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Principles of Comparative Politics. Chapter 6: Economic Determinants of Democracy. Classic Modernization Theory. Proportion of Democracies at Various Levels of Wealth. Classic Modernization Theory. Modernization Theory
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Principles of Comparative Politics Chapter 6: Economic Determinants of Democracy
Classic Modernization Theory • Modernization Theory • Modernization theory predicts that countries are more likely to become and remain democratic as they become wealthier. • Survival Story–Przeworski • The survival story predicts that democracy is more likely to survive as countries develop and become wealthier, but it is not more likely to emerge. • Przeworski found that no democracy collapsed so long as it had a per capita income higher than that of Argentina in 1975: $6,055.
As predicted by both stories, dictatorship is more common in poor countries and democracy is more common in rich countries.
At first glance, poor countries do appear to be less stable, as the survival story predicts.
Classic Modernization Theory Instead of looking at the raw number of transitions, it is better to look at “transition probabilities.” Pr (Regime Transition | Wealth Level) = # of Transitions to Democracy or Dictatorship | Wealth Level # of Country Years | Wealth Level
Increase in Pr (transition) at low end of wealth scale can be seen as consistent with modernization theory (certain amount of resources may be necessary for ANY change to take place).
Classic Modernization Theory Pr (Transition to Democracy | Wealth Level) = # of Transitions to Democracy | Wealth Level # of Dictatorial CountryYears | Wealth Level Pr (Transition to Dictatorship| Wealth Level) = # of Transitions to Dictatorship | Wealth Level # of Democratic CountryYears | Wealth Level
It seems that the kindof transition a country experiences is a function of wealth.
Classic Modernization Theory • Bottom line. • Increases in wealth make it more likely that a country will become democratic. • And increases in wealth make it more likely that a country will stay democratic. • This is exactly as modernization theory predicts.
A Variant of Modernization Theory • We now look at a variant of modernization theory, which says that it is not wealth per se that encourages democratization but rather the changes in the socioeconomic structure that accompany wealth in the modernization process.
Structure of the Economy • Structural changes in the economy produced a shift in economic power away from traditional agricultural elites who controlled easily observable assets to a rising class of wool producers, merchants, and financial intermediaries who controlled assets that were more difficult to observe. • Key point: The state can really tax or predate only on those assets that they can observe (or count).
Structure of the Economy • Bates and Lien argue that the increased ability of the gentry to hide their assets from state predation changed the balance of power between modernizing social groups and the traditional seats of power such as the Crown. • The Crown, which needed money, now had to negotiate with the new economic elites to extract revenues. • In return for paying their taxes, the economic elites demanded limits to state predation. • This produced the supremacy of Parliament over the Crown.
Structure of the Economy • North and Weingast (1989) present a similar story. • Now that economic actors could hide their assets, the Crown had to find some way to credibly promise not to predate on economic elites. • One way to do this was to give Parliament the power to check the Crown. • This story helps to explain the Glorious Revolution of 1688, which saw the establishment of modern parliamentary democracy in Britain.
Structure of the Economy • In the prehistory of the game, the Crown has confiscated the assets of a segment of the elite represented by Parliament. • The Parliamentarians are faced with three options. • Exit: Disinvest in the economy. • Voice: Petition the Crown for protections against future confiscations in exchange for a promise to continue investing their assets. • Loyal: Keep investing and paying taxes.
Exit, Voice, and Loyalty Game between Parliamentarians (P) and Crown (C) O3: Limited government and growing economy Accept limits O4: Unlimited government and growing economy C Reject limits Demand limits Pay taxes and invest P P Disinvest or withhold production Pay taxes and invest Disinvest and withhold production O5: Unlimited government and stagnant economy O2: Unlimited government and growing economy O1: Unlimited government and stagnant economy
Exit, Voice, and Loyalty Game between Parliamentarians (P) and Crown (C) 1 - C; L Accept limits 0 - C; 1 + L C Reject limits Demand limits Pay taxes and invest P P Disinvest or withhold production Pay taxes and invest Disinvest and withhold production E - C; 1 0; 1 + L E; 1
Structure of the Economy • According to the story we have been telling, the Crown is dependent on the Parliamentarians. • The Crown needs their money to fight wars and so on. • This means that L > 1. • Let’s assume for now that Parliamentarians have mobile assets–they can hide their assets. • They have credible exit threats, that is, E > 0. • This is England in early modern Europe.
