GLOBAL ECONOMIC RELATIONSCourse number DEVM 566, May 24 - June 4, 2010

James Raymond Vreeland

School of Foreign Service

Georgetown University

Democracy wasn’t always beloved

• 19th century:

– People thought universal suffrage expropriation!

• Easy to understand:

– Median voter income<mean

Downs offers a “spatial” model of party competition.

• Based on Hotelling’s (1929) model– Where should PUMA locate if people shop at stores closest to their house?

NIKE PUMA

Employment concerns

Inflation concerns

Vote single-peaked preferences

In a 2-party system, where will the left & right parties locate?

Dems

민주당

Reps

한나라당

What happens when somebody decides not to vote?

Median preference shifts away from the absent voter

Solution?

Recall Madison’s Dilemma.• If you allow groups to organize polarizing factions.

This can potentially rip society apart.

• But if you outlaw factions restrict liberty. This solution is worse than the disease.

• Solution: Set up institutions (Federalism) that allow for –and even encourage – factions to compete.

• With many factions/interest groups competing, no single faction can come to dominate.

• Conservative outcomes: stability/status quo. (Important!)

Does culture cause democracy?

What is democracy?

Democracy is…

• Representation

• Accountability

• Equality

• Dignity

• Rationality

• Security

• Freedom

• Happiness…

empty setGet your hopes down!

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empty set.

• From an analytical pt of view, this is useless.

• Precludes important questions.

• E.g.

– Do repeated elections induce accountability?

– Does participation lead to income equality?

– Does economic freedom produce rationality in the market place?

Democracy:• A political regime in which some government offices

are filled as a consequence of contested elections.

• “Offices”: Chief executive, legislature.

• “Contested”: There exists opposition that has some chance of winning offices as a consequence of elections.

• “Democracy is a system in which incumbents lose contested elections.”

1. Ex ante uncertainty

2. Ex post irreversibility

3. Repeatability (all outcomes are temporary – for a term)

Culture and democracy?

How might culture matter?

A shared democratic culture among citizens is required for:

1. Coordination of views:

– Shared view of what constitutes illegitimate action.

2. Coordination of actions:

– Common sense of “duty” to act against potential illegitimate actions.

Culture

Democracy

HOW DO WE MEASURE “CULTURE”?(Almond & Verba)

• “The political culture of a nation is the particular distribution of patterns of orientation toward political objects among members of a nation.”

Hypotheses

• Interpersonal trust– (hypothesis: support democracy)

• Life satisfaction– (hypothesis: support democracy)

• Support for revolutionary change– (hypothesis: support dictatorship)

Democracy

Inglehart finds the following:

% of pop. saying “most people can be trusted.”

Democracy

Leads us to believe that there is a positive relationship:

% of pop. saying “most people can be trusted.”

What happens when we study the impact of cultural variables across all types of

political regimes and we control for economic factors

(e.g. per capita income)?

Democracy

% of pop. saying “most people can be trusted.”

Democracy

% of pop. saying “most people can be trusted.”

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

Democracy

% of pop. saying “most people can be trusted.”

Once we control for per capita income, there is no clear relationship between “culture” and “democracy.”

Other Cultural factorstested (Przeworski et al.)

• Protestantism: not significant

• Islam : not significant

• Catholicism: not significant (weak finding- makes democracy slightly more likely!)

• Colonial legacy: not significant (British colony, maybe)

• Education: not significant

• Ethnic heterogeneity: makes both democracy and dictatorship unstable – generates general instability

• Religious heterogeneity: not significant

• Number of other democracies in the world: not significant 22

We’ll come back to democracy and development…

First, a little survey-level data:

Democracy

% of pop. saying “most people can be trusted.”

Let’s unpack the macro relationship at the micro level in Nicaragua – unpack this “aggregate” data point.

• If it is true that Civic Culture leads to democracy,

– we should find that people who say “most people can be trusted”

– Are likely to claim that democracy is preferable to other forms of government.

Explaining support for Repression of Civil Liberties in Nicaragua:

High interpersonal trust LOWER support for democracy

Not surprising that culture variables fail…

• Culturist arguments are typically “ex post” or “ad hoc.”

