Lund University STV403 Department of Political Science 19941027 Rational Choice Models - Concepts and perspectives Bo Bjurulf Malte Lewan CRITISISM OF THE SYSTEM OF POLITICAL COMPETITION Contents: 0. Introduction 1. The Political Business Cycle 2. Collective Actions 3. Bidding up voters' expectations 4. Pork Barrel Politics 5. Invisible costs 6. Agency - politician links Y. Summary --- 0. Introduction In an oversight of the new right theory, Dunleavy and O'Leary (1987) describes many of the key elements of public choice theory's criticism of some functions of the state. The phenomena of "log rolling", "pork barrel politics" and "politician's activism" are discussed as well as institutional entropy and the budget maximization of bureaucrats. But this critique is broad in character and is used as a general argument for rolling back the state and use the market as allocator of resources. I got curious and wanted to distinguish a few of the stated troubles that I thought could be different in the way that they could be solved within the state. The explicit question I want to answer in this text is which ones of the public choice problems are specifically, critisism of the system of political competition? And in what way? And thereby, which ones could be corrected by deleting this intermediate stage, substituting the indirect democracy with direct? As we'll see later, much of the public choice school's blame of the public sphere is directly linked to the actions (or inactions) of politicians. But if I've chosen some functions that seem to be dependent on the link of politicians, what sorts of problems did I omit? Well, first of all, I was picky. If there was any doubt that the problem would occur either with a direct link from the voters preferences to implemention or not, I left it out. One example is the inability for a state to do carefully targetting of benefits for the poorest only (Dunleavy and O'Leary 1987:p109). It could be argued that the power of the interest organisations play a crucial part in that, but in general, the argument is that proposals can't pass if not the majority (the median groups) are benefitted. That wouldn't change in a direct democracy. A more clear case of what wouldn't change is the Niskanen's over-supply thesis for government agencies (Dunleavy and O'Leary 1987:pp117-119) which critices the process _after_ the formal decision is taken. No matter the history behind. So I picked out six points and I will describe how public choice theorists argue on those. How does the link of politicians create problems and which ones? 1. The Political Business Cycle One problem rational choice writers have with the political competition process is that they claim it artificially creates business cycles. When Mueller (1989) desribes this, he starts out with explaining the Phillips curve which is an idea that a government can either choose low inflation _or_ low unemployment rates, but usually can't have both. The Phillips curve is questioned today (there are theories that it's possible to have a very low inflation rate and still keep unemplayment low in the long- run) but Mueller says it was believed to hold true in the past, and so can be used to analyze political policies then. Mueller says that there is considerable evidence for that voters judge their government on its ability to provide low levels of unemployment and inflation. He shows this rather thouroughly by statistics from elections and opinion polls in different countries. (The emphasis different people put on these concepts differ by type of work and income though.) Incorporated in the Phillips curve concept is that in very short term, it's possible to create low unemplyment _while keeping the low inflation_. The economy will sone return to the ordinary relationship between inflation and unemployment but immidiately before an election, doing this this can increase a government's chances of being reelected. Judging from Mueller, though this policy is especially serviceable for governments that can choose day of election themselves, it can be used for others as well. On a more personal note I think that accepting the political business cycle also implies that you you leave the concept of the fully rational, fully informed voter. Voters can then be fooled. I have to add though, that another emphasis on spreading information (and constantly reminding) about the cost of increased transfer payments etc might solve the problem, at least partially. Mueller tells about another political climate in the USA in the 19th century when it was politically impossible for the current government to accept getting a deficit. That is interesting. There are other policy variables than inflation and unemployment that can affect number of votes a party receives and Mueller wants to talk about them to create a "complete model". The most simple way to gain votes immidiately before an election can be to increase the income for people by increasing transfer payments. It's possible to achieve excellent timing this way and also pinpointing voters that might be important for the outcome of the election. Also the tax cut is a possible variable to change in order to get votes. To finance these sudden increases in transfer payments, tax increases might be one solution. According to Mikesell (1978), the tax increases are occuring in off-election years, just like one could expect. Buchanan and Wagner (1977) claim that tranfer increases are so attractive to the vote-maximizing politician that (as I understand it), the politicians never even make up for these increases in expenditure fully. To finance the deficit that follows, the government can issue bonds or print money. Inflation