Learning Objectives

After reading this chapter, students will be able to:

• Define, describe and classify different kinds of political regimes and provide examples
• Explain theories that link democracy and good governance to economic development
• Explain and evaluate criticisms of these theories

Chapter Summary

This chapter analyzes the manner in which authoritative decisions are made and carried out (governance) and the rules and organizations that structure the exercise of power and authority in society (political institutions) to determine their impact on underdevelopment.

Political regimes are the set of rules that are used to select leaders and to determine what powers they have. Mere changes in leadership do not affect regimes; regimes are the underlying rules. Regimes can be democratic or authoritarian.

In a democracy, free, fair and periodic elections are used to select leaders and the population has their basic human rights protected. There are two basic types of democratic systems. The first is the presidential system. The chief executive, the president, is elected for a fixed term separately from the legislature. In a parliamentary system, there are often at least three differences from a presidential system. First, there is often a prime minister who is chief executive and then another person is the head of state. Second, prime ministers are elected by the parliament not by the people. Third, the term of the prime minister can be shortened either by an early call for elections or by a loss of a vote of confidence in the parliament. It should also be noted that there are some semi-presidential systems that combine elements of both systems. Among LDC democracies, presidential systems are most common.

Authoritarian regimes lack free and fair elections to choose leaders, and often lack protections for basic human rights. Six kinds of authoritarian regimes are described in the chapter. Dominant party regimes, like China, are characterized by a single party holding power for an extended time. This party may or may not allow elections, but the dominant party, through control of government, has insurmountable advantages. A second type of authoritarian rule is practiced in personalist regimes, where a single individual has most of the power. The individual tends to be in power indefinitely because there are not rules for replacement of leaders, or those rules are largely ineffective. Military regimes are a third kind of authoritarian rule. Here the military often takes power through a coup. While these regimes were once common, they are rare today. Monarchies are an older type of authoritarian regime, where the leader, typically a king, rules based on a right of family succession. Theocracies are another kind of authoritarian regime ruled by religious leaders applying religious law. Finally totalitarian regimes, like Nazi Germany or the communist USSR, were authoritarian governments that tried to control many aspects of life in order to change society and mobilize support for their underlying ideology.

Many political scientists’ picture authoritarian and democratic regimes at opposite ends of a continuum, with a third group, hybrid regimes, between them. This group has some characteristics of both authoritarian and democratic regimes.

Regimes can change over time. Regimes where there is wide acceptance about the basic rules of the regime are considered consolidated; those where there is much dispute and uncertainty about the continuance of the regime are said to have political instability. An example of regime transition is when Ethiopia changed from a monarchy under Emperor Haile Selassie to a military regime.

Statistical evidence indicates that more prosperous countries are more likely to be democratic. Almost all autocracies occur in LDCs. But there is an important democratizing trend. Political scientist Samuel Huntington has labeled this the third wave of democratization. The first wave occurred in the 1800s and early 1900s as the West and Japan democratized; the second wave occurred in the wake of World War II as some countries re-democratized, and other newly independent countries like India became democracies. After each wave of democratization, reverse waves occurred with some countries switching back to authoritarian regimes. Beginning in the 1970s, the third wave of democratization encompassed all of Latin America, as well as significant areas of Asia, Africa and Eastern Europe transitioning to democracy. In 2010, the Arab Spring revolts may have signaled a new, fourth wave of democracy but it is too early to know this.

There are several other important areas of governance aside from regime type. The norms and processes affecting the bureaucracy are critical in the modern world. One example is the concept of the rule of law. This means impartial rules bind individuals and the government through an independent and neutral judicial system. This differs from simple rule by law, where laws and rules are passed and applied to achieve politically motivated and unfair goals, such as legally oppressing a minority group.

Another important practice relates to the issue of corruption. Since bureaucrats are entrusted with implementing laws and rules, if they routinely betray that trust through accepting bribes or showing favoritism, the policy goals of the legislators can be disrupted. It is easier for corruption to occur when there is a lack of transparency. Transparent systems have well-established procedures that are easily understood by the public and open to observation.

Another important bureaucratic issue is state capacity. This is the ability for the state to efficiently carry out its responsibilities, including the provision of goods and services. This is critical, for example when a state needs to raise money through taxation. Capacity is assisted by high levels of professionalism in the bureaucracy. If officials hold their jobs because of appropriate training, they are more likely to be able and willing to following the relevant legal guidelines. On the other hand, if they owe their position to patronage appointments, they are likely to show favoritism to groups responsible for their appointment.

