The economic effects of political institutions: are post-communist countries different?

Author:Cioroianu, Iulia
Position:Report
 
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Introduction

Iversen and Soskice (2005) suggest that the observed variation in income redistribution among developed countries is rooted in historical institutions that go back as far as the 19th century. However, the framework they propose does little to explain the patterns of redistribution in countries such as those in Central and Eastern Europe, that do not seem to fit any of the existing theoretical models. On the other hand, the common past that these countries share builds an expectation regarding the way they approach similar problems, thus justifying the choice of this particular area for our analysis.

This paper analyzes the impact of political institutions such as electoral laws and forms of government on economic policies, focusing on the size of government and the patterns of government spending (broad vs. targeted spending) in post-communist countries. The main goal is to establish if the existing theoretical models and empirical findings on advanced democracies can be extended to young transition democracies or not. The research will follow the causal chain that starts with constitutional rules, looks at their political consequences and in the end identifies the effects that these political circumstances have on economic outcomes.

Apart and alike. Why is the post-communist block different?

The collapse of communism in Central and Eastern Europe and the dissolution of the Soviet Union demanded new constitutional orders for the newly created democracies. Yet, a big part of the literature on the political and economic environments that characterize post-communist states does not focus on institutional variables. The common held belief is that these variables are not as relevant in new democracies as they are in the established ones. The argument here is that the democratic process needs time in order for political actors to learn the new mechanisms and adapt. However, the new constitutional rules were as much a consequence of the transition process, as a factor that shaped and constrained the process itself. This means that even if cultural variables (like different perceptions on corruption) and social variables (like the importance of clientelistic or even clan structures) might have had a very strong impact on the political and economic systems of post-communist countries, the role played by institutional variables should not be undermined, but further explored.

However, if there are many elements that distinguish developed democracies from emerging democracies, the assumption that institutions should function similarly in both cases needs to be questioned. Institutional provisions will most likely have political and economic consequences that are different. At the same time, the similarities between the transition processes that all these countries went through and the common traits of their constitutional systems are strong reasons for analyzing post-communist countries separately from other countries that went the way towards democratization.

It is not very common for researchers to address the transformations in all post-communist countries as one. Most prefer to distinguish between Central and Eastern European countries and the ones in Central Asia, though the demarcation lines are never very clear. For the purpose of this analysis, what unites these countries is much more important than what divides them. The stages all these states went through are amazingly similar, even if sometimes the timing was different. We would then expect them to show at least a similar institutional structure, built in response to similar challenges.

The existence of a unique institutional profile further justifies the choice to include all post-communist countries in one group. A series of statistical tests (t-tests and chi-squared) were performed in order to verify whether the assumption that post-communist countries have a distinct institutional profile with strong, specific characteristics, is valid. In order to perform these tests, we employ the cross-sectional section of the Quality of Government Dataset (Teorell et al., 2007) (2). The institutional variables that we should be looking at, according to the literature and the purpose of this study, are: electoral formula (and the variation within different types belonging to the same broad category), district magnitude, ballot structure, electoral threshold, number of legislative chambers, the degree of centralization and the regime type. The analysis is performed by looking at democratic countries, in which those who govern are selected through contested elections as defined in the Golder 2005 database, leaving out countries in which the chief executive is not elected, the legislature is not elected, there is no more than one party, or there has been no alternation in power. The measurement years varied slightly between variables, most of them being recorded in 2000, 2002 or 2006.

There is a significant difference between post-communist countries and other democratic countries in the world when it comes to the electoral formula used in parliamentary elections. There are much less countries that use (at the time of measurement) a majoritarian formula in the group of post-communist countries represented in this database, slightly more proportional systems and much more mixed systems than expected (double than expected, 2(2, N = 107) = 10.98, p

Even though a prevalence of mixed systems among post-communist countries is noted, tests have been run for more detailed aspects of electoral formulas. The Electoral system design variable from the International Institute for Democracy and Electoral Assistance has been used for this purpose, and the results show that post-communist countries use much more mixed member proportional systems, parallel systems and two-round systems than expected, and only slightly more list proportional representation systems than expected (2(9, N = 108) = 11.73, p

A t-test for independent means shows that the district magnitude is significantly bigger in post-communist countries (M=32.18, SD=47.41) than in the rest of the world (M=11.24, SD=23.41), t(93) = 2.75, p = .007. There is no difference between post-communist countries and the rest of the world when it comes to ballot structure (2(1, N = 66) .35, p > .1), the number of legislative chambers 2(1, N = 101) = .28, p > .1), or the existence of sub-national governments (2(1, N = 70) = .26, p > .1) but the vote threshold for representation in the lower house is bigger in this area (M=5.38, SD=5.07) than in others (M=1.67, SD=2.3)), t(79) =4.44,p=.007.

Another characteristic of this area is the prevalence of semi-presidential regimes, double than expected, and the existence of less pure presidential or parliamentary regimes (2(2, N = 108) = 10.28, p

There are several possible explanations for the high number of mixed and semi-presidential systems in this area. The first one would originate in the way decisions on the new constitutional rule were made in most of these countries. Usually, the new institutional framework was the result of a negotiation process among political elites, the two sides being the reformers and the conservatives. While the group which had the lowest (or most divided) support at that time would have been advantaged by a parliamentary system with proportional representation, the strong group would have preferred a presidential system and majority, single member districts. Since the political context was new to both sides, none had enough information about where exactly they were standing in the electorate's preferences, so a compromise solution, with which everybody could agree was that of mixed electoral systems and/or semi-presidentialism (the classical example is that of the Round Table negotiations in regimes distribution by democratic post and non-post-communist countries Poland, which resulted in semi-presidentialism, see Benoit and Hayden, 2004).

Another explanation could be that the constitution designers (seen here as benevolent and non self interested), being able to learn from the experience of other countries, wanted to combine the advantages of both types of systems: the high degree of accountability characteristic to single member districts and presidentialism and the broad representation of interests characteristic to PR systems and parliamentarism (see Shugart and Watenberg, 2001).

Table 3 summarizes the characteristics of post-communist countries as a group, when compared to other countries in the world. It shows that in order belief is reinforced by the equal distribution of number of legislative chambers and level of centralization across post-communist countries and other democracies in the world. That is why the focus should be on the role played by semi-presidentialism in this situation. The next section will review the main theoretical models and empirical studies that to capture the consequences of the mix of constitutional provisions, the focus should fall on the distribution of power and especially on the structure of checks and balances that underlines this distribution. For instance, the combination of lower threshold and higher district magnitudes should lead to more proportionality and broader representation, but since these elements are constrained by the electoral formula, the impact of mixed systems should be assessed.

Table 3. Summary. Characteristics of the region The actual number of veto players is strongly influenced by the regime type and the relations between the parties that control the main institutions. This link the three types of variables that we are interested in: constitutional provisions, characteristics of the political system and government economic policies.

Institutional variables Characteristic of the area Electoral formula Much more mixed systems than expected Regime type Much more semi-presidential systems District magnitude Higher Ballot structure No difference Electoral threshold Lower...

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