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by William Easterly

  The theme of this chapter is similar to the last one on free markets: democracy works, but imposing democracy from the outside doesn’t. First the chapter sketches a Civics 101 story of how good government might work through democracy. The chapter doesn’t claim to resolve the many complicated issues of how and whether democracy works. It just gives one angle on democracy that throws it into sharp relief compared with Western assistance—democracy features feedback and accountability, rewarding Searchers, while foreign aid (or, in a later chapter, military intervention) does not.

  But Planners with no feedback and accountability cannot impose a system of feedback and accountability! The chapter makes this more explicit by torturing you with many of the complexities that make attaining effective democracy and good government so difficult, even for insiders, and much more so for outsiders. Finally, the chapter goes through some of the evidence on how donors respond to bad government.

  After the failure of free-market reforms, the next step in the escalation of the White Man’s Burden (mainly in the nineties) was the attempt to foster “good institutions.” With their Sisyphean efforts to transform bad governments into good ones, donors wind up unable to screen out gangsters. We have yet another example of Planners aiming at the impossible, instead of letting Searchers work on the possible. (In two later chapters, we examine how outside Planners try to impose good government through “postmodern” trusteeships and military invasion.)

  Can the State Build the Good Society?

  Government institutions such as courts, judges, and police could solve some of the problems we saw with market transactions in the previous chapter. Impartial courts and police help make the market work in rich countries by enforcing contracts, protecting property rights, providing security against predators, and punishing lawbreakers.

  The Achilles’ heel is that any government that is powerful enough to protect citizens against predators is also powerful enough to be a predator itself. There is an old Latin saying that goes, “Quis custodiet ipsos custodes?”—which translates freely as “Why would you trust a government official any more than you would a shoplifting serial killer?”

  Democracy’s answer to “Who will watch the watchers?” (the more conventional translation of the above) is everyone. The other great invention of human society besides free markets is political freedom. According to the simplest view of democracy, an open society with a free press, free speech, freedom of assembly, and political rights for dissidents is a way to ensure good government. Free individuals will expose any predatory behavior by bad governments, and vote them out of office. Voters will reward with longer terms of office those politicians who find ways to deliver more honest courts, judges, and police. Political parties will compete to please the voters, just as firms compete to please their customers. The next generation of politicians will do better at delivering these services. Of course, no real democracy works anywhere close to this ideal, but there are some that come close enough to make development possible.15

  Assuming good institutions are in place, markets work for private goods, the kind consumed in private, that affect only their individual consumer and nobody else. What about public goods such as roads and water? Another potential achievement of democracy is to provide feedback from the voters on how much and what kind of public good they need. If the voters see a shortage of roads in a particular location, they lobby and vote for politicians who offer increased government road building and road maintenance, financed by taxes on the voters. Political Searchers respond to these needs in return for the political support of the voters, akin to the way that private Searchers respond to consumer demands. The voters will reject a government that allows moon crater–size potholes to develop on major traffic arteries. The existence of little problems such as traffic jams in large cities shows that this does not work perfectly, but it works well enough to make road transport possible on a large scale in rich societies.

  The stylized facts in the data support the idea that democracies do a good job of providing public services. Some World Bank researchers have collected surveys of many different attributes of government around the world. The two that are most relevant here are their measure of “voice and accountability” (democracy) and “government effectiveness” (whether the government fixes your potholes). Of course, these are highly correlated because they both go up with per capita income (which is probably both cause and effect). However, even after removing the effect of per capita income on each outcome, democracy is highly correlated with government effectiveness on delivering public services. Figure 12 shows the parts of democracy and government effectiveness that are not explained by per capita income; the unexplained part of democracy is strongly associated with the unexplained part of the quality of government service delivery.

  Fig. 12. Democracy and Government Service Delivery

  Democracy is a bottom-up system that rewards local, specialized knowledge in a similar way to free markets. In a democracy, the squeaky wheel gets the grease. Whoever complains most vociferously about their local problems, which usually is related to how severe the problem is, will attract the attention of politicians and get a remedy. Democratically elected politicians at the national level will craft solutions to national problems that are more sensitive to the peculiarities of local cultures, social norms, and circumstances than those that outside benefactors would impose. Harvard economist Dani Rodrik calls democracy a “meta-institution” that uses locally specific knowledge to choose all the other appropriate institutions for making a society work.16

  Why Democracy Is Not So Simple

  Alas, democracy is not a quick fix for poor countries, just as free markets are not a quick fix. The road to a stable democracy is even more tortuous than that to efficient markets. Just like markets, the functioning of democracy depends on the slow and bottom-up evolution of rules of fair play. You can cheat at elections just as you can cheat your market customers, as a sorry history of rigged elections around the world illustrates. How to prevent cheating? Just to cite one problem, judges could referee what is fair political competition, but who appoints the electoral judges?

