The Political Economy of Democracy

M

Mr BoShambles

jambiguous
IdleRich said:
But it will act according to its own best interests though - that's what you're saying right? - so any improvement would be purely coincidental.... unless the rule-set it is working within was already set-up to incentivise it to make a better rule-set.... but why would it be, being as how it was set-up by self-interested organisations (and so on and so forth)?
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Why did China's ruling elite choose to embark on the transition from a command economy to a market based one? Because (i think) they saw that opening the economy would generate greater wealth. This had two simultaneous effects:

(1) to place greater resources at the existing elites disposal, which has made it easier for them to maintain their privileged position - more wealth to distribute as goodies to their cronies.

(2) increased the welfare of the chinese masses (albeit gradually and unevenly)

So you can see how the incentives for institutional change can be simultaneously beneficial to both the existing ruling elite (the state = an organisation) and to the masses.

I'm sure there are other examples of this kind of process. For instance how did Europe make the transition from feudalism to capitalism? From autocracy and economic stagnancy to democracy and prosperity? It wasn't because of enlightened leadership but rather because the elites saw opportunities which benefitted themselves (although it didn't always pan out like this in the long-term i.e. the relative decline of the aristocracy and the growth of a new capitalist elite).

A key thing to remember is that people rarely have sufficient knowledge to be able to predict the exact outcomes which their actions in the present will have on the future.
 
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vimothy

vimothy

yurp
IdleRich said:
But it will act according to its own best interests though - that's what you're saying right? - so any improvement would be purely coincidental.... unless the rule-set it is working within was already set-up to incentivise it to make a better rule-set.... but why would it be, being as how it was set-up by self-interested organisations (and so on and so forth)?
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Yes, that's the problem -- from the perspective of the political economy of organisations either already engaged in institutional development (to whatever extent), or those that we hope will be created to further institutional development.

Bruce Bueno de Mesquita would (I think) say that the larger the absolute size of the (self-interested) winning coalition, the larger the domain of self-interest (i.e. the more democratic the organisation, i.e. the larger the group of self-interested constituents being considered), and the larger the size of the winning coalition relative to the selectorate, the less the organisation can rely on acting in the specific support or furtherance of that self-interested coalition, and the more it must rely on (the cheaper option of) trying to act in the best interests of the selectorate as a whole.

So basically, yes, organisations (and individuals) act in their own self-interest, but some organisations are less narrowly self-interested than others, because of the institutional framework and the incentive structure that provides.

Or something.

Take the World Bank. The world bank is a small constituent organisation. the committee that decides on who gets loans is made up of bankers, whose job it is to grant loans, and whose money is guaranteed (so that they face no risk), and representatives from countries who want loans. Therefore the fact that WB loans are not helpful, if true, is unlikely to be given much traction by the organisation itself, because of the incentive structure within that organisation. But it's not necessarily in the best interests of the political organisations who control the World Bank. And, indeed, there is a growing literature, both within and without, questioning the effect of its loans. Pressure from constituents in democratic countries can affect change, though we would need to decide that making the world less poor and more democratic really is in our best interest.
 
vimothy

vimothy

yurp
Mr BoShambles said:
Why did China's ruling elite choose to embark on the transition from a command economy to a market based one? Because (i think) they saw that opening the economy would generate greater wealth. This had two simultaneous effects:

(1) to place greater resources at the existing elites disposal, which has made it easier for them to maintain their privileged position - more wealth to distribute as goodies to their cronies.

(2) increased the welfare of the chinese masses (albeit gradually and unevenly)

So you can see how the incentives for change can be simultaneously beneficial to both the existing ruling elite and to the masses.
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Exactly. It's highly likely that if you are part of an elite in a backward failing state and by chance someone like DXP comes along and provides good public policy, with the effect that your country suddenly becomes a lot more important on the global stage and a lot more wealthy in general, you would support that trajectory or set of policies because you can see how it makes you better off personally, and how it makes you better off collectively (be that from the perspective of your own self-interested coalition or that of your country) -- you would realise that the two are intertwined.

After the fact, it's easy to see that change has been good, if it has.

[The sustainable autocracies angle is also interesting --> Provide basic public goods (like roads, clean water, etc), but not the connective public goods (like freedom of expression, freedom of assembly, etc) that characterise democracies.]
 
IdleRich

IdleRich

IdleRich
"So you can see how the incentives for institutional change can be simultaneously beneficial to both the existing ruling elite (the state = an organisation) and to the masses."
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Yeah it can be. But the idea would be to somehow alter this process so that it tends to be wouldn't it? The point is to change the world not just describe it.
 
vimothy

vimothy

yurp
Suspect that with somewhere like China there is also a significant role played by sheer chance in affecting whatever degree of institutional change that has occured.
 
M

Mr BoShambles

jambiguous
IdleRich said:
Yeah it can be. But the idea would be to somehow alter this process so that it tends to be wouldn't it? The point is to change the world not just describe it.
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The whole point of developing this understanding of institutional change - an emerging field in social science at the moment - is the hope that by studying historical precedents, in the future we will be able to help 'developing' countries with bad institutions to make the transition to 'developed' countries with good institutions.

