion. You understand that Algeria needs a productive economy. You’d even be open, theoretically, to backing some reform program.

But here’s your actual calculation.

Any meaningful diversification say, building a real special economic zone that attracts foreign manufacturing investment requires roughly fifteen to twenty-five years before it generates significant non-hydrocarbon revenue. Singapore took twenty years. Dubai’s non-oil economy took twenty-five years to become genuinely self-sustaining. This is not a short-term project.

Your effective planning horizon, in the current system, is somewhere between five and eight years before internal coalition dynamics either remove you or a succession reshuffles the deck. You are not a dynasty. You are a faction leader in a committee of competing factions. The internal power games that will determine your position in three years have nothing to do with whether some manufacturing zone in Oran becomes competitive by 2045.

So the costs of reform are immediate: you spend political capital fighting the import monopoly holders who will sabotage the zone, you create instability as you try to impose transparency requirements that threaten your coalition partners, you absorb the organizational headache of managing an initiative whose payoff you will almost certainly never see. The benefits arrive after you’re gone and accrue to whoever inherits the better-positioned state, not to you.

The rational individual strategy, given this structure, is to extract what you can while your position is secure, protect your personal financial position through offshore assets and European citizenship (which many senior figures hold), and not waste political capital on a transformation you won’t live to benefit from.

This is what game theory calls a dominant strategy one that’s better for the individual regardless of what others do. And when every player in the coalition is running the same calculation, you get collective inaction on reform even when every individual player can see the long-run cost of that inaction.

Compare this to the cases that actually worked.

Sheikh Mohammed’s Dubai: the ruling family had virtually no oil. They understood from the 1970s that Abu Dhabi’s wealth wouldn’t extend to Dubai indefinitely, so they had to build a non-oil economy or become irrelevant. They built the free zones, the airline, the financial center, the tourism infrastructure. None of this was altruism. It was the rational strategy of a ruling family whose personal survival their physical safety, their dynasty, their wealth was completely inseparable from what happened to Dubai. Sheikh Mohammed cannot emigrate. He is Dubai. When a ruler has no exit, their personal payoff function aligns with the state’s long-run health.

South Korea’s developmental state: the generals who ran South Korea’s industrialization in the 1960s and 70s made their private sector comply with export performance requirements. If you took state credit and tariff protection, you had to hit competitive export targets or you lost the support. They could enforce this because the leadership understood their personal survival was tied to South Korea not failing the external threat from North Korea, the dependence on US support, the memory of devastating poverty made failure genuinely unacceptable to the people at the top. Their exit option was limited in a way that concentrated their minds on making the country work.

Botswana’s founding leadership: at independence in 1966, Botswana was one of the poorest countries in the world. President Seretse Khama knew diamonds were coming. He made a historically rare decision: he built institutional constraints on his own power before the diamond money arrived. He did it because he was a lawyer trained in Britain who understood that without institutions, the diamond wealth would destroy his country and his family’s legacy. He couldn’t leave. He was Botswana. His personal historical standing was bound to what Botswana became.

Now back to Algeria.

Algeria’s Pouvoir can exit. Senior officers and their families hold French citizenship. Their wealth has been partially invested in European real estate and financial assets. When the system eventually produces a crisis, the personal exit is available. This is not speculation it is documented and widely understood within Algeria. The ability to let Algeria fail while personally surviving in Lyon or Paris fundamentally changes the payoff function. A person who can exit doesn’t need the country to succeed for them personally to be okay.

This is not about character. It is about structure. These are not evil people making evil choices. They are people in an institutional arrangement that makes extraction-and-exit the individually rational dominant strategy, generation after generation.