  Even aside from cheating, democracy is an intricate set of arrangements that is far more than just holding elections. Another problem with democracy is that of the tyranny of the majority. If a majority of the society hates a minority, they may decide to abuse that minority. If the majority hates some minority viewpoint, they may vote to censor dissidents. This would limit the free speech and debate that is one of the virtues of democracy. These points are far from hypothetical in poor-country democracies, which are often polarized along ethnic and class lines and where the winners sometimes abuse the losers.

  This is why a complete definition of democracy involves some protection for individual rights and freedom of dissent as well as majority rule. To see why democracy doesn’t work well without these, consider what is known as the paradox of democracy. The paradox is that the majority may vote to abolish democracy.

  To see one way in which this could happen, suppose that the majority wanted to make sure that its preferred policies were followed forever after. They could simply vote to deny the minority the right to vote in future elections. For example, the red states in the United States, which had a slight majority in the 2004 election, might want to make sure that the American government from now on consisted of god-fearing gun owners rather than married gay couples having abortions. So they could pass an electoral reform that denied citizens of blue states the right to vote. Then the majority of the most zealous remaining voters could vote to disenfranchise a less-zealous minority. So now the electorate is down to a little over 25 percent of the citizens. This could keep going indefinitely, until only television evangelists were voting.

  Fortunately, the U.S. Constitution and its amendments guarantee every citizen basic rights such as voting and freedom of speech; usually honest Supreme Court justices enforce the Constitution; and the social norms that would protest such a violation o
f the blue states’ rights are strong. American democracy is not utopia; it is just a system that has worked pretty well to search for good economic results for most people. Social norms may be the most difficult part of building a democracy—many poor countries are far from such norms. A staple of elections in many poor countries is to harass and intimidate the opposition so that they don’t vote.

  Minority rights are even more important in ethnically more heterogeneous poor countries. Unfortunately, the same ethnic heterogeneity makes it less likely that a minority-protecting democracy will evolve, as Philippe Aghion, Alberto Alesina, and Francesco Trebbi of Harvard have recently pointed out. The people who make the rules are going to be those who belong to the majority ethnic group, and they are unlikely to write rules that give away some of their power to a minority group (as Iraqi Sunnis today could testify). Aghion, Alesina, and Trebbi found that checks on the majority’s executive power (and even democracy in general) were statistically less likely with higher ethnic heterogeneity.17 In fact, a recent study found that democracy, as usually defined by Polity IV, does not lower the probability of the most extreme violation of minority rights of all: state-sponsored mass killings (even genocide) of political or ethnic victims.18 A more complete definition of a democracy would include protections for minorities.

  Property Rights and Democracy

  Another form of violation of individual rights could come about if the majority decided to redistribute the income of a minority. This could prove politically appealing if the majority were poor and the minority were rich. Democracy for a long time was viewed as a threat to private property for just this reason. James Madison and Alexander Hamilton worried a lot about this in writing the U.S. Constitution, and they sought to build in checks—such as the Senate and the Supreme Court—against a populist majority. The Fifth Amendment to the Constitution (the same amendment that protects you against self-incrimination) rammed home the rule that nobody could “be deprived of…property, without due process of law; nor shall private property be taken for public use, without just compensation.” But a populist majority could still vote for high taxes on the rich, stunting future development prospects.

  An oligarchy (rule by the rich few) could thus have decent economic growth (even if abysmal justice) compared with a democracy, at least for a while. In a recent paper, economist Daron Acemoglu of MIT talks about the tradeoff between oligarchy and democracy for economic growth.19 The oligarchy has the advantage of eliminating the democratic threat to property rights. This could make economic growth quite high for a while as the elite invested in what they were good at doing, secure that they would get to keep the returns. However, an oligarchy is not a good system for Searchers. The elite protect only the rich who are incumbents, and erect barriers to the entry of newcomers. Acemoglu points out that in the dynamic world economy, the payoff to any particular economic activity is always changing, as old sectors decline and new sectors emerge. A democracy with equal rights for everyone will do better giving opportunities to the Searchers, whom we need to get the new sectors to emerge.

  To make things concrete, Acemoglu gives the example of the Caribbean versus New England in the eighteenth and nineteenth centuries. In the early eighteenth century, the Caribbean was much richer thanks to profitable sugar plantations worked by African slaves and owned by European settlers. The white Caribbean oligarchy invested a lot in the profitable sugar economy, secure in their own brutally enforced property rights over their human and real property. The New Englanders had more democracy, but only modest incomes from family wheat farms, fishing, and the shipping trade. However, New England was able to take advantage of the new technologies emerging out of the industrial revolution, with opportunities for new entrepreneurs to emerge from humble origins. The Caribbean oligarchs just kept on doing sugar, even though sugar’s fortunes declined in the nineteenth century. By the end of the nineteenth century, New England was much richer than the Caribbean.