Edit: Or perhaps more importantly, that they will be able to help themselves.
 
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M

Mr BoShambles

jambiguous
vimothy said:
Suspect that with somewhere like China there is also a significant role played by sheer chance in affecting whatever degree of institutional change that has occured.
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Don't forget that institutional change is typically incremental rather than a major reversal of direction overnight. So small changes at the margin can lead to dramatic and unpredicted changes further down the line.
 
M

Mr BoShambles

jambiguous
A must-read: Bruce Bueno de Mesquita and George Downs, 'Development and Democracy' in Foreign Affairs.

Extract:

Ever since Deng Xiaoping opened up China's economy more than 25 years ago, inaugurating an era of blistering growth, many in the West have assumed that political reform would follow. Economic liberalization, it was predicted, would lead to political liberalization and, eventually, democracy.

This prediction was not specific to China. Until quite recently, conventional wisdom has held that economic development, wherever it occurs, will lead inevitably -- and fairly quickly -- to democracy. The argument, in its simplest form, runs like this: economic growth produces an educated and entrepreneurial middle class that, sooner or later, begins to demand control over its own fate. Eventually, even repressive governments are forced to give in.

The fact that almost all of the richest countries in the world are democratic was long taken as iron-clad evidence of this progression. Recent history, however, has complicated matters. As events now suggest, the link between economic development and what is generally called liberal democracy is actually quite weak and may even be getting weaker. Although it remains true that among already established democracies, a high per capita income contributes to stability, the growing number of affluent authoritarian states suggests that greater wealth alone does not automatically lead to greater political freedom. Authoritarian regimes around the world are showing that they can reap the benefits of economic development while evading any pressure to relax their political control. Nowhere is this phenomenon more evident than in China and Russia. Although China's economy has grown explosively over the last 25 years, its politics have remained essentially stagnant. In Russia, meanwhile, the economy has recently improved even as the Kremlin has tightened the political reins.

The overlap of these trends -- economic growth and shrinking political freedom -- is more than a historical curiosity. It points to an ominous and poorly appreciated fact: economic growth, rather than being a force for democratic change in tyrannical states, can sometimes be used to strengthen oppressive regimes. Zhao Ziyang, China's premier during the 1980s, may have been right when he argued, "Democracy is not something that socialism can avoid." But there is now plenty of evidence to suggest that autocratic and illiberal governments of various stripes can at least delay democracy for a very long time. Over the past half century, a large number of such regimes have undergone extensive economic growth without any corresponding political liberalization. In other cases, autocrats have been forced to introduce modest political changes but have nonetheless managed to limit their scope and hold on to power.

What explains the often lengthy lag between the onset of economic growth and the emergence of liberal democracy? The answer lies in the growing sophistication of authoritarian governments. Although development theorists are right in assuming that increases in per capita income lead to increases in popular demand for political power, they have consistently underestimated the ability of oppressive governments to thwart those demands. Authoritarian regimes are getting better and better at avoiding the political fallout of economic growth -- so good, in fact, that such growth now tends to increase rather than decrease their chances of survival.

This is a truth that has largely been ignored by both development agencies and the Bush administration. Washington has blithely claimed that globalization and the spread of market capitalism will inevitably lead to the triumph of Western-style democracy. How the Bush administration explains away all the contrary examples is unclear. What is clear is that Washington needs to rethink its plans to spread democracy around the globe. In addition, development bodies such as the World Bank should reconsider the kinds of conditions they attach to their loans. Merely pushing for greater economic freedom is unlikely to have much political payoff -- at least not anytime soon.​
 
M

Mr BoShambles

jambiguous
vimothy said:
The sustainable autocracies angle is also interesting --> Provide basic public goods (like roads, clean water, etc), but not the connective public goods (like freedom of expression, freedom of assembly, etc) that characterise democracies.
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Yup - this definitely supports that argument:

Strategic coordination is a useful concept here because it helps to explain why economic growth has traditionally been thought to promote democratization. The process works as follows: economic growth leads to urbanization and improvements in technology and infrastructure. These improvements dramatically facilitate communication and recruitment by new political groups. Economic growth also tends to lead to increased investment in education, which benefits the opposition by producing more learned and sophisticated individuals from which it can recruit supporters. Strategic coordination, however, also helps explain how some autocrats have managed to break or weaken the link between economic development and democratization. If authoritarian incumbents can limit strategic coordination by the opposition, they can reduce the prospect that their enemies will be able to remove them from office. There is a catch, however: to remain secure, autocrats must raise the costs of political coordination among the opposition without also raising the costs of economic coordination too dramatically -- since this could stymie economic growth and threaten the stability of the regime itself.

Threading this needle is difficult, but not, as it turns out, impossible. Gradually, through trial and error, oppressive regimes have discovered that they can suppress opposition activity without totally undermining economic growth by carefully rationing a particular subset of public goods -- goods that are critical to political coordination but less important for economic cooperation. By restricting these goods, autocrats have insulated themselves from the political liberalization that economic growth promotes.​

[my emphasis added

General public goods: public transportation, health care, primary education, and national defense.

