All authoritarian rulers need agents. To keep agents loyal it is easier to give them a large share of patronage or occasionally let them steal outright. Henry the VIII had this problem. A good example is the exquisite Hardwick Hall, built by Bess of Hardwick from the proceeds of her second husband, Sir William Cavendish’s successful work plundering the monasteries as a "visitor" under the commission of Henry’s chief agent, Thomas Cromwell.

Patronage is the coin of these relationship systems. The power of the ruler cannot be limited by rules, so rules cannot be used to limit the power of the agents. Instead, the rulers build agent loyalty by building relationship capital. This is usually done by distributing positions to agents so that they can become rent seekers.

Shell and BP have discovered that Putin’s government in Russia is a little short of goodies. Rosneft was a good home for Federal Security Service director Nikolai Patrushev's 25-year-old son who was named an adviser to Rosneft. Gazprombank was appropriate for Defense Minister Sergei Ivanov's son, who was appointed vice president of last year. Vneshtorgbank’s new senior VP is the son of St. Petersburg Governor Valentina Matviyenko. Venezuela has followed a similar course. President Chávez's cousin, Asdrubal, runs the national oil company’s shipping arm and his brother, Adan, helps to give away the country’s oil as diplomatic bribes. China’s princelings are in on everything to increase guanxi.

The problem is that juicy profits and good paying positions are hard to find for an ever growing class of rent seekers. So authoritarian governments either take what is already there as in the case of BP’s interest in the half of TNK-BP or Shell’s Sakhalin-2 project. In China, now that the brokerage firms look profitable, they are being reserved for the locals. Foreigners, being no longer necessary, will be kept out. SOE income will be reserved for the fortunate few.

Since foreign investors like BP are not agents, trying buy relationship capital by investing in local companies like Rosneft will not work. Although the locals will happily take your money, without rules, relationships control. They do not extend to investors outside the system. When foreign capital is falling all over itself to invest under the illusion of change, relying on the threat of embarrassment to discourage international investment will not work. The only real protection is the law. Unless there are real limits to authoritarian power, local agents will always be favored as game theory shows.