Intro to CP Chapter 9 4x

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Democracy or dictatorship — does it make a difference? CGG chapter 9 Holger L. Kern Department of Political Science Fall 2023 2 / 24 P1’s expected payoff from choosing up : ( 1 / 6 ) × 19 + ( 2 / 6 ) × 9 + ( 3 / 6 ) × 12 = 19 / 6 + 18 / 6 + 36 / 6 = 73 / 6 = 12 + 1 / 6. 3 / 24 P1’s expected payoff from choosing down : ( 1 / 6 ) × 16 + ( 2 / 6 ) × 7 + ( 3 / 6 ) × 11 = 16 / 6 + 14 / 6 + 33 / 6 = 63 / 6 = 10 . 5. 4 / 24

Equilibrium: (up; b, c, e, h, j, l). 5 / 24 overview • Does regime type actually make a material difference in people’s lives? I Do economies grow faster in democracies than dictatorships? I Do people live longer in democracies? I Are they healthier? I Are they wealthier? 6 / 24 overview • In 2017, the ten richest countries in the world by Gross National Income (GNI) per capita were I Quatar ($116,799) I Macao ($95,304) I Singapore ($82,503) I Brunei ($76,427) I Kuwait ($72,872) I Bermuda ($68,113) I United Arab Emirates ($67,758) I Norway ($67,529) I Luxembourg ($65,101) I Hong Kong ($58,420) 7 / 24 overview • Do democratic governments promote higher levels of economic growth? • Theoretical arguments linking regime type to growth focus on I Protection of property rights I Citizens’ incentives to consume rather than invest I Dictatorial autonomy 8 / 24

rule of law • Claim: “Democracies have higher economic growth because they are characterized by the rule of law and the protection of property rights.” who worry that the government will later seize their investments. As you’ll recall, we illus- trated this argument by examining the emergence of limited government in England during the seventeenth century. Although the emergence of a democratic form of government in England at this time was not originally brought about with the specific intention of promot- ing economic growth, it does appear to have had precisely this effect. Indeed, the fact that England had a limited government in early modern Europe but France did not offers a potential explanation for why the English economy grew so much faster during this period than the French one. In effect, the causal logic of this “property rights” argument (Figure 9.1) A Hypothesized Causal Path between Democracy and Economic Growth F IGURE 9.1 Democracy Rule of law Stable property rights Investment Growth 9 / 24 rule of law • The empirical evidence is disputed. I For example, Barro (2000) finds that the rule of law is indeed positively correlated with economic growth. I But he also finds that democracy is not correlated with the rule of law. Democracies are not generally better at protecting property rights. 10 / 24 Meltzer-Richard • Why might democracies fail to protect property rights? • Meltzer-Richard model: I Assumption: Everyone pays a portion of their income (e.g., 20 % ) in a flat tax. The government then divides the tax revenue equally among all citizens. I This implies that anyone with above-average income is a net contributor to the tax system and anyone with below-average income is a net beneficiary. I Net beneficiaries prefer higher tax rates while net contributors prefer lower tax rates. 11 / 24 Meltzer-Richard • Democracies tend to represent the interests of a wider portion of society than dictatorships. Poor people tend to have greater representation in democracies than in dictatorships. • If we assume that dictatorships make tax policy to benefit the rich and democracies make tax policy to benefit the poor, then a change from dictatorship to democracy will lead to higher taxes and a redistribution of wealth from the rich to the poor. • Given the high tax rates in democracies, the rich are less likely to invest and so economic growth will slow down. 12 / 24

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Meltzer-Richard • Three common criticisms of the Meltzer-Richard model: I Poor people are less likely to vote than rich people. Thus, the tax rate in a democracy may not be that much higher than it would be under dictatorship. I Political elites are much more responsive to the policy preferences of the rich than the poor. I Structural dependence of the state on capital: Capitalists can influence public policies such as tax rates by threatening to exit. • These criticisms suggest that democracy may not be as bad for investment and economic growth as the Meltzer-Richard model would suggest. 13 / 24 investment vs. consumption • Claim: Workers prefer to immediately consume their assets rather than invest them. • The intuition is that the poor cannot afford to direct their assets away from immediate consumption — they need to eat and pay their rent today. • Moreover, since workers get to vote in a democracy, they encourage government policy to redistribute assets away from investment to consumption. • If dictators are future-oriented, they can force people to save — which democratic rulers cannot do to the same extent —, thereby boosting economic growth. 14 / 24 investment vs. consumption • Why would we assume that dictators care about generating economic growth? • Why would we assume that dictators care about the (distant) future? 15 / 24 special interests • Claim: Dictators are not subject to as many pressures from special interest groups as democratic leaders, who have to worry about winning re-election. • This autonomy might make them better able to pursue economic policies that grow the economy. Or it might make them worse. 16 / 24

special interests • One argument I Because the dictator is autonomous, he does not need to spend money in an inefficient manner to satisfy different constituencies. I But why would the dictator necessarily promote economic growth? Why would he care about the state of the national economy in the first place? • Another argument I Because the dictator is autonomous, he will act in a predatory way because there is no one to constrain him. As a result, economic elites won’t invest. I But do democracies do a better job of protecting property rights than dictatorships? 17 / 24 special interests • Since the theoretical arguments are not very convincing, let’s take a look at the empirical evidence . . . 18 / 24 Fudging economic statistics? • One concern is that dictatorships might systematically overreport their economic growth figures. We have systematic evidence that this is true. 19 / 24 Fudging economic statistics? • This seems to be particularly true for China, where office holders are under immense pressure to report good news. 20 / 24

Fudging economic statistics? 21 / 24 empirical patterns • Przeworski and Limongi (1993) summarize twenty-one findings from eighteen studies that examined the impact of regime type on economic growth. I Eight found authoritarian regimes grow fastest. I Eight found democratic regimes grow fastest. I Five found that regime type has no effect on growth. • Przeworski and Limongi conclude that “we do not know whether democracy fosters or hinders economic growth . . . . Our own hunch is that politics does matter, but ‘regimes’ do not capture the relevant differences.” • What about measures of material well-being other than economic growth? 22 / 24 empirical patterns The Effect of Democracy on Various Indicators of Material Well-Being F IGURE 9.4 Note: The horizontal axes measure a country’s average level of democracy from 1960 to 1990 as coded by Polity IV. The measure ranges from –10 ( most dictatorial ) to +10 ( most democratic ) . The vertical axes vary by graph. 10 9 8 7 6 -10 -5 0 5 10 Wealth (Log of GDP Per Capita, in Thousands of Dollars) a. Level of Democracy -10 -5 0 5 10 Percentage of Births Attended by a Physician b. Level of Democracy -10 -5 0 5 10 Percentage of Women Receiving Prenatal Care c. Level of Democracy -10 -5 0 5 10 Percentage of Children Vaccinated d. Level of Democracy -10 -5 0 5 10 Infant and Child (under 5) Mortality Rate (per Thousand) e. Level of Democracy -10 -5 0 5 10 Life Expectancy (in Years) f. Level of Democracy 100 80 60 40 20 0 100 80 60 40 20 0 100 300 200 100 0 30 40 50 60 70 80 80 60 40 20 0 23 / 24 empirical patterns • These figures might lead us to think that there is no strong relationship between democracy and material well-being. • However, notice the intriguing triangular patterns in the data. I They suggests that although democracies seldom perform poorly — at least in terms of these indicators —, they frequently fail to outperform a substantial number of dictatorships. I In other words, democracies outperform some dictatorships but not all of them. • What explains the variation in the performance of dictatorships? 24 / 24

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