WHYDID THEWEST EXTEND THEFRANCHISE? DEMOCRACY,INEQUALITY,ANDGROWTHIN HISTORICAL PERSPECTIVE*

DARON ACEMOGLU AND JAMES A. ROBINSON

During thenineteenth century mostWestern societies extended voting rights, adecisionthat led tounprecedented redistributive programs. We argue that these politicalreforms can be viewed as strategic decisions by the political elite to preventwidespread social unrest and revolution. Political transition, rather than redistributionunder existing political institutions, occurs becausecurrent trans- fersdo not ensure future transfers, while the extension of the franchise changes futurepolitical equilibria and acts as a commitmentto redistribution. Our theory alsooffers a novelexplanation for the Kuznets curve inmany Western economies duringthis period, with the fall in inequality following redistribution due to democratization.

I. INTRODUCTION Thenineteenth century was aperiodof fundamental political reformand unprecedentedchanges in taxation and redistribu- tion.Britain, forexample, was transformedfrom an ‘‘oligarchy’’ runby an eliteto a democracy.Thefranchise was extendedin 1832 and thenagain in 1867 and 1884, transferringvoting rights toportionsof the society with noprevious political representation. Thedecades afterthe political reformswitnessed radical social reforms,increased taxation, and theextension of educationto the masses.Moreover, as notedby Kuznets,inequality ,whichwas previouslyincreasing, started todecline during this period:the Gini coefficientfor income inequality in England and Waleshad risenfrom 0.400 in 1823 to0.627 in 1871, but fell to0.443 in 1901. Twokey factors in thereduction in inequality werethe increase in theproportion of skilled workers [Williamson 1985] and the redistributionof income toward thepoorer segments of the society.Forexample, taxes rose from 8.12 percentof National Productin 1867 to18.8 percentby 1927, and theprogressivity of thetax systemincreased substantially (seeLindert [1989]).

*Wewould like to thank two anonymousreferees, and Pranab Bardhan, Ruth Collier,StevenDurlauf, Jeffry Frieden, Edward Glaeser,ClaudiaGoldin, PeterLindert, T orstenPersson, Dani Rodrik, John Roemer ,KennethSokoloff, PeterT emin,Erik Thorbecke,Jaume V entura,Michael Wallerstein, and seminar participantsat BostonUniversity ,theUniversity of Chicago,Cornell University , HarvardUniversity ,theNational Bureau of EconomicResearch, Universidad de losAndes, Singapore National University ,andthe World Bank forhelpful commentsand suggestions. r 2000by thePresident and Fellowsof Harvard Collegeand theMassachusetts Institute of Technology. The Quarterly Journal ofEconomics, November2000

1167 1168 QUARTERLY JOURNALOF ECONOMICS

Duringthe late nineteenth and earlytwentieth centuries, the franchisewas alsoextended in mostother Western societies. Democratizationwas again followedby increasedredistribution, and inmostcases, by thedownturn of theKuznets curve. Theseevents are hard tounderstand with ourexisting theories.If democratizationis likelyto lead toincreased taxation and redistribution(e.g., Meltzer and Richard [1981]), why should theelite extend the franchise? Our answer is that theelite were forcedto extend the franchise because of the threat of revolution. Weargue that extendingthe franchise acted as acommitmentto futureredistribution and preventedsocial unrest. In contrastto democratization,the promise by theelite to redistribute in the future,while maintaining political power,would nothave been credible. Thesecond contribution of our paper is topoint outthe potentiallink between democratization and theKuznets curve. 1 Rising inequality oftenassociated with industrialization in- creasessocial unrest and inducesdemocratization. Democratiza- tionin turnopens the way forredistribution and masseducation, and reducesinequality .Interestingly,inlinewith this approach, inanumberof Westerneconomies, the peak of theKuznets curve coincideswith theextension of thefranchise. Thethesis that theelite extended the franchise in orderto avoid arevolutionor social unrest is at theheart of our paper . Althoughwe are aware of no other papers in theeconomics literature,a nonformalliterature in political science,starting with theseminal work of Lipset [1960] and Moore[1966], has studied theorigins of democracy .Tothebest of our knowledge, however,noprevious work explained franchiseextension as a commitmentdevice to future redistribution or pointed outthe link betweendemocratization and theKuznets curve, though Ther- born[1977] and Rueschemeyer,Stephens,and Stephens[1992] havestressed the role of social con ict in democratization. 2 In

1.Other theoriesof the Kuznets curve includeKuznets’ [1955] original conjecturethat the curve wasgenerated by the dual economy dynamics generated bythe switch fromthe agricultural to the industrial sector; Lindert’ s [1986] hypothesisthat the curve resultedfrom the falling importance of income from the land;Williamson’ s [1985]argument that technological change increased wages relativeto capital income; and Aghion and Bolton’ s [1997]model where accumula- tionby therich eventuallypushes down the interest rate sufficiently to allow the poorto invest and catch up. 2.In a differentcontext, North and Weingast [1989] have argued that the introductionof theEnglish Parliament in the seventeenth century wasa commit- mentto low taxes in the future. Our paperis also related to models of political WHYDID THEWEST EXTEND THEFRANCHISE? 1169

SectionIV below,weoutline three alternative theories and discuss whetherany oftheseappear togivea betterdescription of thehistorical events than ourpreferred story .TheŽ rst,which we referto as theEnlightenment view ,is that theelite extended the franchisebecause their social values changed. The second theory is that political competitionwithin theelite led tothe extension of thefranchise when one of thefactions, in an attemptto increase its support,brought new groups into the political system(see Himmelfarb[1966] and Collier[1999]). Thethird, whichis akinto thefamous thesis of Moore[1966], isthat themiddle class was the driving forcebehind theextension of thefranchise, in part hoping toshift thefuture balance of power. Although all threestories are likelyto have contributed to democratization in Europein the nineteenthcentury ,especiallyto the extension of thefranchise to women,our interpretation is that in Britain, France,Germany , and Sweden,the threat of revolutionwas themajor factor in the extensionof thefranchise to the poorer segments of thesociety .

II. A MODEL OF DEMOCRATIZATION In this sectionwe developour main model of democratization. Wepostpone a discussionof alternative models of franchise extensionuntil SectionIV . Weconsider an inŽnite horizon economy with acontinuum1 ofagents. A proportion l ofthese agents are ‘ ‘poor,’’whilethe remaining 1 2 l forma rich‘ ‘elite.’’ Throughoutthe paper superscript p will denotea pooragent and r will denotea rich agent(or member of the elite). We will treatall pooragents as identical,and all membersof the elite will alsobe identical. Initially,political poweris concentratedin thehands oftheelite, 1 but l . 2,soif thereis full democracy,themedian voter will bea poor agent. Thereis auniqueconsumption good y with pricenormalized tounity ,and auniqueasset h (which should bethought of as a combinationof human and physical capital and land). Webegin ouranalysis oftheeconomy at time t 5 0whereeach poor agent p r p has capital h0,and eachmember of theelite has h0 . h0 $ 1. In this sectionthese stocks are exogenous, so we drop timesub- scripts.Accumulation is investigatedin SectionIII.

conict andrevolution, including Roemer [1985], Grossman [1991, 1995], and Ades andV erdier[1993]. 1170 QUARTERLY JOURNALOF ECONOMICS

Thereare two methods of producing theŽ nal good,both m m linearin capital. TheŽ rstis amarkettechnology , Y t 5 AH t , m where H t istheamount of capital devotedto market production. h Thesecond is an ‘‘informal,’’ orhomeproduction technology , Y t 5 h h BH t , where H t is theamount of capital usedin homeproduction. h m i Naturally,wehave H t 1 H t 5 H ; e h di.Weassume that A . B;thus,market production is always moreproductive. The only roleof homeproduction in ouranalysis is toensure an equilibrium tax rateless than 100 percent,because while taxes can be imposed onthemarket sector, home production is nottaxable. A high value of B impliesthat onlylimited taxes can belevied on income. All agentshave identical preferencesrepresented by alinear indirectutility functionover net income, and adiscountfactor b [ i i (0,1). Posttaxincome is givenby yˆ t ; (1 2 t t)Ah 1 Tt, for i 5 p, r, where t t isthetax rateon income,and Tt $ 0is thetransfer that theagent receives from the state. We assume throughout that taxesand transferscannot be person speciŽ c— hence Tt and t t are notindexed by i.Thegovernment budget constrainttherefore m impliesthat Tt 5 t t AH . The l pooragents, though initially excludedfrom the political process,can overthrowthe existing government and takeover the capital stockin any period t $ 0.We assume that if arevolutionis attempted,it always succeeds.Revolution provides a window of opportunityfor a large-scaleredistribution of assets away from therich to the poor ,sothe poor take over control of the capital stockof theeconomy ,but afraction1 2 µt ofthecapital stockgets destroyedin theprocess. 3 Therefore,if thereis arevolutionat time t,eachpoor agent receives a per-periodreturn of µt AH/l in all futureperiods: total income in theeconomy is µtAH and is sharedbetween l agents.We assume that µis stochasticand h l h changesbetween two values: µ and µ 5 0, with Pr(µt 5 µ ) 5 q h l irrespectiveof whetherµ t2 1 5 µ or µ .Thefact that µuctuates capturesthe notion that someperiods may be more conducive to socialunrest than others.It will alsoenable us to model the idea

