The Moorish Wanderer

Political Structure and Economic Policy: The Institutional Determinants of Policy Outcomes

Posted in Uncategorized by Zouhair ABH on July 5, 2009

The following is an article of Gary W. Cox and Mathew D. McCubbins, from the University Of California. (the original article could be found here)

Abstract : while political and economic liberty do seem to be conjoined, there is no simple correlation between the two. Countries with only the thinnest veneer of democracy have enjoyed tremendous economic growth, while other new democracies have floundered. In large part, this diversity of outcomes is explained by economic policy. Some polities are able to provide the public goods that are often necessary for economic growth, while others turn the machinery of government toward providing private goods; some countries are able to make long term credible policy commitments, while others cannot.
Why do some democracies choose economic policies that promote economic growth, while others seem incapable of prospering? In large measure, the diversity in economic policy, and the answer to the above question, is rooted in the diversity of democratic institutions chosen by each country. Each polity, according to the divisions and necessities of its society chooses a set of democratic institutions to resolve its basic political problems. These institutions define a sequence of principal-agent relationships (Madison, Dahl 1967).

First, the sovereign people delegate decision-making power (usually via a written constitution) to a national legislature and executive. The primary tools that the people retain in order to ensure appropriate behavior on the part of their representatives are two: the power to replace them at election time; and the power to set the constitutional rules of the political game.
A second step in the delegation of power occurs when the details of the internal organization of the legislature and executive are settled. This process entails the creation of ministerial positions, of committees, and of agenda control mechanisms. Here too constitutional regulations of the relationship between the legislature and the executive (is the legislature dissoluble? can cabinet ministers sit in the legislature?) come into play.
A third step in the delegation of power takes the legislature (or its political chiefs) as principal and various bureaus and agencies as agents. Here administrative procedures and law set the terms of the delegation (McCubbins, Noll, and Weingast 1987, 1989). It is our argument here that the structure of these principal-agent relationships determines, in large measure, the form of public policy. Another important step in the process of delegation takes bureau chiefs as principals and their subordinates in the lower levels of the bureaucracy as agents. It is important, therefore, to recognize that even if politicians employ mechanisms to limit agency loss, the delegation can fail if top level bureaucrats cannot constrain their agents. This issue of internal delegation at the level of the administrative agency raises questions concerning the structure of incentives facing middle and low-level bureaucrats.
Economists have led the way in recognizing the link between political institutions and investment. Economic studies have shown, both theoretically and empirically, that institutional structure can stimulate investment by establishing a credible commitment to
policy (North 1990; North and Weingast 1989; The World Bank 1995; Levy and Spiller
)

The institutions that define the sequence of delegations that democracy entails have systematic effects on public policy. Democratic states that systematically provide public goods are typically seen as having three characteristics: they are decisive; they have the administrative capacity to implement whatever decisions they make; and they are only responsive to broad public interests. […]

It is worthy to note that the global idea behind the article gives the theoritical/ideological support for a constitutional reform in Morocco : there will be a definite positive impact on the economic structure, not only within the local business social groups (at least the small and middle entrepreneur), but also towards foreign investors.

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