is then of course the result. They also explain how the simple workings of the business cycle puts the equilibrium along the Phillips curve to an extreme high inlationary point with only a somewhat lower unemployment rate. Mueller writes at one point this though: "Although there exists clear evidence that some governments in some countries at some points in time has behaved as the political business cycle predicts, the evidence is not strong enough to warrant the conclusion that this type of behavior is a general characteristic of democratically elected governments." Paldam (1979, 1981) does not agree with the political business cycle hypothesis at all. Empirically, he found increases in the governmental expenditures in the second year after the election. These expenditures were to keep campaign promises and reward the supporters. This might be an indication that voters have more long-term memory than usually calculated with. Mueller ends his text with the conclusion that if the Keynesian premise that government can determine the macroeconomic performance (and thereby should be given the moral right to interfere with economic life) is accepted, the industralized nations' governments are responsible for the worsenings of their economies (he shows this statistically). He says that the decline "must be assumed to be the direct or indirect consequence of the competition for votes between political parties." The only two countries in the early eighties with budget deficits of less than 1 percent of GDP is the oil-rich Norway and Switzerland. Switzerland is the only country in the table for which parties do not compete for the privilege of controlling the central government." It also has the best long-term deficit statistics. Switzerland is the world's only direct democracy. 2. Collective Actions Even though the classifications in the two paragraphs below are not involved directly in the main text until the end of this section I think they give an important guidance of thinking, when reading the rest. Interest groups lobby for public goods. Olson (1965, 1982) distinguishes between three categories of groups: privileged, intermediate and latent. As a first and slightly erroneus explanation, they can be called small, medium and large. In a privileged group, there are at least one member who would be willing to buy the whole public good by himself if he had to. An intermediate group is not privileged but it's not bigger than every member can be aware of al the others actions. Most groups though are 'latent'. They might actually not be a group in an active sense at all. It might be the unemployed in a country that don't organize themselves. Another classification of groups made by Olson is into producer groups, consumer groups and altruistic groups. The most powerful of these is the producer group in which both capitalists and labour unions are included. Consumer groups have no sanctions and are weaker. Altruistic groups is even weaker because they aren't motivated by self-interest. Lobbyists have been critisized from the 18th century by a number of normative political theorists. They have complained that groups distort democracy and politicians give them too much weight, instead of finding out what the people want. But to the important pluralist movement since Bentley (1908), the interest groups are a very important part of democracy. Public choice is generally strongly opposed to this idea. Olson is one of the critics. According to MacLean (1987), the political lobbying of a trade union is not a by-product of its other activities, it can well be the main reason for its existence. Lobbying can be very lucrative. They gain some utility or maybe even cold cash by the public good a new governmental policy can constitute. Well, MacLean says that Olson gets so caught up in this that he sometimes forget about that politicians still are vote-maximizers and that the people have a guarantee for power in voting in this field. But, says MacLean, one has to remember that interest groups have voting power themselves by advising members to vote for a political group depending on the group's stated stands on different issues. My remark to that is that I question whether it can be called a real voting power of the interest group since the result of the groups advice always is depending on the members, who in turn are a part of the people that is put in contrast to the power of the interest groups in much of this literature. A more clearcut power I think interest group possess in themselves, is MacLean's second point that politicians may need groups to pay their expenses and more generally expressed perhaps, that the economic policies by the interest groups affect the economic situation the politicians face when carrying out _their_ policies. MacLean uses quite nicely the words lobby power and vote power as the different forms of external powers enforced on the government. We should not commit ourselves in advance to which is the stronger, but MacLean says that _neither_ always override the other. There are examples of issues both when lobby power has been the stronger and when vote power has been the master. (He states some American (as usual :-( ) examples.) A problem with the power of interest groups is that the individual power of a group need not be in any way related to the number of citizens it represents. For example, the consumer groups are almost always without great power. This general dilemma is fatal to Bentley's pluralist model and most others as well, says MacLean. It might be interesting to study the interaction between lobby power and vote power which Olson does not do, says MacLean. Olson doesn't take this into account, he