3.The assumption that the elite receive nothing after a revolutionis only for simplicity.Thefunctional form assumption that the poor receive a fractionµ ofthe assetsof the economy is also inessential. Instead, the important feature is that revolutionis moreattractive to the poor in a moreunequal society ,whichreceives supportfrom the positive association between inequality and instability docu- mentedin Mullerand Seligson [1987] and Alesina and Perotti [1996]. Moregenerally ,onecould imagine that certain assets, such as human capital, areharder to expropriate than others. Since we interpret h asamixtureof physical andhuman capital and land, one can imagine that part ofit can be expropriated whilethe rest will be wastedduring a revolution. WHYDID THEWEST EXTEND THEFRANCHISE? 1171 that apromiseto redistribute today maynot materialize due to changesin circumstancestomorrow .Alowvalue of µ meansthat arevolutionis verycostly ,whilea lowvalue of q impliesthat thethreat of revolution is rare,perhaps becausethe poor are unorganized. 4 Finally,in eachperiod the elite have to decide whether or not toextendthe franchise. If it is extended,the economy becomes a democracy,and themedian voter, a pooragent, sets the tax rate. Weassume that if votingrights are extended, they cannot be rescinded,so the economy always remainsa democracy. 5 Thetiming of events within aperiodcan be summarized as follows. 1.The state µ is revealed. 2.The elite decide whether or not to extend the franchise. If theydecide not to extend the franchise, they set the tax rate. 3.The poor decide whether or notto initiate arevolution.If thereis arevolution,they share the remaining output. If thereis norevolution and thefranchise has beenex- tended,the tax rateis setby themedian voter (a poor agent). 4.The capital stockis allocatedbetween market and home production,and incomesare realized. Theanalysis canbe simpliŽ ed by exploitingtwo features of themodel. First, the capital allocationdecision takes a simple form: if t t . tˆ ; (A 2 B)/A,thenall agentsallocate their capital to m m homeuse; thus, H t 5 0.On theother hand, if t t # tˆ, then H t 5 Ht is abest-response.No voter would everchoose t t . tˆ, so we can m restrictattention to t t # tˆ and H t 5 Ht,whichreduces the number ofactionsto be considered. Second, all membersof the elite have identical preferences,so wecan treatthem as oneplayer .Also,all pooragents have the same preferences, and whenit comesto whetheror not to participate in arevolution,there is no‘ ‘free- riderproblem’ ’ becauseif an agentdoes not take part in the

4.Another determinant of the frequency of thethreat of revolution may be urbanizationand urban concentration (see, e.g., DiPasquale and Glaeser [1998]). 5.This is not to deny that coups happen. Nevertheless, once voting rights are extendedand political parties are formed, it isrelatively costly for any group to excludethe rest from the political process. We discuss coups in our more recent paper[Acemoglu and Robinson 1999]. Alsonotice that democratization is all-or-nothing. Extending the franchise to onlya segmentof thecitizens would not be useful in this model: if thepoor become themajority ,thenthe consequences are the same as inthe all-or-nothing case, and otherwise,the reform has no commitment value. 1172 QUARTERLY JOURNALOF ECONOMICS revolution,he can be excluded from the resulting redistribution. 6 So,we can treat all pooragents as oneplayer .Thiseconomy can thereforebe representedas adynamic gamebetween two players, theelite and thepoor . In thetext we characterize the pure strategy Markov Perfect Equilibria ofthis game,in whichstrategies only depend onthe currentstate of the world and noton the entire history of the game.Although the focus on Markovian equilibria is natural in this setting,for completeness, we discuss non-Markovianequilib- ria intheAppendix and showthat theydo not change our general results.The state of thesystem consists of thecurrent opportunity forrevolution, represented by eitherµ l or µh,and thepolitical state(democracy or elitecontrol). More formally ,let s r(µ,P) be the actionstaken by theelite when the state is µ 5 µh or µl, and P 5 E (elitein power)or D (democracy).This consists of a decisionto extendthe franchise f when P 5 E,and atax rate t r when f 5 0 (i.e.,when the franchise is notextended). Clearly ,if f 5 0, P remains at E, and if f 5 1, P switches to D forever.Similarly, s p(µ,P f ,t r)arethe actions of the poor which consist of a decision toinitiate arevolution, r (r 5 1representinga revolution),and possibly atax rate t p whenthe political stateis P 5 D. These actionsare conditioned on the current actions of the elite who movebefore the poor agents according to the timing of events above.Then, a (pure strategyMarkov Perfect) equilibrium is a strategycombination, s r(µ, P), s p(µ,P f , t r) such that s p and s r arebest-responses to each other for all µand P. Wecan characterize the equilibria ofthis gameby writing the appropriate Bellmanequations. DeŽ ne V p(R)as thereturn to pooragents if thereis arevolutionstarting in stateµ 5 µh. Since onlythe value of µ h at thetime of the revolution matters, V p(R) 5 µhAH/l (1 2 b ),which is theper-period returnfrom revolution for theinŽ nite future discounted to the present. Also, because the richlose everything, V r(R) 5 0.Finally ,sinceµ l 5 0, the poor would neverattempt a revolutionwhen µ 5 µl. In thestate (µ l,E)theelite are in power,and thereis no threatof revolution,so in any MarkovPerfect Equilibrium, f 5 0 and t r 5 0.Therefore, the values of poor and richagents, j 5 p or r,

6.Although there is no free-riderproblem, there may be acoordinationissue wherebyeach poor agent expects others not to take part inthe revolution, and prefersnot to do sohimself. We ignore this problem here. WHYDID THEWEST EXTEND THEFRANCHISE? 1173 are given by (1) V j(µl,E) 5 Ahj 1 b [(1 2 q)V j(µl, E) 1 qV j(µh, E)]. Next,consider the state (µ h,E),and supposethat theelite play f 5 0 and t r 5 0;that is,they neither extend the franchise norredistribute to the poor. Then, we would have V˜ p(µh,E) 5 Ahp/(1 2 b ).Therevolution constraint is equivalentto V p(R) . V˜ p(µh,E),sothat withoutany redistributionor franchise exten- sion,the poor prefer to initiate arevolutionwhen µ 5 µh. We assume

ASSUMPTION 1. hr l (1 2 µh) . . hp (1 2 l )(µh 2 (1 2 b )((A 2 B)/A)

Thisis aconditionslightly strongerthan therevolution con- straint, V p(R) . V˜ p(µh,E).SpeciŽcally ,it ensuresnot only that therevolution constraint binds, but alsothat redistributiononly forone period is notsufficient toprevent a revolution. 7 This featurewill simplify thediscussion below . Sincethe revolution is theworst outcome for the elite, they will attemptto prevent it. They can do this in twodifferent ways. First,the elite can choose to maintain political power, f 5 0, but redistributethrough taxation. In this case,the poor obtain V p(µh,E,t r), where t r is thetax ratechosen by therich. With either actionby theelite, the poor may still prefera revolution.Thus, V p(µh,E) 5 max V p(R); f V p(D) 1 (1 2 f )V p(µh,E,t r) , where V p(D)is thereturn to the poor in democracy.Instead, the returnto the poor when the elite choose the redistribution strategy is (2) V p(µh,E,t r) 5 (1 2 t r)Ahp 1 t rAH 1 b [qV p(µh,E,t r) 1 (1 2 q)V p(µl,E)]. Therich redistribute to thepoor ,taxing all incomeat therate t r. Thepoor therefore receive net income (1 2 t r)Ahp fromtheir own capital and atransferof T 5 t rAH.If in thenext period we are still in state µ 5 µh,redistributioncontinues. But, if thestate switches

7.More explicitly ,thiscondition is derived from µ hH/l (1 2 b ) . hp/(1 2 b ) 1 (A 2 B)(H 2 hp)/A,wherethe second term on the right istheone-period transfer fromthe rich tothe poor . 1174 QUARTERLY JOURNALOF ECONOMICS to µ 5 µl,redistributionstops, and thepoor receive V p(µl,E). This capturesthe discussion in theintroduction that theelite cannot committo future redistribution, unless the future also poses an effectiverevolution threat. Notice that t r # tˆ,that is theelite cannottax themselvesat aratehigher than tˆ ; (A 2 B)/A; if t . tˆ, theneach (rich) agentwould privately preferto use all theirassets inthehome sector ,reducingaggregate tax revenuesto zero. Thesecond strategy to prevent revolution is toextend the 1 franchise, f 5 1. Since l . 2,in ademocracythe median voter is a pooragent and wants asmuchredistribution as possible.Redistri- butionhas noallocative cost so long as t # tˆ,sothe equilibrium tax rate is t t 5 tˆ ; (A 2 B)/A, and Tt 5 (A 2 B)H.Thereturns to poorand richagents in democracyare therefore Bhp 1 (A 2 B)H Bhr 1 (A 2 B)H V p(D) 5 and V r(D) 5 . 1 2 b 1 2 b Wesimplify theexposition by restrictingattention to the area oftheparameter space wheredemocratization prevents a revolu- tion; i.e., V p(D) . V p(R).Thus,we assume

ASSUMPTION 2. Bhp 1 (A 2 B)H . µhAH/l .