  Oligarchy, Democracy, and Revolution

  Acemoglu and political scientist James A. Robinson of Harvard also discuss the role of the oligarchy in a fascinating new book, Economic Origins of Dictatorship and Democracy. They see democracy emerging out of a strategic face-off between the rich minority and the poor majority.20 The rich prefer not to have democracy because of the threat of redistribution. However, an even worse threat to the elite is total revolution by the poor, which would destroy the elite altogether. The poor can threaten revolution in order to try to extract democratic concessions from the rich. Often there is only a temporary revolutionary window of opportunity, such as during a war or a major economic crisis. (Although Acemoglu and Robinson had in mind a traditional elite, the rich minority could just as well be a recently created group of political insiders who fed off state revenues.)

  Why don’t the rich just defuse the temporary crisis by promising some redistribution toward the poor, instead of agreeing to democracy? Or why don’t they just repress the poor with military force? Acemoglu and Robinson show that the first option doesn’t work because the poor are not stupid—they know that the autocratic elite can reverse the redistributive policies after the revolutionary crisis passes. Only a permanent institutional change toward democracy assures the poor that they will remain in charge and will permanently benefit from some redistribution.

  Repression could work with a poor, disorganized population, but it gets more and more costly (and less likely to succeed) as the majority gets more educated and has more politically active Searchers (a point that is not lost on the oligarchy, who often block mass education). Under these circumstances, the elite agree to a transition to democracy. Acemoglu and Robinson cite the gradual movement toward universal suffrage in Britain in the nineteenth century as an example. As Prime Minister Earl Grey explained in 1831, well before he launched his world-class brand of tea: “There is no-one more decided against annual parliaments, universal suffrage and the ballot, than I am. My object is not to favour, but to put an end to such hopes and projects…. The principle of my reform is, to prevent the necessity of revolution…reforming to preserve and not to overthrow.21

  The rich gave in more easily to democracy in Britain and America because the design of the new democratic system had some checks against the redistributive powers of the majority. A two-chamber legislature had the upper chamber less under the sway of the majority. A system of winner-take-all elections for legislative representatives (as opposed to holding plebiscites on how much to tax the rich) made the more radical redistributionists unelectable.

  The rich also find it reassuring that they can spend their money lobbying against redistribution. You need just the right amount of protection for the rich under democracy: too little, and the elite won’t want to agree to democracy; too much, and the poor will go ahead and have the revolution anyway. A more recent example is the Chilean military oligarchy agreeing to democracy in 1990, conditional on giving the military enough remaining power to protect the free-market and private-property reforms they had introduced during their bloody tenure from 1973 to 1990.

  In natural-resource producers, or in very unequal societies (these two categories heavily overlap, as we discuss), things will not work out so well. In these societies, the assets of the rich are in land or natural resources, which are much easier to tax than machinery or human skills. The rich thus have much more to lose from a democratic majority deciding on taxes. The poor will choose a higher tax rate, the higher the inequality. (They have more to gain from redistribution if the gap between rich and poor is large, and they have less future income to lose if tax rates penalize income growth.) Poor peasants are also much easier to repress with force than richer industrial workers. Thus perpetual oligarchy is more likely in unequal agrarian or mineral societies than in more equal industrial societies, as Latin America demonstrated for most of the nineteenth and twentieth centuries. Cross-country studies have indeed found the incidence of democracy to be higher in more societies with a higher share of income going to
the middle class—even when addressing possible reverse causality from democracy to the size of the middle class (see figure 13).22

  What has determined different-size middle classes in different countries? Many authors have pointed to natural-resource endowments. Economic historians Stanley Engerman and Kenneth Sokoloff have highlighted the role of sugar plantations and silver mines in contributing to Latin America and the Caribbean’s high inequality (which adds another angle on Caribbean stagnation to that given earlier). The plantations and mines had to be operated on a large scale, and wound up in the hands of a few, and the planters relied on slavery to work the sugar plantations—an extreme form of inequality. You couldn’t grow sugar in North America; wheat was the crop of choice. Wheat could be produced on a small scale, hence a middle class was formed made up of family farmers in the United States and Canada. Heavy reliance on tropical commodities and minerals was also associated with inequality elsewhere in the world.

  Fig. 13. The Size of the Middle Class and Democracy in 2004

  In unequal societies, the violent repression of the poor by the rich creates grievances among the victims of that repression. Violence begets more violence, so violent revolution is also more likely (as opposed to the happy democratic compromise described earlier). Hence, in Latin America, we have seen successful violent revolutions such as that in Mexico early in the twentieth century and in Bolivia (at least an incomplete revolution), Cuba, and Nicaragua; and attempted revolutions such as those in El Salvador,

  Guatemala, and Colombia. The big successful Communist revolutions occurred in poor agrarian societies—Russia in 1917 and China in 1949—not in industrialized societies, as Marx had predicted. Democracy in unequal agrarian societies tends not to last, as it alternates between populist demagogues attempting redistribution and the rich striking back with military coups. Democracy is indeed negatively associated with the share of agriculture in the economy in cross-country data (although the share of agriculture could just be a proxy for income), controlling for the size of the middle class (which remains an important statistical predictor of democracy).