Download Economic origins of dictatorship and democracy PDF

TitleEconomic origins of dictatorship and democracy
Author
LanguageEnglish
File Size2.7 MB
Total Pages433
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Document Text Contents
Page 1

http://www.cambridge.org/9780521855266

Page 2

P1: ICD

0521855268pre.tex CB919-Acemoglu.cls 0 521 85526 8 September 9, 2005 22:50

ECONOMIC ORIGINS OF DICTATORSHIP AND DEMOCRACY

This book develops a framework for analyzing the creation and consolidation of
democracy. Different social groups prefer different political institutions because of
the way they allocate political power and resources. Thus, democracy is preferred by
the majority of citizens but opposed by elites. Dictatorship, nevertheless, is not stable
when citizens can threaten social disorder and revolution. In response, when the costs
of repression are sufficiently high and promises of concessions are not credible, elites
may be forced to create democracy. By democratizing, elites credibily transfer political
power to the citizens, ensuring social stability. Democracy consolidates when elites
do not have a strong incentive to overthrow it. These processes depend on (1) the
strength of civil society, (2) the structure of political institutions, (3) the nature of
political and economic crises, (4) the level of economic inequality, (5) the structure
of the economy, and (6) the form and extent of globalization.

Daron Acemoglu is Charles P. Kindleberger Professor of Applied Economics in the
Department of Economics at the Massachusetts Institute of Technology and a member
of the Economic Growth Program of the Canadian Institute for Advanced Research.
He is also affiliated with the National Bureau of Economic Research, Center for Eco-
nomic Performance, and Centre for Economic Policy Research and is a Fellow of
the European Economic Association. Professor Acemoglu previously taught at the
London School of Economics. He received the award for best paper published in the
Economic Journal in 1996 for his paper “Consumer Confidence and Rational Expec-
tations: Are Agents’ Beliefs Consistent with the Theory?”, the inaugural T. W. Shultz
Prize at the University of Chicago in 2004, and the inaugural Sherwin Rosen Award
for outstanding contribution to labor economics in 2004. Professor Acemoglu is ed-
itor of the eminent journal Review of Economics and Statistics and associate editor
of the Journal of Economic Growth. He is the recipient of the 2005 John Bates Clark
Medal from the American Economic Association, awarded to the most outstanding
economist working in the United States under age 40.

James A. Robinson is Professor of Government at Harvard University. He previously
taught at the University of California, Berkeley, the University of Southern California,
and the University of Melbourne. He is a member of the Economic Growth Program
of the Canadian Institute for Advanced Research and affiliated with the Centre for Eco-
nomic Policy Research. A 2002 Carnegie Scholar and a 1999–2000 Hoover Institution
Fellow, his research has been published in leading journals such as the Quarterly Journal
of Economics, American Economic Review, American Political Science Review, and
Journal of Economic Literature. Professor Robinson is on the editorial board of World
Politics. Together with Professors Daron Acemoglu and Simon Johnson, Professor
Robinson is coauthor of the forthcoming book, The Institutional Roots of Prosperity.

i

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0521855268c06.tex CB919-Acemoglu.cls 0 521 85526 8 September 29, 2005 20:49

A Dynamic Model of Democratization 199

Similarly, let κ̄ be such that at this cost of repression, the elites are indifferent be-
tween democratization and repression – that is, Vr (O , µH | κ̄) = Vr (D), which
implies that:

κ̄ = 1
θ(1 − β(1 − q)) (δC (τ

p) − τ p (δ − θ)) (6.21)

It is immediate that κ̄ > κ∗; that is, if the elites prefer repression to redistribution,
then they also prefer repression to democratization. Therefore, the elites prefer
repression when µ ≥ µ∗ and κ < κ∗ and also when µ < µ∗ and κ < κ̄ .

Given our previous analysis, the strategies that constitute equilibria in different
parts of the parameter space can easily be constructed. Therefore, we have (as in
Propositions 6.1 and 6.2, stated without specifying the full set of strategies):

Proposition 6.3: There is a unique Markov perfect equilibrium {σ̃ r , σ̃ p} in the
game G∞(β), and it is such that:
� If θ ≤ µ, then the revolution constraint does not bind and the elites can stay in

power without repressing, redistributing, or democratizing.
� If θ > µ, then the revolution constraint binds. In addition, let µ∗ be defined by

(6.17) and κ∗ and κ̄ be defined by (6.20) and (6.21). Then:
(1) If µ ≥ µ∗ and κ ≥ κ∗, repression is relatively costly and the elites redistribute

income in state µH to avoid a revolution.
(2) If µ < µ∗ and κ < κ̄ , or κ ≥ κ̄ and (6.7) does not hold, or if µ ≥ µ∗ and

κ < κ∗, the elites use repression in state µH .
(3) If µ < µ∗, (6.7) holds, and κ ≥ κ̄ , concessions are insufficient to avoid a

revolution and repression is relatively costly. In this case, in state µH the elites
democratize.

