Economic Origins of Dictatorship and Democracy

by Daron Acemoglu

  The logic underlying coups against democracy is similar to that underlying democratizations. In democracy, minority groups (e.g., various types of elites) may have an incentive to mount a coup and create a set of more preferable institutions. Yet, if there is a coup threat, why cannot democracy be defended by offering concessions ? Democrats will certainly try to do this, but the issue of credibility is again central. If the threat of a coup is transitory, then promises to make policies less pro-majority may not be credible. The only way to credibly change policies is to change the distribution of political power, and this can only be achieved by institutional change - a coup or, more generally, transition to a less democratic regime.

  The main contribution of our book is to offer a unified framework for understanding the creation and consolidation of democracy. This framework, in particular, highlights why a change in political institutions is fundamentally different from policy concessions within the context of a nondemocratic regime. An important by-product of this framework is a relatively rich set of implications about the circumstances under which democracy arises and persists. Our framework emphasizes that democracy is more likely to be created:

  • When there is sufficient social unrest in a nondemocratic regime that cannot be defused by limited concessions and promises of pro-citizen policies. Whether or not this is so, in turn, depends on the living conditions of the citizens in nondemocracy, the strength of civil society, the nature of the collective-action problem facing the citizens in a nondemocracy, and the details of nondemocratic political institutions that determine what types of promises by the elite could be credible; and

  • When the costs of democracy anticipated by the elite are limited, so that it is not tempted to use repression to deal with the discontent of the citizens under the nondemocratic regime. These costs may be high when inequality is high, when the assets of the elite can be taxed or redistributed easily, when the elite has a lot to lose from a change in economic institutions, and when it is not possible to manipulate the form of the nascent democratic institutions to limit the extent to which democracy is inimical to the interests of the elite.

  Similarly, these factors also influence whether, once created, democracy is likely to survive. For example, greater inequality, greater importance of land and other easily taxable assets in the portfolio of the elite, and the absence of democratic institutions that can avoid extreme populist policies are more likely to destabilize democracy.

  Beyond these comparative static results, our hope is that the framework we present here is both sufficiently rich and tractable that others can use parts of it to address new questions and generate other comparative statics related to democracy and other political institutions.

  The topics we address in this book are at the heart of political science, particularly comparative politics, and of political economy. Nevertheless, the questions we ask are rarely addressed using the type of formal models that we use in this book. We believe that there is a huge payoff to developing the types of analyses that we propose in this book and, to that end, we have tried to make the exposition both simple and readable, as well as accessible to scholars and graduate students in political science. To make the book as self-contained as possible, in Chapter 4 we added an introductory treatment of the approaches to modeling democratic politics that we use in the analysis. Although the analysis is of most direct interest and generally accessible to political scientists, we hope that there is a lot of material useful for advanced undergraduates, graduate students, and academics in economics interested in political economy. In fact, one of the authors has taught parts of this book in a graduate-level economics course.

  The main prerequisite for following the entire content of the book is a knowledge of basic ideas from complete information game theory at the level of Gibbons (1992). Nevertheless, we have designed the first two chapters to be a generally comprehensible and nonmathematical exposition of the questions we address and the answers we propose.

  In writing this book, we incurred many debts. During the eight-year period that we worked on these topics, we gave many seminars on our research from Singapore to Mauritius, from Oslo to Buenos Aires and Bogota. Many scholars made suggestions and gave us invaluable ideas and leads, and we apologize for not being able to remember all of them. However, we would like to mention several scholars whose unflagging enthusiasm for this research greatly encouraged us at an early stage: Ruth Collier, Peter Lindert, Karl Ove Moene, Kenneth Sokoloff, and Michael Wallerstein. Particular mention should go to Robert Powell, not only for his enthusiasm and encouragement but also for the intellectual support he has shown us over the years. We would particularly like to thank James Alt for organizing a four-day “meet the authors” conference at the Center for Basic Research in the Social Sciences at Harvard in January 2003. The conference not only forced us to produce a draft, it also gave us invaluable feedback and new energy and ideas. Robert Bates suggested that we change the word political to economic in the title of the book, and he also suggested the format for Chapter 1. Grigore Pop-Eleches suggested the use of diagrams to convey the main comparative statics of the book and also provided many detailed comments.

  In addition to the ideas and comments of these people, we received many useful suggestions from the other participants, including Scott Ashworth, Ernesto Calvo, Alberto Diaz-Cayeros, David Epstein, John Huber, Michael Hiscox, Torben Iverson, Sharyn O’Halloran, Jonathan Rodden, Kenneth Shepsle, and Andrea Vindigni. We also received useful feedback and suggestions from students at Berkeley and the University of the Andes in Bogotá, including Taylor Boas, Mauricio Benitez-Iturbe, Thad Dunning, Leopoldo Fergusson, Maiah Jakowski, Sebastian Mazzuca, and Pablo Querubin. Several friends and students also read large portions of the manuscript and gave us invaluable comments and feedback: Alexandre Debs, Thad Dunning, Scott Gehlbach, Tarek Hassan, Ruben Höpfer, Michael Spagat, Juan Fernando Vargas, Tianxi Wang, and Pierre Yared. We would also like to thank Timothy Besley, Joan Esteban, Dominic Lieven, Debraj Ray, Stergios Skaperdas, and Ragnar Torvik for their comments. We are grateful to Ernesto Calvo for providing the historical data on income distribution in Argentina that appears in Chapter 3 and to Peter Lindert for his help with the British data on inequality. Alexandre Debs, Leopoldo Fergusson, Pablo Querubin, and Pierre Yared also provided invaluable research assistance.