Exit, Voice, and Loyalty Game in England 1 - C; L Accept limits 0 - C; 1 + L C Reject limits Demand limits Pay taxes and invest P P Disinvest or withhold production Pay taxes and invest Disinvest and withhold production E - C; 1 0; 1 + L E; 1 SPNE: (Demand Limits, Disinvest; Accept Limits) Observed Outcome: Limited Government and Growing Economy
Structure of the Economy • Let’s continue to assume that the Crown is dependent on the Parliamentarians. • But now, let’s assume that Parliamentarians do not have mobile assets–they cannot hide their assets. • They do not have credible exit threats, that is, E < 0. • This is France in early modern Europe. • In France, the modernization process had not gone so far. Traditional agricultural elites were still in power.
Exit, Voice, and Loyalty Game in France 1 - C; L Accept limits 0 - C; 1 + L C Reject limits Demand limits Pay taxes and invest P P Disinvest or withhold production Pay taxes and invest Disinvest and withhold production E - C; 1 0; 1 + L E; 1 SPNE: (Pay Taxes, Pay Taxes; Reject Limits) Observed Outcome: Unlimited Government and Growing Economy
Structure of the Economy • The English monarchy in early modern Europe accepted limits on its predatory behavior because it depended on elites with credible exit threats (mobile assets). • The French monarchy in early modern Europe did not accept limits on its predatory behavior because it depended on elites who did not have credible exit threats (nonmobile assets).
Structure of the Economy • So far, we have assumed that the state is dependent on some set of elites who either have credible exit threats or not. • What if the state is autonomous–it does not depend on any elites? • This is when L < 1.
Structure of the Economy • If the state is autonomous, there are two possible scenarios. • If elites have credible exit threats • The Crown will ignore the elites, the elites will exit, and the economy will stagnate. • If elites do not have credible exit threats • The Crown will ignore the elites, the elites will remain loyal, and the economy will grow.
Crown Autonomous L < 1 Dependent L > 1 Credible exit 1 – C > E > 0 Parliamentarians No credible exit E < 0
Structure of the Economy Democracy • We expect democracy to emerge only when (a) the state is dependent and (b) the elites have credible exit threats. • Representative government is more likely to emerge and survive when the rulers of a country depend on a segment of society consisting of a relatively large number of people holding liquid or mobile assets. • “No bourgeoisie, No democracy”–Barrington Moore, Social Origins of Dictatorship and Democracy
Structure of the Economy State of Nature • Recall that Hobbes saw the creation of a strong state as a solution to the security dilemma between individuals in the state of nature. • One problem with this solution was that individuals now had to worry about being predated upon by a strong state. • The argument that we have just made suggests that, under some conditions, states will voluntarily agree to limit their predatory behavior. • Under these conditions, no one need guard the guardian because the guardian will guard itself!
Structure of the Economy • The key to the argument is that the state must depend on a group of people with credible exit threats. • A central concept to the viability of exit options is “quasi-rents.” • A quasi-rent is the difference between an asset’s value in its best case scenario usage and its value in its second best case scenario usage. • Examples include oil wells, copper mines, and so on. • This concept allows us to generalize the argument even further. • It’s not just about the mobility of assets–it is also about the type of assets people own.
Structure of the Economy Quasi-Rents • All societies contain some actors who own hard-to-redeploy, or fixed, assets (no credible exit threat). • All societies also contain some actors who own easy-to-redeploy, or liquid, assets (credible exit threat). • Many studies have shown that democracy is less likely to emerge and survive in countries whose economies depend heavily on things like oil production or mineral extraction.
Structure of the Economy Resource Curse • The resource curse refers to the paradox that countries with an abundance of natural resources tend to experience things like poor governance, low levels of economic development, civil wars, and dictatorships.
Structure of the Economy Foreign Aid • The argument suggests that democracy is unlikely when the state is autonomous and does not depend on its citizens. • Foreign aid can reduce the dependence of the state on its citizens. • Numerous studies show that foreign aid to dictatorships harms the welfare of the average citizen in these countries and helps dictators hold on to power.
Structure of the Economy Economic Performance • The argument suggests that democracies should produce reasonably good economic performance. • In contrast, some dictatorships should have pretty good economic performance and some should have pretty bad economic performance.
Empirical Evidence Question • How does a country’s status as an oil producer, its wealth, and its economic growth affect the probability that it will become a democracy?
Dependent Variable: Probability that a country will be a democracy this year if it was a dictatorship last year. Coefficient Standard error A positive coefficient indicates that the variable increases the probability that a democracy will emerge.
Dependent Variable: Probability that a country will be a democracy this year if it was a democracy last year. A positive coefficient now indicates that the variable increases the probability that democracy will survive.
Conclusion • Considerable evidence suggests that countries are more likely to become democratic and remain democratic as their economies become more “modern.” • Higher levels of wealth encourage the emergence and survival of democracy. • Changes in economic structure that accompany wealth also matter. • States that rely on fixed assets that generate quasi-rents are less likely to sustain democracy.