Democracy arises only when µ < µ∗, repression is relatively costly (i.e., κ ≥ κ̄),
and (6.7) holds. This critical threshold for the cost of repression, κ̄ , is increasing in
inequality (increasing in θ); more specifically, we can again show by an argument
identical to the one used in the last section that:

d κ̄


> 0

Intuitively, when inequality is higher, democracy is more redistributive (i.e., τ p is
higher) and hence more costly to the rich elites, who are therefore more willing
to use repression.

As also shown by the static model in the previous section, democracy emerges
as an equilibrium outcome only in societies with intermediate levels of inequality.
In very equal or very unequal societies, democracy does not arise as an equilibrium
phenomenon. In very equal societies, there is little incentive for the disenfran-
chised to contest power and the elites do not have to make concessions, neither

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200 Democratization

do they have to democratize. In very unequal societies, the elites cannot use re-
distribution to hang onto power; however, because in such a society democracy
is very bad for the elites, they use repression rather than having to relinquish
power. It therefore tends to be in societies with intermediate levels of inequality
that democracy emerges. Here, inequality is sufficiently high for challenges to the
political status quo to emerge, but not high enough that the elites find repression
attractive. Thus, the intuition behind Corollary 6.2 applies in this model directly.

We show in the next section that even without the restriction to Markov per-
fect equilibria, similar results obtain: revolution can be stopped with tempo-
rary redistribution when µ ≥ µ̃∗∗ where µ̃∗∗ < µ∗ – hence, for a larger range of
parameters – but if µ < µ̃∗∗, the elites cannot use concessions to avoid revolution.

Perhaps paradoxically, a high q makes franchise extension less likely. A high q
corresponds to an economy in which the citizens are well organized so they fre-
quently pose a revolutionary threat. Alternatively, if µL is sufficiently less than
one, then even in this state, the elites have to redistribute to the citizens. In this
case, a low value of µL would also lead to the same result. A naive intuition may
have been that in this case franchise extension would be more likely. This is not the
case, however, because with a frequent revolutionary threat, future redistribution
becomes credible. When the citizens have the power to oversee the promises made
to them, there is less need for the elites to undertake a change in institutions to
increase the future political power of the citizens.

This result may explain why in the nineteenth century, Germany instituted
the welfare state while allowing only a highly circumscribed democracy, whereas
Britain and France democratized much more unconditionally. Social unrest
against the existing system was as strong in Germany as it was in Britain and
France. However, there were significant differences between the three countries
in terms of the strength of the working class under the existing regime. Whereas
there were no strong Socialist parties in Britain and France and trade unions
were of little importance, the Social Democratic Party in Germany was by far
the largest left-wing party in Europe at that time and the labor movement was
strong (although not allowed to participate effectively in elections because of vot-
ing restrictions). For example, Nolan (1986, p. 354) explains the strength of the
German workers movement as follows: “Although Britain experienced the first in-
dustrial revolution and France developed the first significant socialist associations,
Germany produced the largest and best-organized workers’ movement in the late
nineteenth century.” An alternative theory of democratization based purely on
the strength of the working class would predict franchise extension in Germany
before Britain and France. Proposition 6.3, which constructs a theory of democ-
ratization as a transfer of political power, in contrast, predicts that German elites
should have had more flexibility in dealing with social unrest by promising future
redistribution. This is also in part consistent with the actual evidence. Whereas
Britain and France democratized and then increased redistribution toward the
poor, Germany undertook redistribution without changing its nondemocratic

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Index 415

inegalitarian, 244
inequality in, 200
land-intensive, 300
makeup of, 15
oscillations of, 222
plurastically based, 43
postrevolutionary, 118, 357
preferences of, 91

socioeconomic class. See class, socioeconomic
sociopolitical conflict, 285
softliners

hardliners v., 278, 308
identity of, 279

South Africa, 10–14, 354. See also apartheid
democracy in, 23, 26, 51, 354
Dutch settlements in, 10
European presence in, 10
future for, 45
inequality in, 14
male suffrage in, 11
nondemocracy of, 51
trade unions of, 13
white elite of, 13, 15

