DEMOCRACY, POLITICAL INSTITUTIONS, AND DEVELOPMENT

DR. RACHEL GISSELQUIST

RESEARCH FELLOW, UNU-WIDER

SO WHAT?• “Underlying the litany of Africa’s development problems is a crisis

of governance” (World Bank, 1989)

• “Good governance is perhaps the single most important factor in eradicating poverty and promoting development” (Kofi Annan, 1998)

• Development policy:

• Busan High Level Forum (2011): “promoting human rights, democracy, and good governance are an integral part of our development efforts”

• Millennium Challenge Corporation: “ruling justly, investing in people, economic freedom”

• Finnish development policy: “rule of law, democracy , human rights, and sustainable development”

OUTLINE AND AIMSIntroduce key concepts

Consider:

• Does economic development lead to democracy?

• Does regime type make a difference for key development outcomes, such as growth, redistribution, and social welfare?

• How else might institutions matter to development?

I. KEY CONCEPTS

INSTITUTIONS“Institutions are the rules of the game in a society or, more formally, are the humanly devised constraints that shape human interaction” (Douglass North, Institutions, Institutional Change, and Economic Performance (1990), p. 3).

Formal vs. informal institutions

Why do they matter?

•Constraints on behavior

•Incentives

•Path dependence and the survival of inefficient institutions: “the consequence of small events and chance circumstances can determine solutions, that once they prevail lead to a particular path” (North, p. 94)

REGIME Government vs. Regime vs. State

Regime: form or system of rule by which a state, community, etc., is governed

• Characterized by procedural rules that are accepted • Three key aspects define a regime

1. Number & type of actors who gain access to principle governmental positions

2. Method of access 3. Rules that are followed in making publicly-binding decisions

Democracies and autocracies are the two main regime types

DEMOCRACY

Minimal (or procedural or “Schumpterian”) definition: Crucial feature is elections.

•“the democratic method is that institutional arrangement for arriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote”

-Joseph Schumpter, Capitalism, Socialism, and Democracy (1942)

Electoral Democracy

ELECTORAL DEMOCRACIES (2011)SOURCE: FREEDOM HOUSE, 2012

REGIME SUB-TYPES, TAKE 2Source: Howard and Roessler (2006), p.

Democracy vs. Authoritarianism

Electoral (minimal) democracy

DEMOCRACY (2012)SOURCE: ECONOMIST INTELLIGENCE UNIT, 2013

GOVERNANCE & STATE FRAGILITYGovernance: the exercise and organization of political power to manage a country’s affairs.

Good governance: includes efficient and transparent public sectors, stable and effective institutions, and support for citizen engagement and participation in political processes.

State fragility: “States are fragile when state structures lack political will and/or capacity to provide the basic functions needed for poverty reduction, development and to safeguard the security and human rights of their populations”

-Principles for Good International Engagement in Fragile States & Situations, 2007

I.e., very poor quality governance is one of its defining characteristics

FRAGILE STATES & SITUATIONS

(SOURCE: OECD, 2012)

RELATIONSHIPS BETWEEN “DEVELOPMENT” AND GOVERNMENT, REGIME, AND STATE -- EXAMPLES

Poor growth Government voted out

Government is pro-poor Inclusive growth

Economic crisis Regime change

Regime type (democracy) Development

Industrialization &modernization Development of state institutions

Developmental state Rapid growth

II. DEVELOPMENT DEMOCRACY?

0

1

2

3

4

5

6

7

8

0 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 22000 24000 26000 28000 30000 32000 34000 36000 38000 40000 42000 44000 46000 48000 50000 52000 54000 56000

FH Ra

ting (

2011

)

Per capita income (2010)

Singapore

Qatar

Kuwait

UAE

Eritrea

Denmark

Iceland

USJapan

Luxembourg

MODERNIZATION THEORY(LIPSET, LERNER)

• "The more well-to-do a nation, the greater the chances it will sustain democracy” (Lipset)

• As countries develop, they become more urbanized, industrialized, literate, have greater access to media and higher incomes

• Mechanisms for enhancing democracy: • Provides resources for ordinary people to launch and

sustain collective action for common demands, mounting effective pressure on state authorities to respond

• Industrialization led to working class struggles for social inclusion, resulting in universal suffrage

3 CRITIQUES

1. Many cases don’t fit:

• In terms of outcomes:

Some poor countries are democracies, some rich countries are not.

• In terms of mechanisms: E.g., working classes often sided with fascist or Communist parties that aborted civic freedoms.

