Prof. Ricardo Hausmann is in top form given the articles he generates at Proj Synd. Really top stuff.
The recent one on what makes democracies tick is a reallyold one. But he conveys the message really effectively:
He begins quoting Adam Smith and then goes to the most current event of missing airplane in Maalysia:
When Adam Smith was 22, he famously proclaimed that, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice: all the rest being brought about by the natural course of things.” Today, almost 260 years later, we know that nothing could be further from the truth.
The disappearance of Malaysia Airlines Flight 370 shows how wrong Smith was, for it highlights the intricate interaction between modern production and the state. To make air travel feasible and safe, states ensure that pilots know how to fly and that aircraft pass stringent tests. They build airports and provide radar and satellites that can track planes, air traffic controllers to keep them apart, and security services to keep terrorists on the ground. And, when something goes wrong, it is not peace, easy taxes, and justice that are called in to assist; it is professional, well-resourced government agencies.
All advanced economies today seem to need much more than the young Smith assumed. And their governments are not only large and complex, comprising thousands of agencies that administer millions of pages of rules and regulations; they are also democratic – and not just because they hold elections every so often. Why?
He goes back to Smith and invokes the invisible hand. Just like we have one for markets there is another one for political system as well:
This is an information-rich problem, and, like the social-coordination challenge that the market addresses, it does not allow for centralized control. What is needed is something like the invisible hand of the market: a mechanism for self-organization. Elections clearly are not enough, because they typically occur at two- or four-year intervals and collect very little information per voter.
Instead, successful political systems have had to create an alternative invisible hand – a system that decentralizes the power to identify problems, propose solutions, and monitor performance, such that decisions are made with much more information.
To take just one example, the United States’ federal government accounts for just 537 of the country’s roughly 500,000 elected positions. Clearly, there is much more going on elsewhere. The US Congress has 100 senators with 40 aides each, and 435 representatives with 25 aides each. They are organized into 42 committees and 182 subcommittees, meaning that there are 224 parallel conversations going on. And this group of more than 15,000 people is not alone. Facing them are some 22,000 registered lobbyists, whose mission is (among other goals) to sit down with legislators and draft legislation.
This, together with a free press, is part of the structure that reads the millions of pages of legislation and monitors what government agencies do and do not do. It generates the information and the incentives to respond to it. It affects the allocation of budgetary resources. It is an open system in which anybody can create news or find a lobbyist to make his case, whether it is to save the whales or to eat them.
So it is not about just elections. There is an entire process which is at place. Most developed countries seem to have understood and developed this process. Hence they are developed too:
Without such a mechanism, the political system cannot provide the kind of environment that modern economies need. That is why all rich countries are democracies, and it is why some countries, like my own (Venezuela), are becoming poorer. Although some of these countries do hold elections, they tend to stumble at even the simplest of coordination problems. Lining up to vote is no guarantee that citizens will not also have to line up for toilet paper.
Not sure whether we can ascribe this reason alone for development. But is a worthy reason.
The invisible hand should be as effective in the political arena as it is supposed to be in the economic arena. Alas this is seldom the case. Moreover, we usually ignore the polity and remain focused on economy. We just don’t realise that it is former that drives the latter. Both are neither independent nor is it the case of latter driving the former. But we just don’t care and keep missing the lessons over and over again. Only when the invisible hand of politics becomes visible via poor governance and malaise do we realise the importance..
But a really good article. Read the comments too..