South Korea, 192
Soviet socialism, 118
Soweto’s riots, 12, 136
Spa Fields Riots of 1816, 3
Stanley, Edward, 269
state formation, 80
static model, 181–186, 225–230, 262, 284
statics, comparative. See comparative statics
strategy

equilibrium, 118
formal definition of, 131
history-dependent, 201
Markovian, 151, 160, 162, 201, 203
Proposition 5.3’s, 149
punishment, 167, 168, 201, 203
Viet Minh, 118, 127

strikes, 180
threat of, 180

structure-induced equilibrium, 178
subgame perfect equilibria, 201
substitution

capital/land, 291
labor, production, and, 290

suffrage, male
Argentina and, 5, 18, 28, 221
Britain and, 18, 270
Latin America and, 5
Sáenz Peña’s establishment of, 28
South Africa and, 11
white, 4

suffrage, universal, 280
Colombia and, 28

surplus

redistribution of, 219
Sweden, 64, 270

democracy’s beginning in, 68
government of, 68
inequality’s rise in, 70
World War I and, 68

Swing Riots of 1830, 3

Taiwan, 192
targeted transfers, 107–109, 246–247

availability of, 302
coup’s and, 246
democracy and, 207
introduction of, 207
societal conflict and, 109
two-class model and, 95

taxation, 33, 36
burden of, 106
capital, 301
costs of, 193, 292
coups influence on
democracy and, 62, 63, 64, 212, 334
elastic base for, 80
elites and, 109, 131, 149
GDP and, 63, 64
income and, 300
inequality and, 106, 242, 244, 261
labor, 301
median voters and, 225
middle class and, 283, 284
nondemocracy and, 204
poor and, 233
progressivity of, 63, 64
promising lower, 297–298
redistributive, 34, 36, 195, 257

tax rates
preferences in, 259–260
reducing of, 283

tax-smoothing, 167, 168, 202
achieving, 168
argument, 168
revolution and, 169

technology
collective action, 231
embedded, 346
Heckscher-Olin model and, 346
importance of, 316
skill-biased, 323, 345, 346, 347

theorem/theory
of democratization, 23–30, 178
envelope, 190
game, 95, 132
implicit function, 102–103
impossibility/possibility, 91
modernization, 54, 76, 77

Therborn, Goran, 180

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416 Index

Third Reform Act of 1884, 4, 269
thought experiments, 215
threat(s)

of coups
elite and, 233
of revolution, 65, 171
of strikes, 180

three-class model, 256, 257, 259–261, 274
Tiananmen Square, 186
Tory party, 267–268
trade. See also international trade

frictions of, 329
integration, 328
model, 345
opening of, 41
unions, 13

trade-offs, 29
concessions v. democratization, 186
median voter’s, 235

transitions
to democracy, 343
to nondemocracy, 56
of regimes, 80, 81

Tupac Amaru Rebellion, 138
two-class models, 90, 161, 104–107

equilibrium policy in, 116
targeted transfers and, 95

Tyler, Wat, 138

Unión Cı́vica, 5
Unión Cı́vica Radical (Radicals), 5
unions, 13
United States

democratization of, 7
Venezuelan intervention by, 180
War of Independence, 69

unrest, social, xiii, 271
democratization and, 65–67

utility function, 292

value functions, 155, 157
citizen’s, 165
recursive structure of, 155

variability, inequality and, 245
Venezuela, 29, 179

caudillismo of, 71
democracy’s reinstatement in, 29
U.S. intervention in, 180

Verwoerd, Hendrik, 12
Videla, Jorge, 7

Viet Minh strategy, 126, 127
Vietnamese revolution, 126
Viola, Roberto, 7
volatility, fiscal. See fiscal volatility
voting. See also probabilistic voting

exclusions from, 174
Germany’s system of, 67
Latin America, 28
majority, 205
PAP’s influence on, 9
political parties chosen via, 89
preferences, 90
restrictions on, 119, 267
swing voters and probabilistic, 363–367

War of Independence, 69
wealth

democracy and, 55
democratic consolidation and, 33, 36
democratization and, 32, 35–37
middle class and, 266

Weimar Republic, 67, 70
welfare

elites and
Germany and, 200

white(s)
ANC’s guarantees for, 210
elites, 13, 15
suffrage of, 4

William of Occam, 16
winners/losers, 91

policies of, 20
Witte, Sergei, 141
workhorse models, 99–113
World Bank, 192
World Politics, 81
World War I, 324

Germany after, 180
globalization in pre-, 41
Sweden and, 68

World War II, 8, 11, 324

Yrigoyen, Hipólito, 5, 352
deposition of, 6
election of, 6

Zaire, 41
ZANU. See Zimbabwe African National Union
Zimbabwe African National Union (ZANU), 127
Zimbabwe, revolutionary war of, 118

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