Persistence of bad governments

Daron Acemoglu, Konstantin Sonin, Georgy Egorov 28 February 2010

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Bad and incompetent governments are ubiquitous in practice. Some of this is just pure theft by regimes that remain in power by force. Burma, the Union of Myanmar, has been ruled by a military junta since the coup of General Ne Win in 1962. The junta has remained in power by force and repression, and is generally thought to be extremely corrupt.
But even in corrupt regimes, one would expect those in the position of affecting the economy, the military or other central social outcomes to be competent. But this does not seem to be the case in practice.

  • The Cuban political elite under Castro have been extremely stable, as Dominguez (1989) shows. Twenty years after 1965, of 11 founding members of the Political Bureau and Secretariat, the highest ruling body of the land, one died and one was demoted, while the rest were still in the Political Bureau. In the meantime, Fidel Castro and the Political Bureau and Secretariat were presiding over one of the worst economic performances in the second half of the 20th century.
  • During the critical years of 1980-1984, five members of the Soviet Politburo, the highest ruling body of the mighty USSR, including three General Secretaries, died (in their 70s) in the office – instead of being replaced when they became too old and the new economic and social challenges required fresh talent and new abilities. The 1980s deepened the economic and political crises in the Soviet Union.
  • The current Iranian government appears to be full of incompetent politicians, leading to ever deepening economic problems, even though the country has several well-trained bureaucrats and aspiring politicians.

Why do autocratic regimes appear unable or unwilling to include more talented individuals in the ruling bodies of their regimes or at least as technocrats?

This question is not only relevant for autocratic regimes, since even in many democratic societies, incompetent politicians appear to remain in power for long periods of time. So a more general question might be: why do bad and incompetent governments emerge and persist under a variety of different political regimes?

One answer would rely on the inability of the society at large or the current rulers to identify talented individuals to whom decision-making powers should be delegated. Incompetent governments are appointed, according to this story, because selecting the right individuals as government members is difficult to both for voters and current dictators. Though undoubtedly relevant in many instances, this story does not explain why incompetent politicians or technocrats remain in power once appointed, and particularly in crucial positions.

A new perspective on bad governments

In recent research (Acemoglu et al. 2010), we develop a different perspective. We emphasise that many regimes, ranging from shades of imperfect democracy to various forms of autocracy, afford a degree of incumbency veto power to current key members of the government. Once they are in power, they can be removed, but they are also in a position to be part of a new government that replaces some of the other members of the government.

The degree of incumbency veto-power loosely corresponds to how many of the current members of government need to be part of the next government. In an ideal democracy, there needs to be no overlap between today's government and tomorrow's. An imperfect democracy would, on the other hand, give some degree of incumbency veto power. For example, out of several key members of a cabinet, one would need to remain in power to create continuity ("somebody who knows how to turn off the lights"), or to prevent the entire cabinet from seizing power.

Our argument is that even this type of minimal incumbency veto power can lead to the persistence of highly inefficient governments, consisting of several incompetent members. Moreover, such governments would be unwilling to include more competent members, even if this would greatly increase the efficiency of the government and the incomes of both the citizens and the members of the cabinet.

The reason is that the inclusion of a more talented new member might open the door for several more rounds of changes in the composition of government, ultimately displacing those currently in power. For example, applying such ideas to the Iranian context, the supreme leader Ali Khamenei and Mahmoud Ahmadinejad would be afraid of including more talented technocrats in the regime, because then they could be part of a move to form another, better government that might exclude Ali Khamenei or Mahmoud Ahmadinejad.

Even though this mechanism looks at first as if it can only have a small impact on the competence level of the government, we show that even a minimal amount of incumbency veto power can make the worst possible government emerge and persist forever. The logic is again the same. The worst government would remain in power when all of its members prefer to be part of the ruling government rather than live under a more competent government, and anticipate that the inclusion of even a slightly more talented politician would destabilise the system.

A natural question in this context is whether more “democratic” regimes, corresponding to those that have lower levels of incumbency veto power, would lead to better governments, with relatively more competent members. We show that this is not the case, and in fact, more democratic regimes can lead to worse governments. This is because lower incumbency veto power, which we identify with greater democracy, makes it easier to replace a given government, but also creates more instability for future governments. This might then discourage any changes by the current government fearing future instability. This result is in fact consistent with the puzzling empirical finding that in the postwar era, democratic regimes have not economically outperform dictatorial ones, even though dictatorships include some disastrous cases such as Cuba under Castro, Iraq under Saddam Hussein or Zaire under Mobutu (see for example, Przeworski and Limongi 1997, Barro 1996, Minier 1999). Some have suggested that this reflects the inherent problems of democratic regimes. Our perspective instead highlights that different shades of democracy and dictatorship will tend to lead to different qualities of governments depending on the initial conditions and other institutional details.

