Review of “Governing for Prosperity” by Bruce Bueno de Mesquita

I read this on a recommendation from Aretae. I was, honestly, not particularly impressed. It’s basically a summary of new institutional economics, which in turn draws a lot from public choice theory.

The author’s summary:

This book recognizes that deliberate policy failures are ubiquitous throughout history and seeks a solution to this dilemma in the incentives of leaders to stay in office. Political leaders want to stay in power. They are willing to purchase political loyalty at any cost to the economy, including providing privileged access to resources, thereby weakening the nation’s economic performance. . . . Rare indeed are the situations in which political leaders have incentives to be so farsighted as to make substantial sacrifices in the present for the well-being of future generations.

(Hoppe would beg to differ).

Anyway, to explain this paradox, we get a typically, overly-scientific analysis of the current world in terms of an easily digestible number of variables, namely two. The first variable is the “size of the selectorate” and the second is the “size of the winning coalition.”

The selectorate is the group that chooses the ruler. In a democracy, our authors suggest that this is “the people.” The winning coalition is (somewhat vaguely defined as) the portion of the selectorate which is necessary to keep a leader in office.

To the extent that one can learn from this analysis the findings seem obvious. The problem is that the real world is more complex. There are way too many variables that effect quality of government.

Here’s a typical conclusion:

One way to interpret the results is that in dictatorships, an increase in electoral rights tends to increase growth and investment because the benefit from the limitations on governmental power is the pivotal factor. But in countries that have already established a moderate degree of democracy, a further increase in electoral rights impairs growth and investment; in these cases, the pivotal factor is the intensified concern with social programs and income redistribution.

Let me re-interpret the results in another, equally consistent way: In dictatorships that have started to become wealthy, populations often demand political rights. Hence, we see a correlation between political rights and wealth (but the causation flows the opposite way as the author suggested). In more democratic countries, an increase in electoral rights impairs growth because democracy is a crappy form of government.

In one chapter, a different author actually seems to agree, “The fact is that democracy is a tricky matter. It is desirable for its own sake [he doesn't agree with me 100%], and it tends to arise more often and to a greater extent when countries become richer. History (and Froude) indicates that poor countries have difficulty sustaining democracy – when a democracy arises without prior economic development, it tends not to last.”

This is my big problem with the book. The conclusions and the data are too fuzzy to rule out almost any interpretation. In the end, all we get is that rule of law is good. Zero people disagree with this conclusion.

I think most the analysis confuses causation with causality. The authors want us to draw conclusions that types of government lead to economic quality and “representation.” Setting aside the fact that I’m not willing to grant that “representation” is a good, it may be that certain economic levels and levels of political awareness lead to certain types of government. In the end, the statistical is too muddled to be of value. The only valid conclusions are the obvious ones.

(As an aside, I must say that one could probably do a better job of explaining economic outcomes by using one variable: race. There may be some value in picking selectorates and winning coalitions, but on the evidence, one can’t help but notice that states that fail seem to reside in areas with populations of certain races, while states that succeed seem to reside in areas with populations of other races. Obviously, I wouldn’t suggest something so racist . . .)

For example, here’s an obvious conclusion: “Because there is no median voter to consider in autocracies, the quality of their policies, including economic growth policies, would be expected to vary more than it does in democracies. In fact, the variance in economic growth rates for autocracies is about twice what it is for democracies.”

The chapter on the costs of disorder was interesting. It correctly notes that “most economists ignore problems of disorder” and that “creating order is a task necessary to establishing the foundations of long-term economic growth.” Paging Thomas Carlyle.

It goes on to note that, “the key to the consensual basis of political order is the establishment of credible bounds on the behavior of political officials. Put another way, citizen rights and the implied bounds on government must be self-enforcing for political officials.”

I’m not sure this is possible other than through a long evolutionary process (which doesn’t fit nicely into regression equations), but I don’t see why picking a good leader isn’t an option.

The same analysis of crappy incentive structures applies to corporations, yet many many corporations pick good leaders. How is this miracle possible? It’s no miracle at all; corporations have rigid processes to select good leaders. Yes, these processes sometimes fail, but they fail less often the political processes. Why not include corporations in the analysis? It would make the data more interesting, as zero corporations are democracies and all are some for of limited autocracy.

The discussion of Singapore makes one believe that democracy and diverse populations do not go together:

Polarization seems inevitable in Singapore, with its ethnic, cultural, and linguistic diversity. The small state is inhabited by people of Chinese, Malaysian, Indian, Eurasian, European, Iraqi, and Jewish origins; the Chinese, at 77 percent, are the largest ethnic group in the population. In addition, each group tends to live within its own borders, emphasizing their unique identities. Furthermore, ethnic patterns spill into religious affiliations. More than 70 percent of all Chinese profess some attachment to Confucianism, Buddhism, or Taoism. Meanwhile, almost all Malays and many Indians adhere to Islam. Most political and economic elites are at least nominally Christian, though only about 25 percent of the total population claims such a religious affiliation (Gayle 1986, p. 101).

. . .Politically, however, polarization between ethnic or religious groups seems to be insignificant. The government is wary of any policy that divides its people along ethnic or religious lines. Despite the fact that the population of Singapore is largely Chinese, the government chose English as the official national language to unify the various racial, religious, and political sectors.

. . .The introduction of compulsory expression of loyalty to the state, the initiation of compulsory national service, rigid limitations on employees’ bargaining power, and the abolition of trial by jury were among the measures taken by the PAP in the latter half of the 1960s. The effect of such steps has been a significant decrease in the expression of virtually any form of effective political opposition, leading to the extremely high level of social and political conformity in Singapore. Despite [or because of when coupled with such a diverse population?] the lack of political openness in Singapore, the country enjoys a very high level of economic freedom.