says. Though the interest organisations in Switzerland are strong ("a very differentiated, pluralist structure of interest organisations", Lehner, 1983, p 204), the country had the lowest tariff protection of 18 OECD countries listed in Olson (1982, p 134) and a high growth rate. Mueller thinks that this is explained by the fact that the interest organisations have much less use of striking bargains with politicians since the real power lies with the people, exercised through referenda. The lobby power is almost non-existant and only vote power remains. The redistributional struggles that are so saliant in so many other countries are not very prominent in Switzerland though a fractionalized interest group structure. If Olson had been more interested in an analysis of _how_ interest group pressure is channeled by the political and economic institutions, he could have predicted this. 3. Bidding up voters' expectations Dunleavy and O'Leary write that opposition politicians often claim that much better policy results could have been attained than the ones the incumbent government has actually achieved. This would be rational by the opposition since by doing that, they make the ruling government look bad and it would be easier for the them to win the election. Since they are not in office, they have no reason to hold back. Immidiately before the election, even the current government will talk about a wonderful future if they are reelected. The voter's expectations are increased. Of course, the then elected may have trouble explaining why they couldn't fulfil their promises later, but in the competition to get into office, no party can afford to give accurate information. They have to play this game to get into power. Dunleavy and O'Leary's reasoning ends here but one can connect to the text about the political business cycle and well imagine that Buchanan and Wagner's ideas are valid here too: that the voter's expectations put the government under such preassures that issuing bonds or increasing money supply is a tempting solution. 4. Pork Barrel Politics This a problem that comes up when a politician or possibly a small group of politicians are very exposed to interest group pressures or simply pressures from the part of the voters that elected him/them. The term is based on an American situation with a Congressman elected by his constituency, but could equally well, as I understand it, be for example a minister of argicultural affairs whose party is very much depending on the votes of farmers. The trouble is that the support of the group the politician is depending on, is so crucial that the public interest and the big picture comes second. The politicians political survival is most important. It is probably rational behavior from his point of view as a vote maximizer. I can even imagine it's rational from the different fractions of the people's point of view. It's the system that is at fault. It's a prisoner's dilemma where we end up in the worst square. Rational choice authors believe that "political input processes have only a limited and badly flawed ability to communicate citizen's views" (Dunleavy and O'Leary 1987). I don't know that much about pluralism but is lack of ability so important in the short run for this school? Is the dicretion of politicians a part of that theory or is it solely belonging to the elitist theories? If not, pluralism sucks. 5. Invisible costs Politicians might frequently and carefully target certain groups of people and give them specific highly visible benefits but when financing this, spread the cost over the largest number of other citizens. That way, the increase of cost will be so small for each individual that the government won't be politically hurt to any great extent. Few will notice, exept the group that got the benefit. 6. Agency - politician links Governmental agencies often establish links with sectional interests and appopriate politicians in order to secure favorable political conditions for their own existence. Even agencies which fulfils a function that is clearly in decline will do this to maintain budgetary fundings and ensure its own survival. It may be very unefficiant to keep these and also creates an unnecessary growth of the state. --- X. Appendix What also is very tempting is to add explanations for the size and growth of government to this paper since some of the explanations mentioned in Mueller could be very dependent on the party competition. But since the title of this text is "The Critisism..." and state growth can't a priori be considered something negative to the development of a country. Y. Conclusion I have now answered which ones of the classical public choice problems I could find that were critisisms of precisely the system of political competition. I will now compare them a bit and conclude my statements. There are some connections between the now mentioned problems, like for example between the (1) political business cycle and (3) bidding up voters' expectations. By the (1) improving the economy in a short perspective, there is both an improvement in itself that makes people think the goverment has succeded, and there is a rise in expection of future economic performance with the same government. In the (3), the emphasis is not on action, it's on talk and persuasion, and it's non- specific while the political business cycle is desribing _specific sorts_ of (economic) actions. Furthermore, it's only in the power of the incumbent government to perform these. You could also see connections between (2) collective actions and (4) pork barrel politics while sectional interests may well be represented within the government and 'bring home the bacon' for the