  PART ONE.

  QUESTIONS AND ANSWERS

  1

  Paths of Political Development

  To understand why some countries are democracies whereas others are not, it is useful to distinguish between different characteristic paths that political institutions take over time. Only some of these paths end in democracy, at least at this moment in time. These stylized paths help us to orient ourselves among the complexities of real-world comparisons, and they illustrate the main mechanisms that we believe link the economic and political structure of a society to political institutions.

  There are four main paths of political development. First, there is a path that leads from nondemocracy gradually but inexorably to democracy. Once created, democracy is never threatened, and it endures and consolidates. Britain is the best example of such a path of political development. Second, there is a path that leads to democracy but where democracy, once created, quickly collapses. Following this, the forces that led to the initial democratization reassert themselves, but then democracy collapses again and the cycle repeats itself. This path - where democracy, once created, remains unconsolidated - is best exemplified by the Argentinian experience during the twentieth century. Logically, a third path is one in which a country remains nondemocratic or democratization is much delayed. Because there are important variations in the origins of such a path, it is useful to split nondemocratic paths into two. In the first path, democracy is never created because society is relatively egalitarian and prosperous, which makes the nondemocratic political status quo stable. The system is not challenged because people are sufficiently satisfied under the existing political inst
itutions. Singapore is the society whose political dynamics we characterize in this way. In the second of these nondemocratic paths, the opposite situation arises. Society is highly unequal and exploitative, which makes the prospect of democracy so threatening to political elites that they use all means possible, including violence and repression, to avoid it. South Africa, before the collapse of the apartheid regime, is our canonical example of such a path.

  In this chapter, we illustrate these four paths and the mechanisms that lead a society to be on one or the other by examining the political history of the four countries. We discuss the dynamics of political development in all cases, exploring why they ended in consolidated democracy in Britain, unconsolidated democracy in Argentina, and persistent nondemocracy - albeit of different forms - in Singapore and South Africa. Our discussion highlights many of the factors that subsequent analysis will show to be crucial in determining why a society moves onto one path rather than another.

  1. Britain

  The origins of democracy in Britain lie with the creation of regular Parliaments that were a forum for the aristocracy to negotiate taxes and discuss policies with the king. It was only after the Glorious Revolution of 1688 that Parliaments met regularly, and they did so with a very restrictive franchise. The membership of Parliament at this stage was inherited from feudal notions about the existence of different “estates” in society. These orders were the clergy and the aristocracy, who sat in the House of Lords by right, and the commons, who sat in the House of Commons. Members of the Commons were, in principle, subject to elections, although from the eighteenth century through the middle of the nineteenth century, most elections were unopposed so that no voting actually took place (Lang 1999, p. 12). Candidates tended to be proposed by the leading landowners or aristocrats and, because there was no secret ballot and voting was open and readily observed, most voters did not dare go against their wishes (Namier 1961, p. 83; Jennings 1961, p. 81).

  Nevertheless, the constitutional changes that took place following the Civil War of 1642-51 and Glorious Revolution of 1688 led to a dramatic change in political and economic institutions that had important implications for the future of democracy (North and Thomas 1973; North and Weingast 1989; O’Brien 1993; Acemoglu, Johnson, and Robinson 2005). These changes emerged out of conflict between the Stuart monarchs intent on maintaining and expanding their absolutist powers and a Parliament intent on reigning them in. Parliament won. The outcome was a restructuring of political institutions that severely limited the monarchy’s powers and correspondingly increased those of Parliament. The change in political institutions led to much greater security of property rights because people no longer feared predation by the state. In particular, it placed power into the hands of a Parliament in which was represented merchants and landowners oriented toward sale for the market. By the late eighteenth century, sustained economic growth had begun in Britain.

  The first important move toward democracy in Britain was the First Reform Act of 1832. This act removed many of the worst inequities under the old electoral system, in particular the “rotten boroughs” where several members of Parliament were elected by very few voters. The 1832 reform also established the right to vote based uniformly on the basis of property and income.

  The First Reform Act was passed in the context of rising popular discontent at the existing political status quo in Britain. Lang (1999, p. 26) notes

  Fear of revolution, seen as a particular risk given the growth of the new industrial areas, grew rather than diminished in the years after Waterloo, and Lord Liverpool’s government (1821-1827) resorted to a policy of strict repression.