Todeterminewhether the elite can prevent a revolutionwith theredistribution strategy ,let Vˆ p(µh, E q)bethe maximum utility (as afunctionof the parameter q)that canbe given to the poor withoutextending the franchise. This maximum utility is achieved by setting t r 5 tˆ in (2). Therefore,combining (1) and (2), weobtain

(3) Vˆ p(µh,E q) 5 V p(µh,E,tˆ) Bhp 1 (A 2 B)H 2 b (1 2 q)(A 2 B)(H 2 hp) 5 . 1 2 b If Vˆ p(µh,E q) , V p(R),then the maximum transfer that canbe made when µ 5 µh is notsufficient toprevent a revolution.Notice that Vˆ p(µh, E q 5 1) 5 V p(D) . V p(R)by Assumption 2,and Vˆ p(µh,E q 5 0) 5 Ahp/(1 2 b ) 1 (A 2 B) (H 2 hp) , V p(R) by Assumption 1.Moreover, Vˆ p(µh, E q)is monotonicallyand continu- ouslyincreasing in q.Therefore,there exists a unique q* [ (0,1) such that Vˆ p(µh,E q*) 5 V p(R).Finally,notethat V r(µh,E,t r) is decreasingin t r, and for all t r,itis greaterthan V r(D).Thelatter WHYDID THEWEST EXTEND THEFRANCHISE? 1175 fact followsbecause when there is ademocracy, t 5 tˆ inall periods, whereaswith thepower in thehands ofthe elite, t [ (0,tˆ] whenever µ 5 µh, but t 5 0 when µ 5 µl.Fromthis discussion,the followingcharacterization of theequilibrium follows immediately .

PROPOSITION 1.Suppose that Assumptions 1and 2hold.Then, for all q Þ q*,thereexists a uniquepure strategy Markov Perfect Equilibrium suchthat 1. If q , q*,thenthe revolution threat will bemet by franchiseextension. More formally ,theequilibrium is s r (µ l, E) 5 (f 5 0,t 5 0), s r (µ h, E) 5 (f 5 1, .). s p(µ h, E f 5 0,t ) 5 (r 5 1), s p (µ h, E f 5 1, .) 5 (r 5 0,t 5 tˆ), and s p(µh,D) 5 (t 5 tˆ). 2. If q . q*,thenthe revolution threat will bemet by temporaryredistributio n.More formally , s r (µ l, E) 5 (f 5 0,t 5 0), s r(µh, E) 5 (f 5 0,t r), where t r [ (0,tˆ) is deŽned by V p(R) 5 V p(µh,E,t r), and s p(µh,E f 5 0,t ) 5 (r 5 0) for all t $ t r.Also,off theequilibrium path, s p(µh,E f 5 0,t ) 5 (r 5 1) for all t , t r, s p(µh,E f 5 1, .) 5 (r 5 0,t 5 tˆ) and s p(µh,D) 5 (t 5 tˆ). Starting with theelite in power,if q , q*,thenthe rich set a zerotax ratewhen µ 5 µl,and extendthe franchise when the state switchesto µ 5 µh.Thepoor play theoptimal strategy of initiating arevolutionif thestate is µ 5 µh and thefranchise has notbeen extended.After thefranchise extension, the median voter is apoor agentand setsthe tax rate t 5 tˆ.In contrast,when q . q*, the rich canprevent a revolutionby redistributing.So in thestate µ 5 µl, they set t 5 0, and when µ 5 µh,theyset a tax rate, t r, just high enoughto preventa revolution.This strategy combination is the uniquepure strategy (Markov Perfect) Equilibrium ofthegame. In theAppendix weshow that evenwithout the restriction to MarkovPerfect Equilibria, similarresults obtain: revolution can bestopped with temporaryredistribution when q . q**, where q** , q*.Sofranchise extension can be prevented for a largerset ofparameter values, but if q , q**,theelite can prevent a revolutiononly by extendingthe franchise. Thereare two main conclusions to be drawn fromthis analysis. First,even though the elite face a lowerfuture tax burden with redistributionthan underdemocracy ,theymay prefer to extendthe franchise. This is becausewhen q , q*,redistribution 1176 QUARTERLY JOURNALOF ECONOMICS isnotsufficient toprevent a revolution.With q low,therevolution threatis transitory,sothepoor realize that theywill onlyreceive transfersfor a shortwhile. Redistribution whenµ 5 µh can thereforebe viewed as anoncrediblepromise of futureredistribu- tionby theelite. Unconvinced by this promise,the poor would attempta revolution.The revolution is onlyprevented by fran- chiseextension. Second,perhaps paradoxically,ahigh q makesfranchise extensionless likely .Ahigh q correspondsto an economyin which thepoor are well organized, so they frequently pose a revolution- ary threat.8 Anaiveintuition may have been that in this case franchiseextension would bemore likely .Thisis notthe case, however,becausewith afrequentrevolutionary threat, future redistributionbecomes credible. Thisresult may explain why in thenineteenth century ,Germany,thecountry with themost developedsocialist party at thetime, instituted thewelfare state withoutfranchise extension, while Britain and Franceextended thefranchise. We return to this issuein SectionIV . Thecomparative statics with respectto inequality,µh, and B alsodeserve a briefdiscussion. As Assumption 1shows,a certain levelof inequality is necessaryfor the revolution constraint to bind. Soaveryequal society may never democratize, or democra- tizewith considerabledelay becausethere is relativelylittle social unrest.More interestingly ,in amoreunequal society ,it is also moredifficult tostave off arevolutionwithout democratization. 9 SpeciŽcally ,thereexists a thresholdlevel of inequality, hr/ hp for given q,suchthat if hr/hp , hr/ hp,thenthe revolution can be preventedby temporaryredistribution, but if hr/hp . hr/ hp, the onlyway toprevent a revolutionis democratization. An increasein µh alsotightens the revolution constraint. When q , q*,this has noeffect at Žrst,since the threat of revolutionalready ensureddemocratization. However, if µh in- creasesfurther ,Assumption 2would beviolated, so that revolu- tioncould not be prevented even with democratization.In con-

8.Alternatively ,ifµl issufficiently greater than zero, then even in thisstate, theelite have to redistribute to the poor. In thiscase, a highvalue of µl would also leadto the same result. 9.T oseethis, take the equation Vˆ p (µh,E q*) 5 V p(R),divideboth sides by H,andtotally differentiate. This gives dq*/d(hp/H) , 0,so when inequality increases, q*alsoincreases. Equivalently ,Žx q,andthis equation deŽ nes a critical levelof inequality , hp/ h r. Since V p(R)increasesfaster in the level of inequality than Vˆ p(µh,E q*),with inequality greater than hp/ hr,revolutioncannot be preventedby temporaryredistribution. WHYDID THEWEST EXTEND THEFRANCHISE? 1177 trast, if q . q*,ahigherlevel of µ h affects Žscal policyby forcing theelite to choosea moreredistributive policy to prevent revolu- tion.If it increasesfurther ,it mayinduce democratization. An increase in B limitsthe taxes that canbe set on therich. So if B increases,it becomesharder to prevent a revolutionwith tempo- raryredistribution because the level of taxes that canbe set during this periodare lower .Moreover,if B increasesfurther , Assumption 2would beviolated once again, leading toa revolu- tionalong the equilibrium path. Thegeneral principle that follows fromthis discussionis that revolutionsare harder to prevent in societieswhere democracy creates only limited gains forthe poor .