organisations. But the latter is a rather special case of "lobbyism" and concerned with vote power more than with lobby power. Of course, MacLean talks about the vote power of interest groups and in that case, the distinction becomes blurred. Also, when the (5) government is benefitting certain groups of people and distributing the costs "invisibly", we can see some parallels with the (2) collective action problem. Naturally, the interest groups can be the driving force for this kind of behavior, and are also a grateful and obvious target for gifts from a government. But - the existence of lobby organisations is not a necessity for the government to find this behavior advantageous. The (6) agency - politician links are different from the rest in that it's part of the bureaucracy that searches for protection among the politicians. But they don't mind cooperating with interest groups as well, of course. Then the alliance can be much stronger. The six examples are different in many ways, and are mostly held together by the notion expressed in the introduction, that they are all critique of the role of the politician, the link of representatives, not of the state functions in general. They have different angles, but some have common traits. As shown above, the lobby power is one somewhat recurring. When it comes to which ones should play a big part and cause the most problems, we can say that the (1) political business cycle is questioned. Paldam doesn't even want to accept it at all. But there has been examples of when it has played an important role, MacLean says we can be sure of. The (2) collective actions are maybe even harder to measure but repeatedly since the 18th century, lobby organisations have been attacked by political theorists. To at least some degree, the problem now seems accepted in all camps. The rest (3-6) appear very hard to measure and get an idea of their importance from the information I have, but they haven't received as much attention in the literature as the two first ones, possibly with the exception of the (6) agency - politician links. Here you also find the reason why they turned out with less space in this little paper. My coming essay may try to investigate these. In general, I feel, their importance might be open to a high degrade of different interpretations. As a final statement, I'd like to comment on the interesting example of Switzerland, that Mueller brings up twice. The first time, he says that if governments have any say in a state's economic performance, it gets very compelling that the only politically non-competitional state, is doing best. The second time, he notices the low tariff protections and (less measurable I gather) not so significant redistributional struggles, and once again thinks this may have to do with the lack of political competition and power of politicians in broad in Switzerland. A more focused investigation in these fields and in the four others mentioned in this paper could be an attractive area of research. MacLean is not always so clear in his conclusions concerning Switzerland but the unique political system if for me an invitation to try out the six of my selected public choice critisisms of the system of political competition. Report on the analysis: I found the books I based this paper on (Mueller and MacLean) somewhat more interesting than the sometimes too theoretical public choice theories. They mixed theory and application in a very clear way, presenting a theory and then presenting data to see if it held valid. Then getting back to the theory once again. Reflections on what could be done researchwise: I will myself probably base this semester's essay on this "critisism on the system of political competition". As mentioned above, there are a few examples of political systems not based on party competition and I would like to examine whether the rational choice-points of the problems - supposedly created by the pluralistic competition - that were mentioned in this text and others (if I can find more after a more extensive search) are less salient or even non-existent in these systems. Switzerland is an obvious example to look at. The six-state region of New England could also be interesting. Many of the new Central and Eastern European Democracies are also functioning in the more classical normative sense, especially at the regional and local level, for example Eastern Germany. --- References: - Bentley, A F; The Process of Government; Cambridge, Mass, Bellknap Press 1967 (originally published in 1908) - Buchanan, J M and Wagner, R E; Democracy in Deficit, New York: Academic Press, 1977 - Dunleavy, Patrick and O'Leary, Brendan; Theories of the State - the Politics of Liberal Democracy; London 1987 - Lehner, F; Pressure POlitics and Economic Growth: Olson's theory and the Swiss experience; in Mueller (1983, pp 203-14) - MacLean, Iain; Public Choice - an introduction; Oxford 1987 - MIkesell, J L; Election Periods and State Tax Policy Cycles; Public Choice, 1978, s33(3), pp 99-106 - Mueller, Dennis C, ed; The POlitical Economy of Growth; New Haven, Yale University Press, 1983 - Mueller, Dennis C; Public Choice II; Cambridge 1989 - Olson, M; The Logic of Collective Action: public goods and the theory of groups; 2nd edn Cambridge, Mass, 1971 (first published 1965) - Olson, M; The Rise and Decline of Nations: economic growth, stagflation and social rigidities; New Haven, Conn, 1982 - Paldam, M; Is there an Election Cycle? A Comparative Study of National Accounts; Scandinavian Journal of Economics 1979, 81(2), pp 323-42 - Paldam, M; An essay on the Rationality of Economic Policy: The Test- Case of the Electional Cycle; Public Choice, 1981, 37(2), pp 287-305