But the question of whether more democratic or more dictatorial regimes are successful under given conditions may be ultimately less important than how they perform under changing conditions. Every regime faces several major challenges, and different challenges likely require different types of skills and different types of politicians to be in power. Winston Churchill’s political career is perhaps the most celebrated example that demonstrates that the skills necessary for successful wartime politicians and governments are very different from those that are useful for the successful management of the economy during peacetime. In a related context, it appears that authoritarian regimes such as the rule of General Park in South Korea or Lee Kuan Yew in Singapore may be beneficial or less damaging during the early stages of development, while a different style of government, with greater participation, may be necessary as the economy develops and becomes more complex (see Acemoglu et al. 2006, Aghion et al. 2009). Recent empirical evidence suggests that more democratic regimes might be better suited to dealing with such challenges, and more successful in bringing to power politicians able to deal with such challenges, than less democratic ones. For example, democracies appear to have less volatile growth rates than dictatorships (see for example Besley and Kudamatsu 2009).

The framework we develop helps highlight why this might be. In particular, it shows that even though more democratic regimes do not necessarily perform better than less democratic ones under given conditions, in the presence of shocks necessitating different competences, more democratic regimes do in fact perform better than less democratic ones. In other words, democracy appears to be associated with greater flexibility in the face of shocks. Our analysis illustrates this by showing that the probability that the best government comes to power is monotone in the degree of democracy (decreasing in the incumbency veto power) when there are changing conditions and challenges (shocks). It also highlights what types of nondemocratic regimes might be better at generating good governments. For example, depending on the value of having the best talent in government compared to the damage that having relatively low competence individuals in government, junta-like or royalty-like nondemocratic regimes might be better.

The issues raised by the selection of the right types of politicians and the persistence of the wrong types of politicians and governments in power are more wide-ranging than those already mentioned here. Nevertheless, this type of analysis, by combining the relationship between political selection and regime types, can generate new insights about why a particularly costly type of sclerosis of governments and elites emerge.

References

Acemoglu, Daron, Philippe Aghion, and Fabrizio Zilibotti (2006), "Distance to Frontier, Selection, and Economic Growth," Journal of the European Economic Association, 4(1):37-74.

Acemoglu, Daron, Georgy Egorov, and Konstantin Sonin (2010), “Political Selection and Persistence of Bad Governments”, Quarterly Journal of Economics, forthcoming.

Aghion, Philippe, Alberto Alesina, and Francesco Trebbi (2009), "Democracy, Technology and Growth", in Institutions and Economic Performance, edited by Elhanan Helpman, Harvard University Press, Cambridge.

Barro, Robert (1996), "Democracy and Growth", Journal of Economic Growth, 1(1):1-27.

Besley, Timothy and Masayuki Kudamatsu (2009), "Making Autocracy Work", in Institutions and Economic Performance, edited by Elhanan Helpman, Harvard University Press, Cambridge.

Dominguez, Jorge (1989), "Leadership Changes, Factionalism, and Organizational Politics in Cuba since 1960", in Leadership Change in Communist States, ed. Raymond Taras (Boston: Unwin Hyman, 1989):129-155.

Minier, Jenny (1998), "Democracy and Growth: Alternative Approaches", Journal of Economic Growth, 3(3):241-266.

Przeworski, Adam and Fernando Limongi (1997), "Modernization: Theories and Facts", World Politics 49(1):155-183.

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Topics:  Politics and economics

Tags:  democracy, dictatorships, governments

Comments

For an example of an adaptive authoritarian government, note Vietnam's acceptance of tecnocrats in running the economy and reforms since the famines and general economic crisis brought about with the end of Soviet subsidy in the 1980s. Also note the continuing tensions between those technocrats and the senior Party politicians.

Professor of Applied Economics, MIT

Senior Lecturer of Managerial Economics & Decision Sciences, Kellogg School of Management, Northwestern University

Professor of Economics and Vice-Rector, Higher School of Economics, Moscow and CEPR Research Fellow