According to surveys, LDCs tend to rate more negatively on all of these governance indicators than the West. Most analysts today recognize that good governance is significant contributor to economic development; economic policy alone cannot bring economic development. Bad institutions and bad governance create incentive structures that impede development by discouraging work, investment and innovation.

For example, when leaders establish extractive institutions and policies that redistribute wealth from efficient producers to a narrow group, often the political elite, the producers have little incentive to innovate. One way this can occur is through expropriation which is the direct seizure of property. The state can also extract through excessive regulation and taxation or through connivance in theft of state funds or tolerating corruption. They can also encourage rent-seeking behaviors. Rent is the income that a business gains from participating in a market that is not freely competitive; the business tries to maintain or maximize these rents by influencing government to continue the market environment that benefits the business, such as licensing requirements that prevent new businesses from entering markets.

Direct expropriation may be the most economically damaging strategy because it creates a climate that reduces the likelihood of future investment. Theft of state money diverts resources that could have been used for pressing societal needs such as education, health and infrastructure development. Even petty corruption, if widespread, creates bureaucracies with suboptimal skills with little incentive to carry out assigned tasks. Kickbacks (money paid by businesses to win government contracts) produce projects that are of lower quality and more costly than what would have been produced by a fair process. Even petty bribery tends to result in eliminating poor people from accessing government services. Rent seeking behavior produces markets that produce lower quality but more costly goods, limiting the availability of products to consumers, reducing incentives for investment and hard work and limiting the incentive to employ new technology.

The chapter analyzes Zimbabwe as an example of the development problems caused by extractive policies. The country’s agricultural output collapsed after may white landowners found their land expropriated and given to supporters of President Robert Mugabe. Many whites fled Zimbabwe and the country lost their expertise; many of the new occupants lacked the expertise for the type of farming practiced on the land, so production was disrupted. Zimbabwe also allowed the state owned telecommunications company, dominated by the President’s allies, to maintain a monopoly. The company provided poor service; when other investors tried to establish a cell phone enterprise, the government intervened and banned private mobile phones to protect the landline monopoly of the state telecommunication company.

Analysts contend that the solution to these disruptive practices is to create inclusive governance that will prevent the development of disruptive extractive policies. Democratic governance and media freedom will expose corruption and anti-productive policies, helping to avert economic disasters. Democracy provides incentives for governments to act and media provides information for governments to act upon to avert problems like famines.

Aid agencies can help to promote democracy. Support for election monitoring and the development of civil society have been seen as significant by organizations like the National Endowment for Democracy. Organizations like the American Bar Association provide training and assistance on the rule of law. Human rights NGOs can report about individual cases of human rights violations. The process is complicated, because changing political institutions by outsiders is impossible without willingness of the masses and leaders to take the risks necessary to establish democracy. Since democracy is touted as reflecting the will of the people, the people must want it; if they do not, outside efforts are likely to be seen as meddling.

There are critiques of the new institutional economics approach as well. The assumption that good governance and democracy lead to economic growth may actually be reversed. Economic prosperity may cause democracy and good governance. This was the position advanced by Seymour Martin Lipset during the 1950s. Democracy requires mass education, for example and that was more likely to be provided by wealthier society; education was essential to democracy because it tended to moderate citizen’s perspectives and demands, creating a less polarized society. Countries such as Chile, Taiwan and South Korea experienced economic growth under dictatorships and only converted to democracy after reaching a certain level of prosperity. Further, professional bureaucracies and independent judiciaries are costly, thus suggesting economic development must occur first. Underpaid state workers are more likely to resort to bribery and theft.

Another approach contends that authoritarian governments are better than democracies at promoting economic growth. Samuel Huntington argued that poor people would prefer consumption rather than saving for investment, thus preventing growth. Authoritarian governments can ignore this preference by the poor masses, while a democracy cannot.

Statistical evidence is mixed. Some countries have been able to experience dramatic economic gains under authoritarian and even corrupt dictatorships, while others remain mired in poverty.

The chapter case study analyzes China’s history of authoritarian rule as a possible explanation for its poverty. Six hundred years ago, China’s relative prosperity compared to the West started to decline as its emperor, fearing that international trade would empower merchants to challenge his rule, ordered an end to overseas expeditions. Even as China attempted to modernize economically since the early 1900s, extractive institutions dominated, suppressing the ability of the Chinese economy to fully develop. It was only as China started to change these polices in the 1970s that it experienced an economic boom. This account conflicts with the Chinese government analysis which contends that it was authoritarian government itself that created the conditions for prosperity.