AcemogluRobinsonOrigins-2.pdf - Economic Origins of...

Unformatted text preview: Economic Origins of Dictatorship and Democracy Daron Acemoglu James A. Robinson Incomplete draft. Please do not circulate without authors’permission. Daron Acemoglu: To the memory of my parents, Kevork and Irma, who have invested so much in me. To my love, Asu, who has been my inspiration and companion throughout. James A. Robinson: To the memory of my mother, from whom I inherited my passion for books and my indignation at the injustices of this life. To the memory of my father, from whom I inherited my fascination for science and my curiosity about this extraordinary world. Contents Part 1. 1 Questions and Answers Chapter 1. Paths of Political Development 1. Britain 2. Argentina 3. Singapore 4. South Africa 5. The Agenda 1 2 4 7 10 13 Chapter 2. Our Argument 1. Democracy vs. Nondemocracy 2. Building Blocks of Our Approach 3. Towards Our Basic Story 4. Our Theory of Democratization 5. Democratic Consolidation 6. Determinants of Democracy 7. Political Identities and the Nature of Con‡ict 8. Democracy in a Picture 9. Overview of the Book 15 16 18 21 23 29 30 40 41 43 Chapter 3. What Do We Know About Democracy? 1. Measuring Democracy 2. Patterns of Democracy 3. Democracy, Inequality and Redistribution 4. Crises and Democracy 5. Social Unrest and Democratization 6. The Literature 7. Our Contribution 45 45 47 49 52 53 60 65 Part 2. 73 Modelling Politics Chapter 4. Democratic Politics 1. Introduction 2. Aggregating Individual Preferences 3. Single-Peaked Preferences and the Median Voter Theorem 4. Our Workhorse Models 5. Democracy and Political Equality 6. Conclusion 75 75 76 78 84 97 100 Chapter 5. Nondemocratic Politics 1. Introduction 101 101 iii iv CONTENTS 2. 3. 4. 5. 6. 7. 8. Power and Constraints in Nondemocratic Politics Modeling Preferences and Constraints in Nondemocracies Commitment Problems A Simple Game of Promises A Dynamic Model Incentive Compatible Promises Conclusion Part 3. The Creation and Consolidation of Democracy 102 110 114 125 130 140 148 149 Chapter 6. Democratization 1. Introduction 2. The Role of Political Institutions 3. Preferences over Political Institutions 4. Political Power and Institutions 5. A ‘Static’Model of Democratization 6. Democratization or Repression? 7. A Dynamic Model of Democratization 8. Subgame Perfect Equilibria 9. Alternative Political Identities 10. Targeted Transfers 11. Power of the Elite in Democracy 12. Ideological Preferences over Regimes 13. Democratization in Pictures 14. Equilibrium Revolutions 15. Conclusion 151 151 151 153 154 158 162 168 175 177 180 180 184 186 187 188 Chapter 7. Coups and Consolidation 1. Introduction 2. Incentives for Coups 3. A Static Model of Coups 4. A Dynamic Model of the Creation and Consolidation of Democracy 5. Alternative Political Identities 6. Targeted Transfers 7. Power in Democracy and Coups 8. Consolidation in a Picture 9. Defensive Coups 10. Conclusion 191 191 193 195 199 212 213 214 216 216 218 Part 4. 221 Putting the Models to Work Chapter 8. The Role of the Middle Class 1. Introduction 2. The Three-Class Model 3. Emergence of Partial Democracy 4. From Partial to Full Democracy 5. Repression: The Middle Class As A Bu¤er 6. Repression: Soft-liners vs. Hard-liners 7. The Role of the Middle Class in Consolidating Democracy 223 223 226 229 233 238 242 246 CONTENTS 8. Conclusion v 248 Chapter 9. Economic Structure and Democracy 1. Introduction 2. Economic Structure and Income Distribution 3. Political Con‡ict 4. Capital, Land and the Transition to Democracy 5. Costs of Coup on Capital and Land 6. Capital, Land and the Burden of Democracy 7. Con‡ict Between Landowners and Industrialists 8. Industrialists, Landowners and Democracy in Practice 9. Economic Institutions 10. Human Capital 11. Conjectures about Political Development 12. Conclusions 251 251 254 256 256 259 262 269 273 274 277 278 279 Chapter 10. Globalization and Democracy 1. Introduction 2. A Model of an Open Economy 3. Political Con‡ict— Democratic Consolidation 4. Political Con‡ict— Transition to Democracy 5. Financial Integration 6. Increased Political Integration 7. Alternative Assumptions about the Nature of International Trade 8. Conclusions 281 281 285 290 292 295 300 301 304 Part 5. 305 Conclusions and The Future of Democracy Chapter 11. Conclusions and the Future of Democracy 1. Paths of Political Development Revisited 2. Extensions and Areas for Future Research 3. The Future of Democracy 307 307 312 315 Part 6. 