III. A MODEL OF GROWTH AND INEQUALITY DYNAMICS Theprevious section established that theelite may be forced toextend the franchise. We now explore the implications of political reformfor growth and inequality. Noweach agent (or forward-looking dynasty) candecide to investin orderto increase their capital further.In particular,the i capital ofagent i at time t 1 1,given his stock ht at t, is

i i et i (4) ht1 1 5 d ht, i where d . 1 and et is an indicator that takesthe value 1 if thereis investment.Investment costs an amount Z and is indivisible. This nonconvexityin theinvestment technology implies that verypoor agentswill beunable to accumulate, as in Galorand Zeira[1993]. i i i Fromthe budget constraint,we have that ct 1 etZ # yt. An i i individual earnsincome Aht in marketactivity ,or Bht in home productionas in theprevious section with B , A.Wealso assume that investmentin capital is always proŽtable (but b d , 1), and r p r furthermore, Bh0 1 (A 2 B) (l h0 1 (1 2 l ) h0) . Z,whichimplies that therich have enough income to invest, even if theywere taxed at themaximum tax rate tˆ ; (A 2 B)/A.Therevolution threatis parameterizedas before;the poor receive a fractionµ t of p r thetotal resources, Ht 5 l ht 1 (1 2 l ) ht,and shareit between h l themselves.µ t takesthe value µ ,with probability q, and µ 5 0, with probability 1 2 q. Wecontinue to limit our attention to pure strategy Markov PerfectEquilibria. Moreover,becauseequilibria arenow more involved,instead ofgiving acomprehensivetaxonomy ,wefocuson democraticdevelopment paths (seeAcemoglu and Robinson[1997] fornondemocratic development paths). 1178 QUARTERLY JOURNALOF ECONOMICS

p Considerthe case where Z . Ah0,sothat thepoor cannot accumulateunless they receive transfers. When there is nothreat ofa revolution,there is notaxation. As aresult,the rich accumulatecapital, and theirincome grows at therate d 2 1, whilethe poor are unable to accumulate. Therefore, income inequality increasessteadily .Thiscontinues until thethreat of revolutionoccurs. At this point,there are two possibilities. First,the rich could extend the franchise. After democratiza- tion,the median voter is apooragent and setsthe maximum tax rate tˆ.Then,the dynamics ofinequality and incomedepend on whetherthis transferfrom the rich to the poor is sufficient to enablethe poor to accumulate capital. Suppose that thethreat of revolutionoccurs for the Ž rsttime at t.Thenthe crucial condition is whether

p (5) Bh0 1 (A 2 B)Ht $ Z, p r where Ht 5 l h0 1 (1 2 l ) ht isthetotal capital oftheeconomy at time t.Thisexpression follows from the fact that apooragent p keeps (1 2 tˆ)ofhis income, Bh0,and receivesa fraction tˆ of total incomein theeconomy ,( A 2 B)Ht.If condition(5) holds,then the transferis sufficient topush theincome of the poor above the accumulationthreshold, and thepoor start accumulating,and inequality drops. 10 Thiswill bethe mechanism leading tothe Kuznetscurve in oureconomy .Weassume that this condition holds at time t 5 0, and since Ht growscontinuously ,it will hold at all futuredates too. 11 Todeterminewhether the rich will beforced to extend the franchise,we once again comparethe return from a revolution with thereturn from receiving temporary redistribution under continuedelite control. If thepoor undertake a revolution,they receive

h µ AHt Z (6) V p(R hp,hr) 5 2 , t t l (1 2 b d ) 1 2 b

10.Notice that this condition does not guarantee that the poor will be ableto accumulatewithout transfers. Also, because we have a lineareconomy ,afterthe poorstart accumulating,inequality drops discretely and remains constant. In a previousversion of thepaper [Acemoglu and Robinson 1997], we analyzed the case witha convexproduction function, where inequality falls steadily after franchise extension. 11.Even if inequality(5) does not hold at time t,itwilleventually hold, since r therich willcontinue to accumulate, so ht willgrow steadily.At thepoint where thiscondition holds, say time tˆ thepoor will start accumulating.Then, inequality woulddrop after franchise extension, but increase again after that, until time tˆ is reachedwhen it will level off. WHYDID THEWEST EXTEND THEFRANCHISE? 1179

p r r r where Ht 5 l h0 1 (1 2 l )ht and ht1 1 5 d ht,and weused the fact that aftera revolution,they take over the productive resources of therich, losing a fraction1 2 µh ofall thecapital in theprocess. Wehave also assumed that thetransfer of resources during a revolutionis sufficient forthe poor to accumulate. 12 Therich can try to defuse the threat of revolution using temporaryredistribution instead offranchiseextension. T odeter- minewhether this is possible,we writethe value functions for the poorunder elite control. When there is nothreat of revolution,

p l p r p p V (µ ,E ht ,ht ) 5 Aht 2 et Z

p h p r p l p r 1 b [qV (µ ,E ht1 1,ht1 1) 1 (1 2 q)V (µ , E ht1 1,ht1 1)], r r p p p p et where ht1 1 5 d ht and ht1 1 5 d ht . Whether et 5 0or1depends on whetherthe poor are above the accumulation threshold; i.e., p whether Z . Aht . Thevalue function for the poor when the state switches to µ h depends ontheelite’ s strategy.Weare interested in themaximum utility that theycan give to the poor without extending the franchise Vˆ p,sowe supposethat theyset the maximum tax rate tˆ, then

ˆ p h p r p ˆ p V (µ ,E ht ,ht ) 5 Aht 2 Z 1 T

ˆ p h p r p l p r 1 b [qV (µ ,E ht1 1,ht1 1) 1 (1 2 q)V (µ , E ht1 1,ht1 1)], ˆ p p p where T ; tˆA(Ht 2 ht ) ; (A 2 B)(Ht 2 ht )is thenet transfer r r p p theyreceive, and ht1 1 5 d ht,and this time ht1 1 5 d ht also,because thepoor are receiving the transfer Tˆ p. An analysis similarto the previous section immediately impliesthat thereexists q*t,suchthat if q , q*t,thenthe elite cannotprevent a revolutionby redistributing temporarily. 13 More- p l p r over,it is straightforward toverify that V (µ ,E ht ,ht ) increases r p p r r in ht faster than V (R ht ,ht );intuitively,as ht increases,revolu- tionbecomes more attractive for the poor .Therefore, qt* is

h p r 12.A sufficientcondition for this is µ (l h0 1 (1 2 l )h0)l . Z.Ifthis holds at t 5 0,then it alsoholds at allsubsequent dates. We are also assuming that the p h equivalentof Assumption 2, Bht 1 (A 2 B)Ht . µ AHt/l holds at all t, that is franchiseextension is sufficient to prevent the revolution. In the absence of this assumption,when inequality increases substantially ,democratizationwould be insufficientto prevent the revolution, so the elite may initiate redistribution before thispoint in orderto prevent a futurerevolution. 13.Notice that V p iscontinuouslyincreasing in q and as q 0,the poor will neverreceive any more transfers, so prefer a revolution.Therefore, there exists a criticalvalue of q suchthat when q isbelow this threshold, temporary redistribu- tionis notattractive enough to prevent a revolution. 1180 QUARTERLY JOURNALOF ECONOMICS decreasingin t:as inequality increases,the threat of revolution becomesharder to prevent by redistributionalone. Let us deŽ ne theŽ rsttime when q*t , q as t. Whenturbulence arises at sometime after t,theoutcome is democratizationand theKuznets curve. Inequality has increased considerablyby this time,so the elite cannot prevent social unrest by temporarymeasures alone and areforced to extend the franchise.14 In theresulting democracy the median voter is apoor agentand votesfor redistributive taxation at therate tˆ. With this transferfrom the rich, the poor start accumulatingas well,and inequality,whichhad beenincreasing since t 5 0, drops.15 In our view,this casegives a stylized descriptionof the experiences of Britain, France,and Sweden.In theseinstances, the threat of revolutionforced democratization, and inequality,whichwas previouslyincreasing, started todecline, in largepart dueto majorredistributive efforts including increasedtaxation, invest- mentin theeducation of the poor ,and labormarket reform (see thediscussion in SectionIV). Alternatively,if therevolution threat occurs before t8 , t, the elitecan prevent it with temporarymeasures because inequality p islimited.If Z . d Ah0,theone-period temporary redistribution is notsufficient toenrich the poor sufficiently that theycan accumu- latewithout transfers. As aresult,when the revolution threat goesaway ,transfersstop, and inequality growsagain. Afurther periodof turbulence may then lead todemocratization, and toa Kuznetscurve type behavior.Webelieve that this type of‘ ‘de- layed’’ Kuznetscurve may capture the sequence of events in the Germancase. In Germany,socialunrest was initially metwith redistribution,but eventuallythe shock of the First World W ar createdfurther unrest and induced democratization(in 1919). Redistribution increased,and inequality fell afterthis date.

