DEMOCRACY, POLITICAL COMPETITION AND PUBLIC DEBT.

• Author: Croitoru, Lucian

Compared to non-democratic societies, authentic democracies are on average more productive, more tolerant, more transparent and freer. For these reasons, they are--as recently stated in The Economist (1 March 2014)--richer, more peaceful and less corrupt (1). And, more fundamentally, people are free to voice their ideas. All these clearly explain man's struggle for democracy.

However, it is less clear for people in democratic societies whether they should opt for leftist or rightist policies in their attempt to maximize their standard of living over the long term. This paper aims to suggest that certain innate or learned preferences of people may very well work against the aforementioned desideratum.

1. Reputation and facts

   Political choices are shaped by a plethora of factors, ranging from cultural to economic ones (Kahneman and Tversky, 1984; Kahneman and Tversky, 1991; Gerber et al., 2010; Healy, Malhotra and Hyunjung, 2010; Valentino et al., 2008; Panagopoulos, 2010; Miller, 2011; Hersh, 2012; UShistory.org, 2015). Under their influence, people shape their preferences with regard to (i) who, among markets and politicians (the state)--the two power centers of capitalism (2)--should play the leading (central) role in running the economy, and (ii) the ceiling which social spending, earmarked for those lagging behind in the economic process, should not exceed.

   People choose those parties whose policies they believe best satisfy these two preferences. Nevertheless, more often than not, most people do not skim through party manifestoes. They choose the parties' reputation. Generally speaking, reputation follows facts but, once it has set in, reputation leads a life of its own and it may take a while before facts can influence it again. To the extent to which reputation becomes separated from facts, the choices no longer satisfy the preferences of the electorate.

   Reputation seems to be a good guide of choices in mature democracies. In these democracies, the reputation of left-wing parties that they favor politicians and of right-wing parties that they favor the markets is still in line with facts to a great extent.

   However, the reputation of right-wing parties of not favoring a larger share of social spending (i.e. the cost of unemployment benefits, public pension provisions, minimum wage and other transfers) in GDP lacks support. Quite on the contrary, in some cases, the share of public debt in GDP rose precisely as a result of higher social spending promoted by right-wing parties. For instance, in the US, the share of expenses incurred with social security programs in GDP rose by almost 10 percentage points from 1965 to 2012, with Republican administrations (i.e. the American right) contributing almost 60 percent (Greenspan, 2013, p.193) (3).

   In younger democracies, parties' reputation is less of a good guide of choices. For instance, the same as in mature democracies, in Romania as well the parties perceived as right-wing struggle with the undue reputation of being adamant to any increase in social spending or public spending in general. There are countless examples to the contrary, yet the reputation has become entrenched. For instance, social spending rose from 9.4 percent of GDP to 10.6 percent of GDP during 1997-1999, when a right-wing coalition was in power. In addition, as compared to 2004, social spending edged up 1.3 percentage points of GDP in the period from 2005 to 2008, when rightist parties were also at the helm. It only got worse in 2010, when budget sector wages and benefits were temporarily slashed by 25 percent. These cuts were the exception that proved the rule stated by Kuehnelt-Leddihn (1988), according to which 'Tighten-Your-Belt parties, if they unexpectedly gain power, generally act more wisely, but they rarely have the courage to undo the policies of the Santa parties'. The aforementioned cuts partly and temporarily undid the reckless policies of budget sector pay rises during the economic boom (4). During that period, the budgetary structural deficit (the cyclically adjusted budget deficit) increased from 2.9 percent of GDP in 2004 to 8.6 percent of GDP in 2008. The wage bill increased from 8.1 percent of GDP in 2004 to 10.3 percent of GDP in 2008. The average public sector wage rose 25.3 percent per annum on average between 2005 and 2008, with the number of employees increasing by approximately 166,000. For the sake of comparison, in the same period, the average private sector wage advanced by 19.2 percent per annum. In the period from 2005 to 2008, the average public sector pension added 30 percent per annum. These increases are quite large in real terms, judging by the fact that the average annual inflation ran at a mere 7.1 percent during the said period.

   The reputation of 'right-wing' parties of supporting the markets is even further away from reality (overinflated) in Romania. Although these parties ruled the country for 11 years during 1997-2000 and 2005-2011, the freedom of property (clarity of property rights) and freedom from corruption still rank among the lowest worldwide (5). The low level of these economic freedoms is indicative of the fact that markets have never played a salient role in running the Romanian economy. Judging by this criterion, which I deem essential, all parties have bestowed the leading role in running the economy upon politicians (a leftist approach), with the outcome that entrepreneurship has barely made its way through (6).

   In terms of demand and supply, there can be two explanations for this outcome. One is that the preference for the market playing the central role in running the economy has manifested itself, yet there was no one there to satisfy this preference. In other words, in the young Romanian democracy, most voters believe that we have parties with genuine right-wing values and policies. They believe that, by voting for these parties, they actually vote in favor of the markets playing the leading role in running the economy.

   We may concede that, while the right was at the helm, markets enjoyed a higher degree of freedom, but they were certainly far from playing the central role in running the economy. Under the presumed explanation, the culprit for this outcome is the parties' overinflated reputation. Normally, a genuine demand for right-wing parties yields--sooner or later--such a political structure not only in name, but also in fact. However, where the former totalitarian regimes wreaked havoc, right-wing parties might not succeed in a short timespan to entrust markets with the central role in running the economy, owing either to the reproduction of the old elites or to politicians' educational background.

   As regards the change of elites, Szelenyi and Szelenyi (1995) showed that changing a totalitarian regime may be associated either with the reproduction of elites (meaning that the technocracy was coopted by the nomenklatura or the absence of a counter-elite 'to replace the nomenklatura at the time of system breakdown') or with the circulation of elites (when there is an already formed counter-elite or the technocracy was not coopted by the nomenklatura). Starting from the theory of reproduction of elites and the path dependency theory, Muntean (2013) points out that the 'founding elections', i.e. the first democratic elections after the dissolution of totalitarianism, set the performance standards for several upcoming generations of members of parliament. According to Muntean, in Romania, owing to the lack of counter-elite, the founding elections enabled the reproduction of the former communist elites, which promoted their former sets of values. In my opinion, these 'old habitus', 'former mental maps' could explain why in the aforementioned periods (1997-2000 and 2005-2008) rightwing parties failed to entrust markets with the central role in running the economy.

   The other underlying cause mentioned above for right-wing parties ignoring the markets when assigning the leading role in running the economy relates to the educational background. Muntean (2014) publishes several statistics indicating that the quality of the educational background, economics included, has declined steadily in the Parliament of Romania. Based on this, we suggest that maybe the right-wing parties and their representatives in parliament either failed to grasp the importance of putting markets at the center of running the economy or they wanted to assign this leading role to markets, but did not understand which reforms had to be promoted in order to achieve this goal.

   The other explanation why markets have never played a salient role in running the Romanian economy (which highlights a situation that is allegedly harder to fix), is that voters perceiving themselves as right wing did not want markets to be assigned the central role in running the Romanian economy. But, from an economic perspective, the leading role of the market lies at the core of what the concept of political right actually means. If the number of those who vote for right-wing parties and who do not embrace this meaning is large, then we do not have a relevant number of genuine right-wing voters. Preda (1994) provides explanations for why 'the Romanians declare themselves more right wing then Westerners' (p. 6) and concludes that 'leftright' is 'a not too relevant dichotomy for Romania and Eastern Europe' (p. 4).

   If this was the case, right-wing parties understood the illusion their voters live with and tailored the economic components of their electoral offers and their governing programs to the voters' actual demand. Thus, the market has so...