319 Appendix Chapter 12. Appendix to Chapter 4: The Distribution of Power in Democracy 1. Introduction 2. Probabilistic Voting Models 3. Lobbying 4. Partisan Politics and Political Capture 321 321 321 326 331 vi CONTENTS Preface A fundamental question in political science and political economy is what factors determine the institutions of collective decisionmaking (i.e., the “political institutions”). In tackling this question a natural initial distinction is between democratic and nondemocratic institutions. Why is it that some countries are democracies, where there are regular and free elections and politicians are accountable to citizens, while others are not? There are a number of salient empirical patterns and puzzles relevant to answering this question. For instance, while the United States moved very early towards universal white male su¤rage which was attained by the early 1820s by northern and western states and by the late 1840s for all states in the Union, such a pattern was not universal in the Americas. Elsewhere, republican institutions with regular elections were the norm after countries gained independence from colonial powers such as Spain and Portugal, but su¤rage restrictions and electoral corruption were much more important. The …rst Latin American countries to implement e¤ective relatively non-corrupt universal male su¤rage were Argentina and Uruguay in 1912 and 1919 respectively, but others, such as El Salvador and Paraguay did not do so until the 1990s almost a century and a half after the United States. Not only is there great variation in the timing of democratization, there are large qualitative di¤erences in the form political development took. Democracy was created, at least for white males, with relatively little con‡ict in the United States, and some Latin America countries such as Costa Rica. In other places however, democracy was often strenuously opposed and political elites instead engaged in mass repression to avoid having to share political power. In some cases, such as El Salvador, repression was ultimately abandoned and elites conceded democracy. In others, such as Cuba and Nicaragua, elites fought to the bitter end and were swept away by revolutions. Once created democracy does not necessarily consolidate. Though the United States experienced a gradual movement towards democracy with no reverses, a pattern shared by many Western European countries such as Britain and Sweden, democracy in other countries fell to coups. Argentina is perhaps the most extreme example of this where the political regime switched backwards and forwards between democracy and nondemocracy throughout most of the twentieth century. What determines whether or not a country is a democracy? What factors can explain the patterns of democratization we observe? Why did the United States attain universal male suffrage over a century before many Latin American countries? Why, once created, did democracy persist and consolidate in some countries, such as Britain, Sweden and the United States, and collapse in others, such as Argentina, Brazil or Chile? In this book we propose a framework for analyzing the creation and consolidation of democracy which we use to provide some tentative answers to some of the above questions. The framework has three fundamental building blocks. (1) Our approach is “economic-based” in the sense that we stress individual economic incentives as determining political attitudes and we assume people behave strategically in the sense of game theory. (2) We emphasize the fundamental importance of con‡ict. Di¤erent groups, sometimes social classes, have opposing interests over political outcomes, and these translate into opposing interests over the form of political institutions, which determine the political outcomes. CONTENTS vii (3) The third building block of our approach is the central role that political institutions play in solving problems of commitment by a¤ecting the future distribution of de jure political power. To starkly illustrate our framework, consider a society where there are two groups, an elite and the citizens. Nondemocracy is rule by the elite, democracy rule by the more numerous groups who constitute the majority, here the citizens. In nondemocracy the elite get the policies they want, in democracy the citizens have more power to get what they want. Since the elite lose under democracy they naturally have an incentive to oppose or subvert it, yet most democracies arise when they are created by the elite. Why does a nondemocratic elite ever democratize? Since democracy will bring a shift of power in favor of the citizens, why would the elite ever create such a set of institutions? We argue that this only occurs because the disenfranchised citizens can threaten the elite and force them to make concessions. These threats can take the form of strikes, demonstrations, riots and in the limit a revolution. Since these actions impose costs on the elite, they will try to prevent them. They can do so either by making concessions, by using repression to stop social unrest and revolution, or by giving away their political power and democratizing. Nevertheless, repression is often su¢ ciently costly that it is not an attractive option for elites. Concessions may take several forms, particularly policies that are preferred by the citizens, such as asset or income redistribution, and are likely to be less costly for the elite than conceding democracy. The key to the emergence of democracy is the observation