  By the early nineteenth century, the Industrial Revolution was well underway, and the decade prior to 1832 saw continual rioting and popular unrest. Notable were the Luddite Riots of 1811-16, the Spa Fields Riots of 1816, the Peterloo Massacre in 1819, and the Swing Riots of 1830 (see Darvall 1934 and Stevenson 1979 for overviews). Another catalyst for the reforms was the July revolution of 1830 in Paris. The consensus among historians is that the motive for the 1832 reform was to avoid social disturbances. Lang (1999, p. 36) concludes that

  the level of unrest reinforced the case for immediate reform now, rather than later: it was simply too dangerous to delay any longer. Just as Wellington and Peel had granted emancipation to avoid a rising in Ireland, so the Whigs ... should grant reform as the lesser of two evils.

  The 1832 Reform Act increased the total electorate from 492,700 to 806,000, which represented about 14.5 percent of the adult male population. Yet, the majority of British people could not vote, and the aristocracy and large landowners had considerable scope for patronage because 123 constituencies contained fewer than one thousand voters. There is also evidence of continued corruption and intimidation of voters until the Ballot Act of 1872 and the Corrupt and Illegal Practices Act of 1883. The Reform Act, therefore, did not create mass democracy but rather was designed as a strategic concession. Unsurprisingly, the issue of parliamentary reform was still very much alive after 1832, and it was taken up centrally by the Chartist movement.

  Momentum for reform finally came to a head in 1867, largely due to a juxtaposition of factors. Among these was a sharp business-cycle downturn that caused significant economic hardship and increased the threat of violence. Also signif icant was the founding of the National Reform Union in 1864 and the Reform League in 1865, and the Hyde Park Riots of July 1866 provided the most immediate catalyst. Searle (1993, p. 225) argues that

  Reform agitation in the country clearly did much to persuade the Derby ministry that a Reform Bill, any Reform Bill, should be placed on the statute book with a minimum of delay.

  This interpretation is supported by many other historians (e.g., Trevelyan 1937; Harrison 1965).

  The Second Reform Act was passed in 1867; the total electorate expanded from 1.36 million to 2.48 million, and working class voters became the majority in all urban constituencies. The electorate was doubled again by the Third Reform Act of 1884, which extended the same voting regulations that already existed in the boroughs (urban constituencies) to the counties (rural constituencies). The Redistribution Act of 1885 removed many remaining inequalities in the distribution of seats and, from this point on, Britain only had single-member electoral constituencies (previously, many constituencies had elected two members - the two candidates who gained the most votes). After 1884, about 60 percent of adult males were enfranchised. Once again, social disorder appears to have been an important factor behind the 1884 act (e.g., Hayes 1982; Lang 1999, p. 114).

  Following the Great War, the Representation of the People Act of 1918 gave the vote to all adult males over the age of twenty-one and women over the age of thirty who were ratepayers or married to ratepayers. Finally, all women received the vote on the same terms as men in 1928. The measures of 1918 were negotiated during the war and may reflect to some extent a quid pro quo between the government and the working classes who were needed to fight and produce munitions. Garrard (2002, p. 69) nevertheless notes that

  most assumed that, if the system was to survive and “contentment and stability prevail,” universal citizenship could not be denied to men, perceived to have suffered so much and to have noticed Russia’s Revolution.

  Overall, the picture that emerges from British political history is clear. Beginning in 1832, when Britain was governed by the relatively rich, primarily rural aristocracy, strategic concessions were made during an eighty-six-year period to adult men. These concessions were aimed at incorporating the previously disenfranchised into politics because the alternative was seen to be social unrest, chaos, and possibly revolution. The concessions were gradual because, in 1832, social peace could be purchased by buying off the middle classes. Moreover, the effect of the concessions was diluted by the specific details of political institutions, particularly the continuing unrepresentative nature of the House of Lords. Although challenged during the 1832 reforms, the House of Lords provided an important bulwark for the w
ealthy against the potential of radical reforms emanating from a democratized House of Commons. This was so at least until just before the First World War, when the showdown with Herbert Asquith’s Liberal government over the introduction of elements of a welfare state led to substantial limitations of the power of the Lords. After 1832, as the working classes reorganized through the Chartist movement and later the trade unions, further concessions had to be made. The Great War and the fallout from it sealed the final offer of full democracy. Although the pressure of the disenfranchised was more influential in some reforms than others, and other factors undoubtedly played a role, the threat of social disorder was the driving force behind the creation of democracy in Britain.

  The emergence of democracy in Britain and its subsequent consolidation took place in a society that had long shed nearly all the remnants of medieval organization and that had successfully resisted the threat of absolutism. They also took place in the context of rapid industrialization, urbanization, expansion of the factory system, rising inequality, and - in the period after the Repeal of the Corn Laws - rapid globalization of the economy.

  2. Argentina

  The beginnings of the modern Argentine Republic were in 1810 when it declared its independence. Following this period, the country was immersed in a chaotic series of civil wars and internal conflict over the structure of power and political institutions. The chaos finally abated in the 1860s. In 1853, a new constitution was written and, in 1862, Bartolome Mitre was elected the first president of the unified republic. Mitre set about creating a state in the facilitating context of the first of a series of agricultural export booms that would sustain the Argentine economy until 1930. He created a national bureaucracy, taxation system, and legal system, and this period saw the foundation of electoral politics. However,