• We observe

– many Protestant countries with democracy

– and not many Islamic countries with democracy

– so we (mistakenly) conclude that there must be something in Protestant culture that leads to democracy and something in Islam that prevents it.

• Example:

– A study concludes that Hinduism leads to democracy because of its pluralistic belief system.

– Confucianism, on the other hand, is not pluralistic and thus leads to dictatorship.

• What do you think the study would have found if China were a democracy and India a dictatorship?

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• There are elements in every culture that are conducive (and not conducive) to democracy.

• So one can pick and choose in an ad hoc manner.

– Protestantism:

• Legitimates inequality and upholds the ethic of self interest.

• How is this compatible with a political system based on equality and resolving conflict through consensus?

– Islam:

• Stresses the importance of the umma – community.

• Aren’t these traits compatible with democracy?

There are no standard assumptions about culture.

People seem to pick and choose.

Example of democracy surviving cultural conflict:

• 19th century Belgium demonstrates that the following is at least possible:

– Democratic consolidation can be the contingent outcome of self-interested political strategy, rather than the result of normative principles. (Indeed, despite normative principles!)

The Belgian Story• 1830: Belgium created – revolt against the

King of Netherlands. Compromise between Liberals and Pro-Catholic Conservatives.

• Institutional setting: Democracy.

• 1800s: Liberals begin challenging the power of the Church.

• 1878: Liberal electoral victory: School Bill (State takes over primary education).

• The Pro-Catholic Conservative Party reacts…

Possible outcomes:• Civil war led by the Ultramontanes,

generating either:

– An Ultramontane Victory (subvert democracy, Catholics win).

– An Ultramontane Defeat (subvert democracy, Catholics lose).

• Continued democratic competition led by the Moderate Catholics:

– Either the Liberals win.

– Or the Moderate Catholics win.

– Elections repeated

What does the Church Leadership want?

• Note: They are NOT pro-democracy.

Church preferences:1. Ultramontane victory in (win civil war).

2. Parliamentary victory of of right-wing (win elections).

3. Losing elections, backing Conservatives (lose elections).

4. Ultramontane defeat (lose civil war).

WHAT HAPPENS?

• Church decides to back the Moderate-Conservatives.

• 1884: Conservatives win elections and rule Belgium for 30 years under democracy.

• Remarkable: The democratic outcome is achieved NOT from normative practice or as some process of civic learning.

• Continued democracy is the result of purely self-interested actions.

And now we return to…

Democracy and Development

Puzzle time

• Explain the correlation between development (per cap income) and democracy.

HINTS

• Development does NOT cause democracy to emerge.

• Democracy does NOT cause development.

• The correlation is NOT spurious. – (There is a causal connection.)

Break

Regime dynamics

• High per capita income has little to do with why democracies emerge.

• Democracy is more likely to survive at high levels of per capita income.

• The cost of “struggle”/conflict/coup is too high

• Threshold ~ $10,000 PPP

• EXPLAIN THOUGHT EXPERIMENT

– http://freedom.indiemaps.com/

– Who do we get wrong?

Estimating separate determinants of why democracies emerge and survive

EBA results• 59 factors, evaluating over 3 million regressions

• Emergence of democracy:– GDP growth (a negative effect)– Past transitions (a positive effect)– OECD membership (a positive effect)– Some evidence that fuel exporters and Muslim countries are less

likely to see democracy emerge– the latter finding is driven entirely by oil-producing Muslim countries

• Survival of democracy– GDP per capita (a positive effect) – Past transitions (a negative effect)– Some evidence that having a former military leader as the chief

executive has a negative effect & having other democracies as neighbors has a reinforcing effect

Why is oil important?

• Dutch disease

• Oil exports drive up currency value

• Suffocates other export entrepreneurial activity

• Economy does not develop

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Alternative - Game theoretic story for oil

• Democracy redistribution

• Rich vs. Poor

• Dictatorship: Rich pay “repression” cost

• Democracy: Rich suffer redistribution

• Unless the rich have a credible threat to exit the poor have a credible promise to temper redistribution

• Democracy works 43

One more look at culture

Is there a habituation effect?

Habituation to democracy?(Evidence of weakly culturist view?)

• Yes?

• Indeed, the longer a democracy exists, the more likely it is to survive.