that because policy concessions keep political power in the hands of the elite, there is no guarantee that they will not renege on their promises. Imagine that there is a relatively transitory situation where it is advantageous for the citizens to contest power. Such a situation may arise because of wars, or shocks to the economy such as a harvest failure, a collapse in the terms of trade, or a depression. If repression is too costly, the elite would like to buy o¤ the citizens with promises of policy concessions, for example, income redistribution. However, by its very nature, the window of opportunity for contesting power is transitory and will disappear in the future, and it will be relatively easy for the elite to renege on any promises they make. Anticipating this, the citizens may be unsatis…ed with the o¤er of policy concessions under unchanged political institutions, and may choose to revolt. In our framework the key problem is that the politically powerful cannot necessarily commit to future policy decisions, unless they reduce their political power. Democracy then arises as a credible commitment to pro-citizen policies (such as high taxation) by transferring political power between groups (from the elite to the citizens). Democratization is more of a credible commitment than mere promises because it is associated with a set of institutions and greater involvement by the citizens and so it is harder to reverse. The elite must democratize— create a credible commitment to future majoritarian policies— if they wish to avoid more radical outcomes. The logic underlying coups against democracy is similar to that underlying democratizations. In democracy minority groups, such as various types of elites, may have an incentive to mount a coup and create a set of institutions more preferable to them. Yet if there is a coup threat, why cannot democracy be defended by o¤ering concessions? Democrats will certainly try to do this, but the issue of credibility is again central. If the threat of a coup is transitory, then promises to make policies less pro-majority may not be credible. The only way to credibly change policies is to change the distribution of political power and this can only be achieved by institutional change— a coup, or more generally, transition to a less democratic regime. viii CONTENTS The main contribution of our book is to o¤er a uni…ed framework for understanding the creation and consolidation of democracy. This framework, in particular, highlights why a change in political institutions is fundamentally di¤erent from policy concessions within the context of a nondemocratic regime. An important by-product of this framework is a relatively rich set of implications about the circumstances under which democracy arises and persists. Our framework emphasizes that democracy is more likely to be created: when there is su¢ cient social unrest in a nondemocratic regime that cannot be defused by limited concessions and promises of pro-citizen policies. Whether this is so or not, in turn, depends on the living conditions of the citizens in nondemocracy, the strength of civil society, the nature of the collective action problem facing the citizens in nondemocracy, and the details of nondemocratic political institutions that determine what types of promises by the elite could be credible; when the costs of democracy anticipated by the elite are limited, so that they are not tempted to use repression to deal with the discontent of the citizens under the nondemocratic regime. These costs may be high when inequality is high, when the assets of the elite can be taxed or redistributed easily, when the elite have a lot to lose from a change in economic institutions, and when it is not possible to manipulate the form of the nascent democratic institutions to limit the extent to which democracy is inimical to the interests of the elite. Similarly, these factors also in‡uence whether, once created, democracy is likely to survive. For example, greater inequality, greater importance of land and other easily-taxable assets in the portfolio of the elite, and the absence of democratic institutions that can avoid extreme populist policies, are more likely to destabilize democracy. Beyond these comparative static results, our hope is that the framework we present here is both su¢ ciently rich and tractable that others can use parts of it to address new questions and generate other comparative statics related to democracy and other political institutions. The topics we address in this book are at the heart of political science, particularly comparative politics, and of political economy. Nevertheless, the questions we ask are rarely addressed using the type of formal models that we use in this book. We believe that there is a huge payo¤ to developing the types of analyses that we propose in this book, and to that end we have tried to make the exposition both as simple and as readable as we can, and also accessible to scholars and graduate students in