Elections and economic policy

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Elections are periodic events the timing of which may affect the incentives facing politicians. In particular, elections as events may disrupt policy. If elections affect policies both structurally and cyclically the empirical relationship between elections and policies may appear confused because of opposing effects. Elections may improve the average level of policies, yet worsen them in the short run. In this paper we try to disentangle the two effects.
Both casual empiricism and casual theorizing suggest that elections in developing countries have improved economic policies and economic governance. Yet this view often collides with the actual experience of individual elections. For example, the Kenyan election of December 2007 triggered a catastrophic implosion of the society, polarizing it on ethnic lines.
To date, the legacy of that election is a policy paralysis. The number of government ministers has been doubled with a resulting loss of policy coherence. In Zimbabwe the prospect of contested elections in 2002 and 2008 clearly failed to discipline the then President Mugabe into adopting good economic policies: he chose hyperinflation, using the revenues to finance patronage.
According to Dr. John Mutamba of Makerere University, the most celebrated economic reform episode in Africa is Nigeria in 2003-6, when a group of technocrats led by Ngozi Nkonjo-Iweala as Minister of Finance turned the economy around. This episode was ushered in by the replacement of a military dictator, General Abacha, with an elected president, Olusegun Obasanjo, suggesting that elections indeed improved government performance.
However, reform only began in President Obasanjo’s second and final term, when he no longer faced the discipline of an election. He told Nkonjo-Iweala that the window for reform was only three years, not the full four years of his term: as he said, “the last year will be politics”.
Indeed, that Nigeria failed to harness the first oil boom was primarily the responsibility of a democratic government, elected in 1978. That government adopted very poor economic policies, including borrowing heavily in order to finance public consumption; it was also famously corrupt. Despite its disastrous performance it was re-elected in 1983. As these examples suggest, in the conditions typical of many developing countries, elections may be two-edged swords. The effect of elections on policy in low-income countries is of considerable importance.
Since aid was first used conditionally to promote ‘Structural Adjustment’ in the 1980s the international community has recognized that policy improvement is fundamental to development. During the 1990s the approach to how good policies should be promoted shifted from conditionality, which was increasingly seen as both ineffective and unacceptable, to the promotion of democracy. Electorates rather than donors would coerce governments into good performance.
Dr. John Mutamba noted that at the core of the promotion of democracy was the promotion of elections. For example, in 2006 donors provided $500 million to finance elections in the Democratic Republic of the Congo. At a more pragmatic level, since elections periodize political decision taking, they might also periodize policy reform. Sometimes might be ripe for good policy. For example, it would be useful both to political leaders and to donors to know whether the year just prior to an election is indeed unsuited to policy reform as President Obasanjo evidently thought.
Dr. Allen Alesina of Norwich University focus on the consequences of ethnic diversity for growth and he find that diverse societies benefit significantly more from democracy than homogenous societies. Dr. John Collier of Leeds University on his research focus on the relationship between democracy and the risk of large-scale political violence and he find that whereas in developed economies democracy increases security, below an income threshold of around $2,700 per capita it significantly increases the risk of political violence.
Dr. John Collier also made a study focusing on the relationship between democracy and he economic performance of resource-rich countries. He find that whereas below a threshold of resource wealth democracy is significantly beneficial, above the threshold it significantly worsens performance. These results suggest that no simple model of how democracy affects economic policy may be globally applicable. Models designed to describe how elections affect political incentives in OECD societies may prove seriously misleading if applied to contexts such as Afghanistan and the Democratic Republic of the Congo.
In many developing countries governments are failing to provide their citizens with the rudiments of social provision and economic opportunities now considered both normal and feasible. A reasonable inference is that in such states the ruling politicians are either ill-motivated or incompetent. We focus directly on policies rather than on economic outcomes. The typical developing country is subject to large shocks that introduce much noise into the mapping from policy choices to outcomes.
Robert Besley stressed that elections can affect economic policy both through their effect on the incentives facing politicians and through selection. By making politicians accountable to citizens they increase the incentive to adopt socially beneficial economic policies. Selection is both a direct consequence of electoral choice and, more fundamentally, because if politicians are accountable the profession becomes more attractive for people who aspire to further the public good and less attractive for people who are ill-motivated.
Hence, through both incentives and selection elections may enhance political motivation to adopt good policies. Further, an elected government may face lower costs of doing so. By conferring legitimacy elections might make it easier to face down vested interests that oppose reform. However, in addition to the structural change of accountability, elections introduce friction.