The Politics of Economic Growth and Stability

In 2014, the United Nations Development Program (UNDP) declared Niger the state with the lowest Human Development Index (HDI), a comparative measure that takes into account the quality of education and healthcare, alongside other standards of living, in a given country. While Nigeriens aspire to see their country side by side with Norway, Australia, and Switzerland—the countries with the highest HDI—the path towards the top has been disturbed by war, famine, and multiple coup d’états. Niger is not a unique case. From Afghanistan to South Sudan, and from the Central African Republic to Burma, countries around the globe are still struggling to escape an ill-favored position of political instability and dire impoverishment.

How some countries manage to escape the poverty-instability trap and build prosperous communities, whereas others cannot, has been revisited frequently by political scientists, economists, and jurists. So far, most of the literature on state building has advised domestic actors and the international community to primarily institute fair and free elections to ensure durable peace and economic growth. Stanford’s Gary W. Cox and Barry R. Weingast challenge this conclusion and offer different policy advice in their newest study. In their analysis, Cox and Weingast conclude that a healthy legislature, which can restrain the chief executive’s ability to carry out unilateral policies, is much more significant to democracy promotion and economic stability than strong electoral accountability, in democracies and non-democracies alike.

Cox and Weingast’s innovation is rooted in their use of a two-dimensional model to classify political regimes. They replace the classical democracy-autocracy dichotomy, which analyzes political regimes based on whether they fall into one of two buckets, with a four-way polity classification. In the four-way classification, countries can have a strong legislature and robust elections, either, or neither. The authors were motivated by their observation that an electoral democracy can lack checks and balances, such as Cuba under the presidency of José Miguel Gómez in 1910, while a monarchy can have a strong parliament, like the United Kingdom in the late nineteenth century.

In this model, the state of the economy depends primarily on capitalists who have the option of investing in the country, moving their investments elsewhere, or simply stockpiling their wealth under a mattress. This decision is based on their perception of the ability of the political system to protect actors from expropriation and other ill-devised interventions by political actors that jeopardize their wealth. The interaction between political and economic actors has two different outcomes. After a certain threshold of trust, investors would have enough faith in the system, and, consequently, capital would flow readily in the economy. Otherwise, investors’ risks would be high, so they would refrain from spending. As a result, the economy would go into recession, and the incumbent’s grip on power would be loosened as dissent grew.

One of their key findings is that the gap between the high-growth-high-stability equilibrium and the low-growth-low-stability equilibrium is contingent on the economy’s reliance on politically sensitive investments. A state with an inadequate legislature would struggle more to escape the poverty-instability trap, the leader of such state would have absolute power supported by the constitution and “economic Hobbesian” capitalists—whose business deals are conducted under the table and might face the axe under a strong rule of law, and political transitions in these countries tend to be violent and bloody. These results may explain why autocracies and democracies have, on average, comparable growth rates, yet economic shocks in the former tend to be more severe.

In short, the authors’ work reemphasizes the importance of executive constraints and political institutions, especially the legislature, in ensuring durable peace and prosperity. Hence, the next time a country escapes the clutches of war, Cox and Weingast’s advice to domestic and international policymakers would be to strengthen the legislature and trim the chief executive’s wings.

Article Source: Executive Constraint, Political Stability and Economic Growth, Gary W. Cox and Barry W. Weingast, SSRN, 2015.

Featured Photo: cc/(ladymay79)