2. Development may lead to conflict, not democracy:

Huntington’s inverted U hypothesis about income and political stability: Rapid social progress results in frustrated aspirations and demands for social inclusion that are not commensurate with existing political institutions

Samuel Huntington, Political Order and Changing Societies (1968).

3. Development may “sustain” a regime but not cause democratic transition.

Adam Przeworski and Fernando Limongi, “Modernization: Theories and Facts,” World Politics (1997):

• “[M]odernization need not generate democracy but democracies survive in countries that are modern.”

• “Above $6,055, democracies could expect to last forever”

RESURGENCE OF SUPPORT FOR MODERNIZATION Some mechanisms proposed:

• Development reduces inequality (Acemoglu & Robinson)Median voter becomes wealthier and distributive demands placed

on elites are less extreme; suppressing the masses becomes more costly than conceding to democracy

• Development provides more options for elites (Boix)Mobile capital allows them to move it out of reach of taxation;

Immobile capital (e.g. oil resources, plantations) are more easily taxed

• Human empowerment approach (Inglehart & Welzel)Development increases peoples’ capabilities and willingness to

struggle for democratic freedoms

• III. DEMOCRACY & GOOD GOVERNANCE DEVELOPMENT ?

“Underlying the litany of Africa’s development problems is a crisis of governance” (World Bank, 1989)

“Good governance is perhaps the single most important factor in eradicating poverty and promoting development” (Kofi Annan, 1998)

A “DEVELOPMENT DIVIDEND”?(KAUFMANN, KRAAY, AND ZOIDO-LOBATON 2000)

SOME MECHANISMSDemocracies provide checks on government power & elections may force governments to be more responsive to citizen demands.

Authoritarian governments may more likely

Extract rents, instead of providing public goods and investing in human capital

Focus on the short term and extracting rents to the maximum extent possible while in power

Spend on a repressive apparatus rather than productive investments

Foster political instability and conflict

…OR, DOES DEMOCRACY HINDER DEVELOPMENT?A strong state with developmental objectives (developmental state) may be necessary to institute the extensive planning and regulation needed to promote growth in late industrializing countries

E.g., “East Asian Miracle” countries (Hong Kong, Singapore, South Korea, Taiwan)

In democracies, interest group demands may increase pressure for redistribution and undermine overall economic efficiency (Mancur Olson)

Authoritarianism may help to isolate technocrats from such popular pressures (“Embedded autonomy”)

DEMOCRACIES & SOCIAL WELFAREElections may generally make governments more responsive to citizens, BUT empirical record is not so clear.

VARIATIONS ACROSS DEMOCRACIESDemocratic institutions and electoral systems

E.g., proportional representation systems might provide more redistribution than majoritarian ones

Parties and party systemsE.g., social democratic parties typically engage in more welfare spending due to historical alliance with labor.

Federalism Lines of accountability for service delivery, tax systems, and welfare might be murkier

Variation within democracies

Other factors?

IV. HOW ELSE MIGHT INSTITUTIONS MATTER?

STATE CAPACITY IS KEY TO DEVELOPMENT

Dimensions of state capacity (Hanson & Sigmon 2013)- Extractive: to raising revenue- Coercive: to protect border, maintain order, enforce policy- Administrative: to develop policy, to deliver public goods

The most important political distinction among countries concerns not their form of government but their degree of government” (Huntington, 1968).

WHAT DO CAPABLE STATE INSTITUTIONS LOOK LIKE?Developed countries suggest some models.

But, copying institutions from developed countries won’t necessarily work.

•Context matters. The problems of “isomorphic mimicry” and “capability traps” (Lant Pritchett & Matt Andrews 2013)

So how then do we build state capability for development?

•Pritchett, Woolcock, and Andrews’ solution: “Problem driven iterative adaptation” (PDIA)

OTHER INSTITUTIONS…• Basic rule of law

• Secure property rights

• Legal and regulatory framework that supports entrepreneurship and investment

• Conducive culture? Weber’s “Protestant ethic and the spirit of capitalism”

CONCLUDING MESSAGESContrary to policy claims, it is not at all clear that “good governance” promotes development and poverty alleviation.

The research literature has highlighted the opposite relationship: Development appears to be associated with a higher likelihood of democracy, although the exact mechanism is unclear.

Democracies appear to be more likely to support inclusive growth (redistribution, social welfare) -- but not always – and may sometimes have negative implications for growth.

State capacity may be more important than regime type.