• BUT…

• This is due to economic growth.

• Over time, per capita income grows, and this is what makes the democratic regime more stable.

• Once one “controls” for GDP per capita,

there is no habituation effect.

Summary• Culture not a good predictor of democracy

• The emergence of democracy is largely idiosyncratic

• Development predicts survival of democracy

• Look for per capita income >$10,000 PPP

• So, where does development come from? Is development due to culture?

So where does development come from?

• Maybe democracy doesn’t come from culture…

• But does development come from culture?

• Why are rich countries rich and poor countries poor?

Jared Diamond’s Guns Germs and Steel• Culturist stories – tend to be ad-hoc (if not simply racist…)

– “Protestant work ethic”

– If another culture had succeeded we could find some other quality…

• Diamond begins with the assumption that all societies began with the same distribution of “talent.”

• Some societies had better “material” to work with.

• And some societies were better positioned to learn from neighbors. (Diffusion was geography-dependent!!!)

• Reductionist story.– Boils human history down to available plants and animals, latitude,

and orientation of landmass.

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Jared Diamond’s Guns Germs and Steel• Culturist stories – tend to be ad-hoc (if not simply racist…)

– “Protestant work ethic”

– If another culture had succeeded we could find some other quality…

• Diamond begins with the assumption that all societies began with the same distribution of “talent.”

• Some societies had better “material” to work with.

• And some societies were better positioned to learn from neighbors. (Diffusion was geography-dependent!!!)

• Reductionist story.– Boils human history down to available plants and animals, latitude,

and orientation of landmass.

Time-line

Story in a nutshell:

• Advances made by:– Original discovery– Learning from neighbors.

• Original discovery (by accident)– A function of region’s biological endowments.

• Learning– A function of geography

• The Eurasian landmass was the best suited for the transfer of information.

• South America perhaps the worst suited.

• Northern Africa was better off than Africa South of the Sahara.

• Many agricultural inventions can travel 1000s of miles along the same latitudinal range.

• Cannot travel more than 100s of miles along the same longitudinal range.

Languages, writing, etc…• Sedentary lifestyle necessary.

• Elites necessary– Only becomes possible when food is stored.

• Most societies borrowed / learned from neighbors.

• Helpful to have other neighbors with sedentary lifestyle and elites.

• Again – think of how luck is shaped by your endowments.

• Much less likely to learn writing if none of your neighbors have…

Lethal gift of livestock:

• Disease!

• Bad in the short-run.

• Great for the long-run resistance of populations to diseases.

• Think of Europeans vs. Americans in 1500.

So you’ve learned which democracies will survive

(developed)

Which democracies will have the most stable policies?

Let’s close today with1 take-away…

• Poor democracies are at risk of breakdown

Thank youWE ARE GLOBAL GEORGETOWN!

Table 1: Democracies in 2009 with per capita income less than $8,000

Country Per capita income Country Per capita incomeThailand $7,794 Macedonia $7,678Colombia $7,529 St.Vincent & Grenadines $7,372Peru $7,280 Marshall Islands $7,092Albania $6,643 Dominica $6,577Vanuatu $6,535 Ukraine $6,406El Salvador $6,339 Guatemala $6,285Ecuador $6,171 Armenia $5,369Georgia $5,052 Bhutan $4,566Maldives $4,458 Kiribati $4,092Indonesia $4,075 Sri Lanka $4,034Bolivia $3,794 Cape Verde $3,779Paraguay $3,705 Honduras $3,605Micronesia, Fed. Sts. $3,329 India $3,238Mongolia $3,167 Philippines $2,839Papua New Guinea $2,746 Moldova $2,494Pakistan $2,353 Kyrgyzstan $2,299Nicaragua $2,191 Nigeria $2,034Solomon Islands $2,005 Sao Tome and Principe $1,680Senegal $1,492 Ghana $1,239Nepal $1,211 Kenya $1,206Timor-Leste $1,155 Benin $1,116Mali $999 Comoros $916Sierra Leone $873 Guinea-Bissau $818Madagascar $753 Malawi $653Niger $534 Liberia $397Burundi $368

Notes: Per capita income measured in 2005 constant purchasing power parity prices. Source: Penn World Table 7.0 (Heston et al. 2011).

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