14.It might sometimes be optimal for the elite to collectively reduce accumu- lationin orderto avoid the future threat of revolution(and hence democratization). Nevertheless,because each member of the elite chooses their optimal saving independently,suchan equilibriumnever arises in our model. 15.The implications for growth arealso straightforward; before franchise extensiononly the rich accumulate,so the overall growth rateof the economy is low,butafter democratization, all agents accumulate, so theeconomy grows atthe rate d 2 1.The result that democratization increases growth isnot general. It dependson whetherthe gains from relaxing the credit constraints,emphasized, forexample, by Galor and Zeira [1993] and Be ´nabou[2000], exceed the costs of distortionarytaxation, emphasized by ,amongothers, Alesina and Rodrik [1994] andPersson and Tabellini [1994]. Interestingly ,intheir empirical work using historicaldata, Persson and Tabellini Ž ndthat the growth rateincreases when a greaterfraction of thepopulation are enfranchised. WHYDID THEWEST EXTEND THEFRANCHISE? 1181

p p If, in contrast, Ah0 , Z , d Ah0 and thethreat of revolution occurs at t8 , t,thenthe outcome is anondemocraticdevelopment path. In this case,the temporary redistribution at time t8 is sufficient toenable the poor to accumulatesteadily ,and inequality remainsconstant thereafter. After thepoor start accumulating, thereturn to revolution at time t in thestate µ h is

h µ AHt Z V p(R hp,hr) 5 2 , t t l (1 2 b d ) 1 2 b where Ht1 1 5 d Ht becauseboth the rich and pooraccumulate. On theother hand, thereturn to remaining in anondemocratic regimeat time t inthestate µ h is

p ˆ p Aht Z qb T Vˆ p(µh,E hp,hr) 5 2 1 Tˆ p 1 , t t 1 2 b d 1 2 b 1 2 b d

ˆ p p where T ; tˆA(Ht 2 ht )is themaximum net transfer to the poor . Intuitively,thepoor accumulate irrespective of whether they receivetransfers or not. Overall, they receive a nettransfer Tˆ p today,and expectto receive it in thefuture with probability q, but takeinto account that it will belarger in thefuture because of ˆ p h p r p p r incomegrowth. Therefore, both V (µ ,E ht ,ht ) and V (R ht ,ht ) (net of Z/(1 2 b ))growat therate d 2 1,and therevolution constraintdoes not change over time. Since the threat of revolu- tion at time t8 couldbe prevented without democratization, future revolutionthreats can alsobe prevented by redistribution.There- fore,in this case,because inequality stops growingand thegains fromit areshared between the rich and thepoor ,socialunrest is weak,and democratizationis avoided forever,or at leastdelayed considerably.Thisnondemocratic development path maybe rele- vant toSouth Korea and Taiwan.Both countries used land redistributionearly on in responseto the threat of revolution fueledby thecommunist regime in China. 16 Theywere subse- quentlyrelatively equal and did notdemocratize until muchlater . Arelatedcase is Indonesia after1965, wherethe rural strength of thecommunists induced large-scaleŽ scal redistributionand

16.Ch’ en Ch’ eng, the governor of Taiwan at the time of the reforms, for example,explains this as follows‘ ‘...thesituation on theChinese mainland was becomingcritical and the villages on the island were showing marked signs of unrestand instability .Itwasfeared that the Communists might take advantage of therapidly deteriorating situation’ ’ [Haggard1990, p. 82]. The extent of theland redistributionin bothcountries was quite large. For example, in the 1949 reform, SouthKorea redistributed 50 percentof the agricultural land, while the Taiwanese landreforms of 1949–1953 redistributed 24.6 percent of the land [Ho 1978]. 1182 QUARTERLY JOURNALOF ECONOMICS majoreducational reforms. These reforms led torapidly falling inequality in the1970s and 1980s and along-lived nondemocratic regime.17

IV. HISTORICAL PERSPECTIVE In this sectionwe discuss thehistorical evidence related to theextension of the franchise. Our objective is toprovide a preliminaryassessment of whether our theory gives a good descriptionof thesalient features of Westerndemocratization. We outlinethe major events of the period and documentthe impor- tanceof thethreat of revolution.We then discuss threealternative hypothesesthat couldexplain why thefranchise was extended and theevidence in favorof and against theseapproaches. In the Žnal twosubsections we discuss otherempirical implications of ourmodel.In all cases,our most detailed evidenceis fromBritain, but wealso discuss evidencefrom France, Sweden, and Germany. 18

A.TheThreat of Revolutionand FranchiseExtension Britain. In Britain thefranchise was extendedin 1832, and thenagain in 1867 and 1884 (and laterin 1919 and 1928 whenall womenwere Ž nally allowedto vote). 19 Whenintroducing the electoralreform to the British parliamentin 1831, theprime ministerEarl Greysaid ‘‘Thereis no-onemore decided against annual parliaments,universal suffrage and theballot, than amI ...ThePrincipal ofmy reform is toprevent the necessity of revolution.. ..Iamreforming to preserve, not to overthrow’ ’ (quoted in [Evans 1983]). Thisview of political reformis sharedby modernhistorians such as Briggs [1959] and Lee[1994]. For example,Darvall [1934] writes:‘ ‘themajor change of the Ž rst threedecades ofthe nineteenth century was thereform of Parliamentby the1832 ReformAct ...introducedby theWhigs ...as ameasureto stave off any furtherthreat of revolution by extendingthe franchise to the middle classes.’’ In fact, theyears precedingthe electoral reform were characterized by unprece-

17.The Gini coefficient in Indonesia was 0.41 during the 1970s, and fell to 0.30during the 1980s [Campos and Root 1996]. 18.The evidence from the U. S.democratizationexperience is moremixed. In apreviousversion of this paper [Acemoglu and Robinson 1997], we discussed why theU. S.caseis different. 19.In our formal model, only a one-timefranchise extension was possible. Themodel can be extended by introducingmore heterogeneity (such as amiddle class)to incorporate multiple gradual extensions. WHYDID THEWEST EXTEND THEFRANCHISE? 1183 dentedpolitical unrest,including theLuddite Riots from1811– 1816, theSpa FieldsRiots of1816, thePeterloo Massacre in 1819, and theSwing Riots of1830 (seeStevenson [1979] foran overview).The reforms that extendedpolitical powerfrom a narrowelite to larger sections of the society were immediately viewedas asuccessnot because of some ideal ofenlightenment or democracy,but becausethe threat of revolution and further unrestwere avoided (seeLee [1994]). Althoughthe 1832 ReformAct reducedproperty and wealth restrictionson voting and increasedthe total electorate to 813,000, themajority of British people(the remaining 23 million)could not vote,and theelite still had considerablescope for patronage, since 123 constituencies,the ‘ ‘rotten-boroughs,’’ containedless than 1000 voters.There is alsoevidence of continued corruption and intimidation ofvotersuntil theBallot Act of1872 and theCorrupt and Illegal PracticesAct of1883. Thesepractices were reversed laterin theprocess of increased representation, which gained momentumwith theChartist movementduring the1830s and 1840s (seeBriggs [1959]). Theresponse of theelite to the Chartist movementwas again oneof preventing further unrest. For example,during the1850s LordJohn Russell madeseveral attemptsto introduce reform arguing that it was necessaryto extendthe franchise to the upper levelsof the working classes as a meansof preventingthe revival of political radicalism.But asLee [1994, p. 137] notes,‘ ‘TheHouse of Commons was largelyhostile toreformbecause, at this stage,it saw noneed for it.’ ’ Thishad changedby 1867, largelydue to a sharp business cycledownturn that causedsigniŽ cant economichardship and increasedthe threat of violence. Lee writes, ‘ ‘as with theŽ rst ReformAct, the threat of violencehas beenseen as asigniŽcant factorin forcingthe pace (of the1867 ReformAct); historywas repeatingitself.’ ’ Thisinterpretation is supported by manyother historians—for example, Trevelyan [1937] and Harrison[1965]. TheAct was precededby thefounding ofthe National Reform Unionin 1864 and theReform League in 1865, and theHyde Park riotsof July 1866 provided themost immediate catalyst. Searle [1993, p. 225] arguesthat, ‘ ‘reformagitation in thecountry clearly did muchto persuade the Derby ministry that aReformBill, any ReformBill, should beplaced onthestatute book with aminimum ofdelay .’’As aresultof these reforms, the total electorate was expanded from1.4 millionto 2.52 million,and working-class votersbecame the majority in all urban constituencies.The 1184 QUARTERLY JOURNALOF ECONOMICS electoratewas doubled again by theReform Act of1884, and the Redistribution Act of1885 removedmany remaining inequalities inthedistribution ofseats(see Wright [1970]). Onceagain social disorderappears tohave been an importantfactor behind the 1884 act,as put by Hayes[1982], ‘‘At thebottom the course of eventsin mid-Novemberre ected the importance of thebattle out of doors.’’ OtherCountries. In Francethe 1830 revolutionled toa highly restricteddemocratic regime where property restriction limited theelectorate to about 0.75 percentof thepopulation (seeCole and Campbell [1989]). Thecollapse of theOrleanist monarchy in the 1848 revolutionled tothe Second Republic with theintroduction ofuniversalmale suffrage in 1849 (seeCollier [1999], Chapter 2, p. 10). Theeffect of this was cutshort, however ,Žrstby restric- tionson voting rights introduced in 1850, disenfranchising 2.8 millionmen, and thenby thecoup of Louis Napoleon in 1851. Historianssplit this periodinto two phases: the ‘ ‘authoritarian’’ phase from1852 to1860 and the‘ ‘liberal’’ phase from1860 until thedefeat ofthe French armies in theFranco-Prussian War of 1870. Thedefeat in thewar led tofurtherunrest (in particular, the ParisCommune) and tothe collapse of the regime, making way for theThird Republic (seeZeldin [1958], Plessis[1985], and Price [1995]). Thehistory of moderndemocracy in Germanystarts with the 1848 revolutionwhen nearly all Germanstates signiŽ cantly increasedpopular participation in government,again in theface ofrevolutionary pressures (see Blackbourn [1998], Chapter 3). Theeffects of this democratizationwere strongly mitigated by institutional restrictions,however. This regime featured a three- class votingsystem and was controlledinitially by Junkerland- lords,and afterthe 1870s by thecoalition of ‘ ‘ironand rye;’’ the parliamentcould not appoint ministersor discuss foreignpolicy , and votingwas oral.Although after 1870 all adult malesover the ageof 25 had theright to vote,voting was controlledin ruralareas by thelandlords (seeGosnell [1930] and Goldstein[1983]). As Abrams [1995, p. 10] puts it,during this period‘ ‘theGerman Empirewas, in theory,aconstitutionalmonarchy ,yetin practice itwas governedby aPrussianoligarchy .’’TheŽ nal emergenceof Germandemocracy ,theWeimar Republic, in 1919, was in re- sponseto the very severe threat of socialdisorder and revolution triggeredby thecollapse of the German armies on the Western WHYDID THEWEST EXTEND THEFRANCHISE? 1185

