Intro to Comparative Politics1/24/13Economic Determinants of Democracy•Gross Domestic product (GDP): the value of all goods and services produced in a country, US has the largest, China the second (size of the economy)•GDP per capita=GDP/size of population (China’s isn’t high because of large pop-ulation) (Wealth of economy)•distribution of wealth is completely ignored•there’s a significant relationship between wealth and democracy, but correlation isn’t causation, so how do we explain it?•Classic Modernization Theory: societies move from immature (“traditional”) to mature (“modern”), as countries mature, they become more complex economically, dictatorships are less effective, dictatorships are unstable in developed countries, democracy is unstable in developING countries•Traditional traits: large agriculture, small industry, small service, dictatorship•Modern traits: small agriculture, large industry, large service (like restaurants), democracy•Predictions: 1) Democracy more common in rich countries 2) transitions to dicta-torships less likely as income increases 3) transition to democracy more likely •around 90% of countries with a per capita GDP of $7,000 or more are democra-cies, only about 12% with GDP less than 2,000 are democracies (India is poorest democracy)•on the contrary, some of the most stable autocracies are very wealthy, especiallyoil producers like the United Arab Emirates, problem with modernization theory is that it relies on a correlation not a causal argument•Variant of Modernization Theory: it’s not wealth, but changes in the socio-eco-nomic structure of the economy that accompany democracy•ex. England in the 1500s, England has Glorious Revolution, king turns over power, king needs money from elites, needs additional resources besides taxes, mod-ernization affects assets of elite•Types of Assets: Quasi-rent- the difference between an assets vale and its short run opportuniyt cost (copper mine has huge quasi-rent, can’t be hidden) (Cash has low quasi-rent, can be hidden)•Liquid Assets: cash, bank deposits, can easily be turned into other types of as-sets without losing value•Fixed assets: cannot easily be converted to cash without losing value (like a farm, if you sell it you only get selling price, lose all future revenue you couldve gotten if you kept it)•modernization greatly affects all this•by 1600s, modernization shifted wealth from landed agricultural elites to mer-chants and financial intermediaries, the new gentry can hide the assets from the king•sovereign debt: debt accred by the goverment•credible commitment problem- an actor who makes a promise today has an in-centive to renege on that promise in the future, ex. king no longer wants to pay back elites once he regains power•game theory: Elites can either pay taxes and invest, disinvest, or give money anddemand limits on king’s power. E demand limits. King rejects, E either pay taxes or disinvest. If King accepts, growing economy and limited gov’t. If King rejects, Elites can either disinvest or pay.Elites disinvest, there’s a stagnant economy and unlimited gov’t.Elites pay taxes, there’s a growing economy and unlimited gov’t. Rules:- If one has liquid assets, one has a credible exit threat (E). - the crown is dependent. L=maintaining loyal citizens- 1= payoff of getting the power C= cost of demanding power- E > 0, E< 1-CFind Equilibrium through Backwards Induction: Best Option for Elites is to demand lim-its, best option for King is to accept them, payout is (1-C for elites, L for king)Rule Change:- Crown is not dependent.- Elites submit to taxes.Mobile Assets + Autonomous King = Poor DictatorshipMobile Assets + Dependent King = Rich DemocracyFixed Assets + Autonomous King = Rich DictatorshipFixed Assets + Dependent King = Rich Dictatorshiprentier state: derives all or substantial portion of revenue from rent of indigenous naturalresources to external clients (have resources and external buyer)resource course: countries with large supply of natural resources suffer from poor gov’t, low econ development, civil war and dictatorshipforeign aid: money, food, technical assistance, weapons that one country gives another,reduces gov’t dependence on citizensInequality: - democratization in unequal countries will likely lead to pressure for economic re-distribution (poor will expropriate form rich, democracy is costly for elites)- many successful right wing coups to block democratization but weak empirical evidence (universal suffrage has not led to the expropriation of the rich)- if elites have mobile assets, poor depend on elite for economic growth (taxes vs. job creation)- depend on type of inequality: - income inequality- sign of growing middle class with mobile assets, increase in democracy- land inequality- sign of elites with fixed assets- decrease in democracy- difficult to say which is better, both richest and poorest countries are under au-thoritarian ruleConclusions:- democracies tend to be wealthy and wealthy democracies tend to remain democ-racies- the extent to which a ruler is dependent upon elites and the type of assets elites hold help to explain why some countries are democracies and not others (foreign aid, natural resources, and types of inequality)- there is great variation in the economic outcomes of
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