Coordination goods: political rights (free speech and the rights to organize and demonstrate peacefully), more general human rights (freedom from arbitrary arrest and the related protection of habeas corpus; the right to nondiscrimination based on religion, race, ethnicity, and sex; freedom from physical abuse; and the right to travel, both domestically and abroad), press freedom (a diverse and largely unregulated press/media), and accessible higher education.
 
vimothy

vimothy

yurp
I've got that paper in my bag, but haven't had the chance to do more than glance at it yet.

Any links to more Bruce Bueno de Mesquita papers would be much appreciated. (I can't find many).
 
M

Mr BoShambles

jambiguous
On belief systems, institutional change and (non)revolution....

Mr BoShambles said:
Don't forget that institutional change is typically incremental rather than a major reversal of direction overnight. So small changes at the margin can lead to dramatic and unpredicted changes further down the line.
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From North et al - 'Order, disorder and economic change' in Governing for Prosperity:

The place to begin is the beliefs held by the members of society, because it is the beliefs which translate into the institutions which shape performance. Shared mental models reflecting a common belief system will translate into a set of institutions broadly conceived to be legitimate. Diverse and conflicting beliefs usually are derived from wide disparities in the experiences of members of a society (resulting from differences in wealth, social structure, race, ethnic backgrounds) and are exacerbated by the failure to define and enforce universalistic political and economic rules that aplly to all members of that society.

Whether the change is incremental or revolutionary, the result is typically to produce some consequences that are unanticipated. This is so because people's perceptions of reality are faulty; the belief system produces an "incorrect" model of the issues; and the policy instruments available to the players are very blunt instruments to achieve the desried objectives. Let us explore each of these in turn.

A complete understanding of reality would entail not only information about all the relevant aspects of the society but an understanding of how it all is put together. As Hayek pointed out many times, such knowledge is beyond human capacity.

The belief systems that society develops can and sometimes do capture sufficient portions of that "reality" to provide useful and predictable results. But frequently they fail to incorporate fundamental aspects of reality, particularly involving circumstances people rarely face. The rise and demise of communism provides only the most recent illustration.

The policy instruments available to the players are changes in the formal rules (constitutions, laws, regulations), but it is the combination of formal rules, informal norms, and their enforcement that constitute the institutional matrix that shapes performance. Policy makers have no control, at least in the short run, over informal norms and only very imperfect control over enforcement of both formal rules and the informal norms. In consequence, policies - such as privatization in Russia - often produce results different from those anticipated.

Finally, we come back to path dependence. It is a powerful phenomenon, resulting from a range of constraints imposed on the players. Because existing organizations (and their entrepeneurs) owe thier survival to the existing institutional matrix, they tend to oppose fundamental institutional change. Equally important is the existing belief system that defines the perceptions of the actors with respect to avenues of legitimate change. Attempts at revolutionary action, for example, alter only the formal rules, not the informal norms, and therefore usually make such change less revolutionary than its supporters envision.​

Creating consensual order (as opposed to authoritarian order) requires building shared belief systems which underpin certain institutions - e.g. a constitution of citizens rights, a stable democracy, a thriving economy etc. These institutions must be seen by the masses as both legitimate and appropriate. And the masses must be willing to react against the government is it threatens to take them away.

But, North et al. argue that, in most societies, different belief systems and therefore different conceptions of what comprise fundamental rights and legitimate ends of the state coexist. Authoritarian rulers can exploit these assymetries rewarding their constituents while exploiting other citizens. Thus,

Because of the difficulties in creating the basis for consensual rights, the authoritarian basis of political order is more natural than the consensual basis.​

Pretty cynical and depressing stuff...
 
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vimothy

vimothy

yurp
Russia is a great example of the disconnect between formal policy rule-sets and informal norms and values. Hopefully, China will demonstrate the reverse as the slow transition to capitalist values creates upward pressure on policy to step up to the plate.

It's almost like a chicken and egg thing: without solid institutions, development fails, but without complimentary social norms, the institutions are meaningless. Laws are useless if everyone breaks them.
 
M

Mr BoShambles

jambiguous
vimothy said:
It's almost like a chicken and egg thing: without solid institutions, development fails, but without complimentary social norms, the institutions are meaningless. Laws are useless if everyone breaks them.
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Exactly. So the million-dollar question still remains unanswered - how do you change social norms/values in order to create an institutional environment conducive to socio-economic development? How and why have some societies achieved this while others haven't?

Anyone care to have a pop?
 
vimothy

vimothy

yurp
Mr BoShambles said:
Exactly. So the million-dollar question still remains unanswered - how do you change social norms/values in order to create an institutional environment conducive to socio-economic development? How and why have some societies achieved this while others haven't?

Anyone care to have a pop?
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Luck
 
vimothy

vimothy

yurp
Mr BoShambles said:
If thats the case.... can anyone hear the death tolls? RIP development studies!
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It's alright -- I've got Greg Clark on the phone and he wants to help!

Seriously though, I wonder if globalisation (in the cultural sense) is creating shared norms and values. It's certainly creating a shared lanuage (e.g. neofundamentalists calling for sharia or enforced hijabs in the name of "human rights").
 
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