Political Science Notes: Regime Types and Economic Growth

Course Administration and Upcoming Deadlines

• Exercise Number 2: Scheduled for next Monday. The content will cover regime types, personalization, and economic growth.
• Exercise Topics: Students must choose one of the following three prompts for their analysis:
  • Regime types/personalization and the effect on going to war.
  • The effect of fatigue or circulation on the decision to go to war.
  • How regime types (such as personalist regimes) affect economic growth.
• Analytical Requirements: The analysis must utilize multiple authors from the course readings. Students may focus on one specifically or conduct a comparative analysis.
• Group Participation: Groups should ideally consist of $4$ to $5$ people, though $2$ to $3$ is acceptable.
• Group Logistics: A Google Sheet is provided to claim group numbers ($1$ to $10$, etc.). After claiming a number, students must manually populate their names into the "People" section on the Canvas learning management system.
• Grading Updates:
  • Evaluation of the first analysis exercise is expected to be completed shortly; the instructor aimed to finish grading by the following day.
  • Midterm multiple-choice grades are posted. The highest grade achieved was $95\%$, with a median score between $76\%$ and $77\%$.
  • A curve may be applied to bring the top grade to $100\%$ after the written segments are graded.
  • Grade Improvement Incentive: If a student's final exam grade exceeds their midterm grade, a "bump" or reward for improvement will be applied to the final course grade.
• Final Exam Details: The exam is cumulative but will be more heavily weighted toward material covered after the midterm.
• Final Exam Scheduling: Due to conflicts with internships and graduation on the scheduled Friday, a survey will be sent to determine if the exam should be moved to the last day of class or if multiple sittings should be offered.
• Final Paper: The final paper involves expanding one of the comparative analysis exercises. Students should incorporate feedback, add more data (e.g., specific country examples), and deepen the substance of the analysis.

The Relationship Between Democracy and Economic Growth

• General Correlation: Data indicates that the wealthiest regimes in the world are predominantly democracies. Countries at high income levels are approximately $95\%$ democratic.
• Causal Directionality: A central debate in political science is whether wealth leads to democracy (as discussed in previous units) or whether democratic institutions cause economic growth.

Arguments for Democracy's Positive Impact on Growth

• Rule of Law: In democracies, the rule of law is intended to apply to everyone, including the ruling elite. In contrast, in dictatorships, the law often only applies to those below the elite. This legal consistency provides security for investors.
• Property Rights Protection: Democracies are more likely to protect property rights, preventing the elite from arbitrarily seizing investments or assets.
• Mobile Assets and Human Capital:
  • Modern economies rely on mobile assets like education and specialized knowledge.
  • Democracies encourage the development of human capital because individuals feel safe to express themselves and innovate without fear of expropriation.
  • Innovation and creativity are fostered by civil liberties; for example, the United States is a leading producer of patents.
• International Stability: According to democratic peace theory, democracies are less likely to go to war with one another. This stability facilitates international trade and cross-border investment.
• Independent Central Banks: Democracies typically have independent central banks capable of raising interest rates to combat inflation, even when such moves are politically unpopular. An example provided was the tension between political leaders (like Trump or Biden) and the Fed Chairman (Jerome Powell).
• Political Stability: Democracies offer a predictable framework for leadership transition, reducing the likelihood of coups or civil wars compared to autocracies.

Arguments Against Democracy's Impact on Growth

• Short-Termism: Democratic leaders often prioritize winning the next election, leading to "goodies" or short-term handouts instead of long-term infrastructure investment.
• Gridlock: Frictions between the executive and legislative branches can lead to policy paralysis.
• Redistributive Pressure: Since the majority of voters are below the average income level, they may demand the redistribution of wealth (e.g., a $5\%$ wealth tax on billionaires), which could discourage large-scale domestic investment by the wealthy.

Meta-Analysis Findings on Democracy and Growth

• 2008 Meta-Analysis: This study combined multiple statistical analyses. It initially found that as sample sizes grew larger, the correlation between democracy and growth vanished, suggesting no inherent relationship. However, it did find that human capital promotes both democracy and growth.
• 2020 Meta-Analysis: An updated study with a larger sample found a definitively positive effect of democracy on both economic growth and human capital development.
• Regional Variations:
  • Sub-Saharan Africa: Democracy has the strongest positive effect on growth in this region.
  • South Asia (e.g., India, Nepal, Pakistan): Democracy was found to have a negative effect on growth here, potentially due to high voter demand for current consumption rather than investment.

Authoritarian Regime Types and Growth

• Personalist Regimes: These are considered the most detrimental to economic growth. The leader is unconstrained by a party or military, making the rule of law non-existent and allowing the leader to enrich themselves at the expense of the state.
• Single-Party and Military Regimes: These are often better for growth than personalist regimes because the leader is constrained by other elites (the party or the officer corps). These elites want to protect their own investments and thus enforce a degree of property rights.
• Legislatures in Dictatorships (Gandhi):
  • Legislatures are more common in civilian-led dictatorships than in monarchies or military regimes.
  • They are more likely in countries that lack natural resources, as those leaders must rely on the productivity and cooperation of the people.
  • Legislatures provide a forum for negotiation, reducing the need for citizens to resort to street violence to voice grievances.
  • Data shows that regimes with no legislature grow at roughly $3.5\%$, while those with multi-party legislatures grow at approximately $5.5\%$.

Data Integrity: The "Dictator's Dilemma" and Growth Statistics

• Exaggerated Statistics: Dictatorships have a high incentive to lie about GDP growth to maintain "performance legitimacy."
• Satellite Imagery Data: Researchers use night-time light intensity captured by satellites as a proxy for actual economic activity.
• Findings: Autocracies (e.g., China and Ethiopia) systematically report higher GDP growth than the satellite data suggests.
• Checks in Democracies: Democracies find it harder to lie about economic data because of a free press and political opposition that is incentivized to expose government falsehoods.
• Direction of Lies: While middle-income autocracies exaggerate growth to look successful, very low-income dictatorships might exaggerate their poverty to secure more foreign aid from organizations like the World Bank or IMF.

Economic Logic of the "Stationary Bandit" (Olson)

• Roaming Bandit: Similar to a predatory leader with a short time horizon. They seize everything from a village and move on, leaving no incentive for the population to invest or produce.
• Stationary Bandit: A leader with a long time horizon. They act like a "vampire" that only takes a small amount of blood so the host stays alive to produce more. They tax modestly to encourage the population to get rich, which creates more long-term tax revenue for the bandit.
• Time Horizons:
  • Personalist Regimes: Usually have short horizons; the regime often dies with the leader.
  • Single-Party Regimes and Monarchies: Have longer horizons as the institution (the party or the royal family) persists beyond the individual leader, encouraging "stationary bandit" behavior.
• Fixed vs. Mobile Assets: Leaders in countries dependent on fixed assets (like oil) are less constrained because the people cannot threaten to move the assets out of the country. This makes binding legislatures less likely in resource-rich autocracies.