Friday, 7 March 2014

What happened to our dream of democracy? Part 2: Democracy's critics

In the first part of the series of texts on democracy I focused on the problem of democratic consolidation as one of the major criticisms directed at democracy as a system. Many suffer under the perception that some countries simply aren't fit to have a Western-type democracy. They have been too long embedded in an authoritarian system and cannot seem to shake some of its negative mentality. The people in such countries persistently yearn for strong leaders (when they lack one), call for nationalization of private companies in times of crises, and in general call for a more firm state control over the economy, not realizing that the major problem of such countries is state inefficiency, rather than market inefficiency. 

On the other hand, the critics claim, the Western-type model of democracy isn't all that great either. The recent global crisis (along with the rise of China) has exposed all its problems; dysfunctionality and political gridlocks that only worsen the crisis have become a standard in the US and Europe. Government bank bailouts and rapid accumulation of debt stroke a huge blow to the positive perception of Western democracy and capitalism itself. Many Western intellectuals changed their tune as well, calling for "state capitalism" (which is arguably the worst type of capitalism), and boasting China as the new leading world superpower. There was supposed to be a change in the existing world order. This will all end soon. China is suffering from its own problems of having to deal with a huge shadow banking sector and enormous malinvestment. The problem of political freedom in state capitalism is becoming an even bigger burden for these countries (Russia, Ukraine, Argentina, Turkey, Brazil, Venezuela, etc.) and is biggest reason behind mass anti-government protests and resentment in the population. Political freedom (political inclussivness) is the key element of sustainable democracies. It is the crucial necessary assumption that creates scope for higher economic inclusinvess. This is why the West will, after all, prevail. 

Inequality in democracies (vol 2)

Regardless of all the banter, on average democracies are still richer than non-democracies (including those with state capitalism), have higher living standards, are better educated, and in some cases have lower inequality (although this isn't entirely conclusive). Mass protests in non-democracies (or semi-democracies) all have one thing in common - a clear goal: the fight for more political freedom and the fight against government corruption. The protesters are fighting for a better democracy, a system without political or corporate state capture, a system without constrains on free speech, and most importantly a system without such high levels of inequality. 


In fact, the central recent issue with democracies also revolves around inequality (and to some extent social mobility). Particularly after the crisis. As I've written before this too can be, in part, attributed to the negative outcomes of the political process in democracies. Various interest groups dominate the political process in biasing the budgetary expenditures towards their preferred goals; politicians themselves engage in direct or indirect vote buying (either through gerrymandering or by giving direct concessions to their support groups); budget-maximizing bureaucrats also add to the rise in government spending which isn't targeted towards the general population (recall Niskanen's bureaucracy model); political campaigns are financed heavily by the corporate sector desiring favorable legislation, etc. All of this signals a poor image of the Western-type democracy. It has failed to become fully robust to cronyism. There's only a handful of countries that are able to withstand the pressure of cronyism (albeit not perfectly) and maintain an efficient democracy. Scandinavian countries are a good example. 

The type of democracy infected by cronyism also needs changes. However it seems this would be far more likely in a system with high levels of political freedom. Changing the corrupt political system is always going to be a hard, daunting and long-lasting process, but with higher public scrutiny and calls for bigger transparency of the political process, it is far more likely to image this happening in the West, rather than in state capitalism semi-democracies. 

Political gridlocks

The problems of political gridlocks are doing no favors to democracies. Unelected technocratic governments failed to solve the long term problems of countries where they were imposed. They lacked the political legitimacy to fully implement the necessary reforms. Italy is a case in point here, where the electoral process was brought to the utmost absurd when an anti-establishment comedian got 25% of the votes in the last general election. Italy has faced three unelected Prime Ministers since then (each doing a decent job however). Such political gridlocks often result in unstable coalitions and logrolling, very often against the best interest of the voters. 

The US political gridlock back in August 2011 almost caused the end of the Eurozone a few months later. Such is the strength of negative reinforcement in modern economies. Their further gridlocks over the fiscal cliff did spread panic, but less than before as the markets accommodated to the possibility of such scenarios.  

On the other hand Italy was always known as a country prone to political instability and parliamentary quarrels, while in the US the Dems and the Reps are more polarized than ever on account of Obamacare and are stopping at nothing to undermine each other in Congress. But this far from justifies the failure of democracy in these cases. 

Furthermore, even when the election process works and doesn't deliver gridlocks, it can still yield negative outcomes such as the abrupt rise of extremist parties in Europe (which is true not only in the so-called periphery but in the UK, France, Holland or Finland as well).

Is there any hope left?

So basically, even if you somehow surpass an inefficient electoral process , it can still deliver faulty results. It can give power to corrupt or extremist candidates (the problem of selection into politics), it can result in cronyism and rising interest group power linking up with rising inequality, and it can often prove to be very inefficient in making quick decisions (think of the many negotiations back in 2011 between EU's leaders on solving the Eurozone crisis - their slow responsiveness almost ended the euro). 

There is still hope however. All these deficiencies can be solved by applying strong political will from those in power. This however faces further problems: (1) if selection into politics is negative than how can we expect to elect someone who will be competent enough to pull the series of necessary institutional reforms? and (2) we're actually expecting from the politicians to undermine their own power. 

This is where political inclusinvess and political freedom comes in. Even though politicians can do a lot in securing their electoral victories through vote-buying and gerrymandering, it will be hard for them to continue doing so indefinitely. Particularly if the momentum for change is strong enough. As Victor Hugo once wrote: "There is nothing more powerful than an idea whose time has come."

More on this in the forthcoming text. 

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