Frontin August 1918 (see,for example, the classic accountin Gerschenkron[1943] and alsoMommsen [1981]). It is interestingto note at this point that althoughdemocrati- zation in Germanydid notoccur during thenineteenth century , socialunrest was certainlyas strongthere as it was in Britain and France.While there were no strong socialist parties in Britain and Franceand trade unionswere of little importance, the Social DemocraticParty in Germanywas by far thelargest left-wing party in Europeat that time,and labormovement was strong. 20 At Žrstsight, one might expect franchise extension in Germany ratherthan in Britain and France.Our model, in contrast, predicts that theGerman elite should havehad more exibility in dealing with socialunrest by promisingfuture redistribution, whichwas thepattern in practice. 21 In Swedendemocracy arrived via aseriesof gradual fran- chiseextensions, starting in 1866 with thecreation of a bicameral parliamentwith Firstand SecondChambers. Universal male suffrage was introducedin 1909 in theFirst Chamber, but true parliamentarygovernment arrived only in 1918, whenthe politi- cal powerof the Conservative Party and themonarchy were limited,once again an outcomeof unusual turbulencespurred by theend of theFirst World War and by thesevere economic crisis (seeRustow [1955] and Verney[1957]). Tilton[1974, p. 567] arguesthat ‘‘neither[of theŽ rsttwo reform acts] passed without strongpopular pressure;in 1866 crowdsthronged around the chamberwhile the Ž nal votewas taken,and the1909 reformwas stimulated by abroad suffrage movement[and] ademonstration strike.’’ Thereform in 1909 had beenpreceded by strikesand demonstrations,and eventhough Sweden was nota participant in theFirst World War, the revolution in Russia and thesituation in Germanyforced the concession of democraticrights. In 1917 the Liberalsand SocialDemocrats formed a coalitiongovernment and proposedfull malesuffrage, but this was defeated by theConser- vative-dominated SecondChamber. Collier [1999, Chapter 3,p. 9] explains that ‘‘it was onlyafter the economic crisis of 1918 and

20.See the essays in Katznelsonand Zolberg [1986] on therelative strength oftheworking classesin Germany in thenineteenth century .Forexample, Nolan beginsher chapter [p. 354] by stating, ‘ ‘AlthoughBritain experienced the Ž rst industrialrevolution and France developed the Ž rst signiŽcant socialistassocia- tions,Germany produced the largest and best-organized workers’ movement in the latenineteenth century .’’ 21.Williamson [1998], for example, writes that ‘ ‘themain aim of [Bismarck’s] welfareprogram was to avoid revolution through timely social reform and to reconcilethe working classesto the authority of thestate.’ ’ 1186 QUARTERLY JOURNALOF ECONOMICS ensuingworker protests for democracy led by theSocial Demo- cratsthat theReform Act was passed. Indeed,in November1918 laborprotests reached such a point as tobe perceived as a revolutionarythreat by Sweden’s Conservativeparty and upper classes.’’ Tilton[1974, p. 568] summarizesthe consensus view of historianssuccinctly; ‘ ‘Swedish democracyhad triumphedwith- outa revolution—but notwithout the threat ofa revolution’’ (italics in original).

B.AlternativeTheories of Democratization Wehave documented that thethreat of revolution, often spurred by wars and depressions,was importantin leading upto thepolitical reformsof theperiod. Although this accountsupports ourmain thesis, it is usefulto review alternative theories and to investigatewhether they receive support fromthe events surround- ing thereform process. A1. TheEnlightenment. Thistheory is that theelite extended thefranchise because their social values changed. In particular, theEnlightenment movement may have made it harderfor the eliteto view a societyin whicha largefraction of thepopulation had norepresentationas fair and just. It is undoubtedly truethat changesin socialvalues have a realeffect on political reform.For example, the enfranchisement ofwomen in Britain in 1919 and 1928 appears mostlydue to changesin thesociety’ s approach towomen. 22 Althoughthe suffragettemovement in Britain organizeddemonstrations and socialunrest, 23 thesedid notconstitute a seriousthreat of revolution.This is notinconsistent with ourapproach. Since extendingvoting rights to women does not have major conse- quencesfor redistribution from the rich to the poor ,socialvalues ratherthan redistributivemotives should bemore important. In contrastto the enfranchisement of women, it is hard to arguethat changingsocial values were the major driving force behind theextensions of thefranchise to the poorer segments of thesociety .Themain argument against theimportance of social

22.In France women were allowed to vote in 1945, while in Germany and Swedenmass enfranchisement included women from the beginning. 23.These included destroying letter boxes, cutting telegraphlines, and bombingrailway stations and even Lloyd George’ s house.Emmeline Pankhurst, a leaderof thesuffragette movement, understood the importance of social unrest in forcingreform and argued, ‘ ‘Parliamentnever grants reformunless it is terrorised ...Terrorismis, in fact, theonly argument that parliament understands’ ’ (quoted inJorgensen-Earp[1997, p. 48]). WHYDID THEWEST EXTEND THEFRANCHISE? 1187 valuesis thetiming of democratization. Since the ideas ofthe Enlightenmentand thewritings ofRousseau and Painewere widely disseminatedin Europeby theearly decades ofthe nineteenthcentury ,it is hard tounderstand thetiming of democratization,and especiallywhy theseideas inuenced the political elitein Swedenand Germanylong after they had persuaded theelite in Franceand Britain. Rather,thetime pattern ofdemocratization is tied muchmore closely to that of industrialization, inequality,and political unrest.Perhaps more important,the evidence discussed in this and theprevious section suggestsstrongly that franchiseextension was forcedon theelite and notwillingly givenas this theorywould suggest.Overall, we thereforeconclude that changesin socialvalues are unlikely to havebeen the major factor behind theextension of thefranchise tothepoorer segments of thesociety . A2. Political PartyCompetition. Thistheory is inspired in part by theBritish experience,where the competition between Disraeliand Gladstonewas amajorfactor in political reform. Accordingto this theory,politicians havea strongpreference to stay in power,and mayextend the franchise with theexpectation that thenewly enfranchised will returnthe favor by votingfor theirparty (see,for example, Himmelfarb [1966], whoargues this forthe British caseand thegeneral discussion in Collier[1999]). In 1866 Russell’s Liberalgovernment proposed a relaxationof theproperty restrictions on voting. This measure was defeated by acoalitionof Conservativesled by Disraeliand right-wing Liber- als,the ‘ ‘Adullamites,’’ whothought the extension too generous. TheLiberal government then collapsed, and Disraeliformed a minorityadministration (290 to360). Disraeli’s Žrstmove was to introducea lessgenerous franchise extension, but herealizedthat this would notgain majoritysupport. He then switched toa proposal evenmore radical than theinitial Liberalmeasure, whichpassed by gaining thesupport ofa heterogeneousgroup of Liberals.Disraeli can then be argued to have extended the franchisethat heŽ rstopposed to encourage the newly enfran- chisedto vote Conservative. In ourview ,however,the evidence does not support this interpretation.The Conservatives lost the 1868 electionimmedi- atelyafter having passed thefranchise extension (and theLiberal party lostthe election of 1885). Soif thestrategy was aimedat winning elections,it was clearlya failure.Although the fact that theConservatives lost the election does not prove that franchise 1188 QUARTERLY JOURNALOF ECONOMICS extensionwas notaimed at winning elections,other aspects of this reformalso appear inconsistentwith astrategyof maximiz- ing Conservativevotes. In particular,as theresult of thesplit over theCorn Laws, support forthe Conservative party was essentially concentratedin ruralareas, with Torylandowners exerting substantial controlover the electorate in theabsence of a secret ballot.The reform measure passed underDisraeli increased the votingpopulation by only45 percentin countiescompared with 145 percentin theboroughs, effectively ensuring a Conservative defeat in thefollowing elections. 24 Overall,the most plausible interpretationof the interparty rivalryin Britain during the1860s and 1870s was that,while both parties regardedthe extension of votingrights as inevitabledue to mountingsocial pressure, they clearly saw that it couldbe structuredin ways whichwere more or less advantageous to themselves.This created a complicated‘ ‘endgame.’’ Cowling [1967, p. 89] arguesthat theConservative party supported Disraeliin 1867 becauseif theAct failed, ‘‘theLiberals might then do preciselywhat Derbyand Disraelihad strivenin 1866 toprevent theirdoing— carry Reform on theirown lines.’ ’ Theone triumph of the1867 reformfor Disraeli was thefact that it limitedthe redistributionof seats away fromthe counties to the boroughs, whichwould havebeen even more substantial otherwise.This strategyreduced the impact ofthe franchise extension for the Conservativeparty and its constituency.Smith[1967, p. 97] also agreesand arguesthat ‘‘Derbyand Disraeli. ..in 1867, did not determineto trustthe people, or put theirfaith in aConservative democracy.Theydid what theyfelt theyhad todo, to satisfy the popular agitation and reconcilethe upper strata ofthe working classesto the established political system.’’ Theparty competitiontheory does not Ž twellwith any ofour othercases. With army units in revoltand theeconomy collapsing inGermanyin 1918–1919, theformer political eliteattempted to preventrevolution by generatinga transitionthat would cause minimaldamage to it interests.In Francethere were more distinct subsetswithin theelite. Orleanists and Legitimists formedseparate factions within theMonarchist camp, and the