political science. To make the book as self-contained as possible, we have also added, in Chapter 4, an introductory treatment of the approaches to modelling democratic politics that we use in the analysis. Although the analysis in the book is of most direct interest and generally accessible to political scientists, we hope that there is a lot of material here that is useful for advanced undergraduates, graduate students and academics in economics interested in political economy. In fact, one of us has taught parts of this book in a graduate-level economics course. The main prerequisite for following the entire content of the book is a knowledge of basic ideas from complete information game theory at the level of Gibbons (1992). Nevertheless, we have designed the …rst two chapters to be a generally comprehensible and non-mathematical exposition of the questions we address and the answers we propose. In writing this book we incurred many debts. Over the period of 8 years when we have worked on these topics we have given many seminars on our research from Singapore to Mauritius, from Oslo to Buenos Aires and Bogotá. Many scholars made suggestions and gave us invaluable ideas and leads and we apologize for not managing to remember all of them. However, we would like CONTENTS ix to mention several scholars whose un‡agging enthusiasm for this research greatly encouraged us at an early stage, these are Ruth Collier, Peter Lindert, Karl Ove Moene, Kenneth Sokolo¤, Michael Wallerstein and particular mention should go to Robert Powell, not only for this but also for the intellectual support he has shown us over the years. We would particularly like to thank James Alt for organizing a four day “meet the authors” conference at the Center for Basic Research in the Social Sciences at Harvard in January 2003. The conference not only forced us to produce a draft, but it also gave us invaluable feedback and new energy and ideas. Robert Bates suggested that we change the word ‘political’to ‘economic’in the title of the book and he also suggested the format for chapter 1 of the book. Grigore Pop-Eleches suggested the use of diagrams to convey the main comparative statics of the book and also provided many detailed comments. In addition to the ideas and comments of these people we also received many useful suggestions from the other participants, including Scott Ashworth, Ernesto Calvo, Alberto Diaz-Cayeros, David Epstein, John Huber, Michael Hiscox, Torben Iverson, Sharyn O’Halloran, Jonathan Rodden, Kenneth Shepsle and Andrea Vindigni. We also received useful feedback and suggestions from students at Berkeley and the University of the Andes in Bogotá including Taylor Boas, Mauricio Benitez-Iturbe, Thad Dunning, Leopoldo Fergusson, Maiah Jakowski, Sebastián Mazzuca, and Pablo Querubín. Several friends and students also read large portions of the manuscript giving us invaluable comments and feedback, these include Alexandre Debs, Thad Dunning, Scott Gehlbach, Tarek Hassan, Ruben Höpfer, Michael Spagat, Juan Fernando Vargas and Pierre Yared. We would also like to thank Timothy Besley, Joan Esteban, Dominic Lieven, Debraj Ray, Stergios Skaperdas and Ragnar Torvik for their comments. We are grateful to Ernesto Calvo for providing the historical data on income distribution in Argentina which appears in Chapter 3 and to Peter Lindert for his help with the British data on inequality. Alexandre Debs, Leopoldo Fergusson, Pablo Querubín and Pierre Yared also provided invaluable research assistance. Part 1 Questions and Answers CHAPTER 1 Paths of Political Development To understand why some countries are democracies while others are not, it is useful to distinguish between di¤erent characteristic paths that political institutions take over time. Only some of these paths end in democracy, at least at this moment of time. These stylized paths help us to orient ourselves amongst the complexities of real world comparisons and they illustrate the main mechanisms which we believe link the economic and political structure of a society to political institutions. There are four main paths of political development. First, there is a path which leads from non-democracy gradually but inexorably to democracy. Once created democracy is never threatened, and it endures and consolidates. Britain is the best example of such a path of political development. Second, there is a path that leads to democracy, but where democracy, once created, quickly collapses. Following this, the forces that led to the initial democratization re-assert themselves, but then democracy collapses again and the cycle repeats itself. This path, where democracy, once created, remains unconsolidated, is best exempli…ed by the Argentinian experience during the 20th century. Logically, a third path is one in which a country remains nondemocratic or where democratization is much delayed. Since there are important variations in the origins of such a path it is ...
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