24.The notion that the Liberals and Conservatives were prepared to extend thefranchise simply to keep their party inpoweris alsonot completely persuasive. Between1859 and 1865 the Liberal prime minister Palmerston, who was opposed tofranchise extension, and the Conservative leader Lord Derby ,colludedso that theissue of suffragewould never be raised in parliament[Lee 1994, p. 138]. WHYDID THEWEST EXTEND THEFRANCHISE? 1189

Republicans, thoughdemocratic, were basically middle class and werenot in favorof universal male suffrage in 1848. Whenthe Monarchycollapsed in 1848, thesegroups had toagree to the demands oftherevolutionaries. In support ofthis view,Aminzade [1993, p. 35] argues,‘ ‘Frenchworkers, mainly artisans, consti- tuted therevolutionary force that put theRepublican party in powerin February1848 ...and workingclass pressurefrom the streetsof Parisforced liberal Republican leaders. ..toreluctantly concedeuniversal male suffrage.’ ’ Thesame is truefor the period after1870. Thecon ict at thetime, particularly theCommune, forceddemocracy along the lines of 1849. Althoughno group within theelite was committedto universal male suffrage, they wereforced to reintroduce it. TheSwedish caseis perhaps themost similar to Britain. In 1906 theLiberal party’ s Žrstever government fell afterfailing to pass alaw introducinguniversal male suffrage. The reform measureof 1909 was thenpassed (in 1907) by theConservative governmentunder Lindman. As with Disraeliin 1867, ‘‘Lindman and his Conservativeministry that tookoffice a yearafter the Liberals’1906 failure saw anopportunityto pass apolitical reform onits ownterms’ ’ [Collier1999, Chapter 3,p. 9]. Althoughmale suffrage was concededin onehouse, the Conservatives kept controlover the other through the maintenance of multiplevoting and taxpayer suffrage.As with theBritish case,this pattern of eventswas nottheresult of attemptsby theConservatives to gain votes,but rathera damagelimitation exercise in theface of mountingsocial pressure for a full democracy. A3. Middle Class Drive. Thisstory is similarto the previous one,except that economicincentives, rather than political compe- tition,are the driving force.The main point canbe illustrated with averysimple model related to our analysis ofSectionII. Suppose that thereare three groups, lower, middle, and upper class,with respectivefractions, l L, l M, and l U and humancapital, hL, hM, and hU. Let h 5 l L hL 1 l M hM 1 l U hU bethe average human capital. Suppose that whenthe lower classes are excluded from the political process,the middle class arein powerwith probability y , and whenthe political processincludes the lower classes, the lowerclasses are in powerwith probability y L,and themiddle classesare in powerwith probability y M.As before,only linear taxesand universalsubsidies areallowed, and thegroup in power canalso decide whether to extend the franchise (if it was not extendedbefore). It is nowstraightforward tosee that if h . hM, 1190 QUARTERLY JOURNALOF ECONOMICS themiddle-classes prefertaxation tono taxation, and alsorealize that this is alsowhat lowerclasses want. So if y L 1 y M . y , that is, if franchiseextension increases the likelihood of taxation, the middle classeswill extendthe franchise when they control power during theprefranchise era. In otherwords, in this theory,the middle classesextend the franchise because they hold poweronly temporarilyand realizethat by including thelower classes in the political processes,they will shift thebalance of power in their favor. Thereseems little evidence in Britain that themiddle classes, otherthan afewradical MPs suchas Bright,elected in thelarge industrial cities,wanted toallow theworking classes to vote. It was wellunderstood that this would lead toredistribution at their expense.As LordElcho, a leading Adullamite put it,democracy meant‘ ‘handing thecountry over to the Trade Unions and therule ofnumbers,enabling thepoor to tax therich’ ’ (quoted inCowling [1967], p. 51). Cowling furthernotes [p. 54], ‘‘Disraeliand Gladstonewere attempting to push membersof parliament into doing what theyhad no desire todo . ..far fromwishing toextend thefranchise [they were] intensely suspicious of any attemptto do so’’ (italics in original).Viscount Cranborne, a leading Conserva- tive,saw thereform struggle, as wedo,as ‘‘abattle notof parties, but ofclasses’’ and ‘‘aportionof the great political struggleof our century—the struggle between property . ..and merenumbers’ ’ (quoted in Smith[1967], pp. 27–28). Thistheory does not seem to explain theother instances of democratizationeither .In Germanyin 1918–1919 themiddle classeswere either part ofthecoalition supporting theMonarchy , ormoderateswithin theSocial Democratic party .Eventhe Social Democratssaw suffrage extensionas likelyto help themore left-wing parties,like the Spartacists. In Francethe middle class couldbest be associated with theRepublican party,whichopposed universalmale suffrage. In Swedenthe Liberal party partially representedthe middle classes,and enteredinto a tactical coalitionwith theSocial Democrats to force full democracyon the intransigentConservatives and theMonarchy .Nevertheless,the Liberalsin Swedenwere very different fromthe Liberals in Britain, and included moreleft-wing groupsand workers(see Verney[1957], p. 138). Thestruggle for democracy in Sweden should thereforebe seen as abattle betweenthe Conservatives and twoleft-wing parties,where the victory of theworking-class WHYDID THEWEST EXTEND THEFRANCHISE? 1191 parties was securedby thelarge social unrest following World War I.

C.Democratizationand Redistribution Ourapproach alsopredicts that afterfranchise extension, thereshould beincreased redistribution. We now brie y discuss theevidence related to the relationship between democratization and redistributionin thefour cases of franchise extension dis- cussedabove. In Britain theReform Acts of1867–1884 werea turningpoint in thehistory of the British state.In 1871 Gladstonereformed the civil service,opening it topublic examination,thus makingit meritocratic.Liberal and Conservativegovernments introduced a considerableamount of labor market legislation, fundamentally changingthe nature of industrial relationsin favorof workers. During1906– 1914 theLiberal Party ,underthe leadership of Asquith and LloydGeorge, introduced the modern redistributive stateinto Britain, including healthand unemploymentinsurance, government-Žnanced pensions, minimum wages, and acommit- mentto redistributive taxation. As aresultof theŽ scal changes, taxesas aproportionof National Product more than doubled in the30 yearsfollowing 1870, and thendoubled again. In the meantime,the progressivity of the tax systemalso increased [Lindert1989]. Meanwhile,the education system, which was eitherprimar- ily forthe elite or run by religiousdenominations during mostof thenineteenth century ,was openedup tothe masses; the Educa- tionAct of1870 committedthe government to the systematic provisionof universal education for the Ž rsttime, and this was madefree in 1891. Theschool-leaving age was setat elevenin 1893; thenin 1899 it increasedto twelve, and special provisions forthe children of needy families were introduced [Mitch 1993]. As aresultof these changes, the proportion of ten-year olds enrolledin schoolthat stoodat adisappointing 40 percentin 1870 increasedto 100 percentin 1900 [Ringer 1979, p. 207]. Finally,the reformact of1902 led toa largeexpansion in theresources for schoolsand introducedthe grammar schools which subsequently becamethe foundation ofsecondaryeducation in Britain. In France,as in Britain, democratizationcoincided with importanteducational reforms. During the Second Empire there was asigniŽcant expansionof governmentsupport foreducation; illiteracyfell from39 percentto 29 percentof adults, and the 1192 QUARTERLY JOURNALOF ECONOMICS primaryschool enrollment rate increased from 51 percentto 68 percent[Plessis 1985, Table14, p. 100]. In 1881 thegovernment abolished feesin public primaryschools, and in 1882 it introduced sevenyears of compulsory education for children. The primary enrollmentrate increased from 66 percentin 1863 to82 percentin 1886. The‘ ‘liberal’’ phase ofthe Second Empire saw signiŽcant labormarket legislation with strikeslegalized in 1863, and unions wereŽ nally officially toleratedin 1868. Moreover,central govern- mentexpenditure as apercentageof GDPincreasedby one-third from9.4 percentin 1872 (a Žgureitself inated by thewar) to12.4 percentin 1880 [Flora1983]. In Germanythe large increase in redistributionin the1920s was initiated by theWeimar state [Flora 1983]. Also in Sweden, majorredistribution appears tohave started onlyafter democrati- zation.Lindert’ s [1994] data showthat before1920 therewas no redistributionat all in Sweden,while after this date it jumpedup sharply. Overall,we can summarize our discussion, especially the part aboutthe relationship between democratization and educational reforms,by quotingEasterlin [1981]: ‘‘tojudgefrom the historical experienceof the world’ s 25 largestnations, the establishment and expansionof formalschooling has depended in largepart on political conditionsand ideologicalin uences’ ’ and ‘‘amajor commitmentto mass education is frequentlysymptomatic of a majorshift in political powerand associatedideology in adirec- tionconducive to greaterupward mobilityfor a widersegment of thepopulation.’ ’ 25 D.TheKuznets Curve Ourtheory also suggests that theKuznets curve for income inequality should becaused by franchiseextension, so we may expectthe peak of the Kuznets curve to coincide with major democraticreforms. T ogetan idea ofwhetherthis mightbe a valid explanation forthe Kuznets curve, we looked at thebehavior of incomeinequality forBritain, France,Germany ,and Sweden. Data onincomeinequality forthe nineteenth century are not extremelyreliable. Nevertheless, a numberof studies using different data sourceson Britain reachthe same conclusion: inequality increasedsubstantially during theŽ rsthalf ofthe

25.See Engerman, Mariscal, and Sokoloff [1998] for historical evidence from theAmericas that democratization tends to induce educational expansion. WHYDID THEWEST EXTEND THEFRANCHISE? 1193 nineteenthcentury ,thenstarted falling in thesecond half. The turningpoint appears tobe sometime after 1870 [Williamson 1985, Table4.2]. This picture is alsoconsistent with theŽ ndings of Crafts [1989], and ofLindert [1986] onwealth inequality ,but is notcompletely uncontroversial [Feinstein 1988]. Asimilarpat- ternalso emerges from earnings inequality data reportedin Williamson[1985, Table4.2], wherethe Gini coefficientincreases from0.4 in 1823 to0.627 in 1871 and falls to0.55 in 1881 and 0.443 in 1901. It appears thereforethat inequality peakedapproxi- matelyat thetime of the major political reforms,and fell sharply afterthe extension of thefranchise. Data forother countries are even scarcer .Morrisson[1999] surveysthe existing evidence and arguesthat Germany,France, and Swedenall wentthrough a Kuznetscurve. In Germany inequality roseduring thenineteenth century ,and mostresearch- ersplace thepeak around 1900. Forexample, Kuznets [1963] Žnds that theincome share of the top 5percentwent from 28 percentin 1873–1880 to32 percentin 1891–1900, stayed at 32 percentduring 1901–1910, decliningto 31 percentin 1911–1913. Dumke[1991] Žnds thesame income share to be 28.4 percentin 1880, risingto 32.6 percentin 1900, and falling to30.6 percentin 1913. Duringthe Weimar Republic, inequality fell rapidly.Kraus [1981] recordsthat by 1926 theincome share of the top 5percent had fallen by 6.2 percent.Overall, Morrisson [1997] arguesthat theKuznets curve in Germanypeaked in 1900, went at,and started tofall in the1920s. Thisdate correspondsclosely to the majordemocratization of 1918– 1919. ForFrance, Morrisson [1991, 1997] arguesthat inequality roseuntil 1870, with theincome share of the top 10 percent peakingat around50 percent.Inequality started tofall, however, in the1870s, and in 1890 theincome share of thetop 10 percent was down to45 percent,falling furtherto 36 percentby 1929. The majorpolitical reformsof 1860– 1877 in Franceare therefore approximatelyaround the peak of the Kuznets curve. Finally , So¨derberg[1987, 1991] recordsthat incomeinequality grewin Sweden,peaking just before the First World War, leveling off or falling slightly during the1920s, and thenfalling rapidly thereaf- ter.Once again, thereis aclosecorrespondence between the declinein inequality and theextension of thefranchise. Overall, therefore,in Britain, France,Germany ,and Sweden,the peak of theKuznets curve appears tohave followed democratization, whichis in linewith themechanism proposed in this paper. 1194 QUARTERLY JOURNALOF ECONOMICS

V. CONCLUDING REMARKS Thispaper has offereda simplemodel of democratization and political reform,and investigatedthe implications for the dynam- icsof growth and inequality.Thetwo main contributions of this paper are(1) it explains why therich elite may want toextend the franchise,even though this implieshigher taxation in thefuture; and (2) itoffersa newexplanation forthe presence of aKuznets curvein thedevelopment experience of Westernsocieties. Ouremphasis on political reformas away ofchangingfuture political equilibria mayhave a numberof other applications. Otherreforms, as wellas constitutionalrestrictions, also affect thefuture balance of political power.It appears, forexample, that in theFederalist papers, Madison and Hamiltonintroduced the separationof powersas away ofrestrictingfuture policies (in fact, Madison was veryworried about the security of property rights underthe Articles of Confederation; see Madison [1961]). Simi- larly,relationswith internationalinstitutions can act as commit- mentdevices to future policies. Also, redistributive programs oftendiffer in howeasily they can be reversed.In mostcountries, forexample, social security entitlement programs appear tobe moredifficult tocut than otherredistributive programs. This raisesthe question of whetherthere was acommitmentmotive in play whenthese programs were instituted. Finally,as already noted,there are also major differences in theform of redistributionacross countries. In Britain, education increasedsubstantially afterthe franchise due to increased governmentsupport. In contrast,in Germanyearly redistribution was via thewelfare state. It is importantto understand what mightcause these differences, and whetherthe same forces are alsoimportant in shaping thedifferences in theextent and formof redistributionwe observetoday .

APPENDIX: NON-MARKOVIAN EQUILIBRIA IN THE MODEL OF SECTION II Wenow analyze themodel of Section II withoutthe restric- tionto Markovian strategies. More speciŽ cally ,welook for subgameperfect equilibria. We will Žnd that thereexists a cutoff probability ofstateµ h, q** , q*suchthat when q . q**,therewill beredistributionwithout democratization which prevents a revo- lution.In contrastwhen q , q**,theonly equilibrium will feature h theextension of thefranchise when µ t 5 µ . WHYDID THEWEST EXTEND THEFRANCHISE? 1195

First,note that if thepoor initiate arevolutionat time t, then p effectivelythe game ends with V (R) 5 µtAH/l (1 2 b ).Therefore, p h in any subgameperfect equilibrium, s t (µ ,E . , .) 5 (r 5 1) only if p p p V (R) . Vt, where V t isthepayoff ofthepoor in thecontinuation game at time t withouta revolution. 26 Thisimmediately implies p l that s t (µ , E . , .) 5 (r 5 0). Next,note that after f t 5 1, and ignoringrevolution, the elite are down totheir minimum payoff, p h since t 5 tˆ in all futureperiods. Therefore, s t (µ ,E f 5 1, .) 5 (r 5 1) only if V p(R) . V p(D).Assumption 2ensuresthat this inequality neverholds. Thus, in any subgameperfect equilibrium, p h s t (µ ,E f 5 1, .) 5 (r 5 0) irrespectiveof thehistory of thegame uptothis point.So we havepinned down all ofthestrategies by p h r thepoor other than s t (µ , E f 5 0,t ).Nowconsider this. p h r Let V t (µ ,E f 5 0, t )bethe continuation payoff ofthepoor, r conditionalon f 5 0 and t ,whenthey play r t 5 0.Then,in any p h r subgameperfect equilibrium, s t (µ ,E f 5 0,t )will onlyput p p h r positiveprobability on r 5 1 if V (R) $ V t (µ ,E f 5 0, t ) and will p p h r play r 5 1with probability 1if V (R) . V t (µ ,E f 5 0,t ). Suppose that q , q*.Recall fromProposition 2 that in this case,there were no MarkovPerfect Equilibria with redistribution r and nodemocratization. Let t (µt)bethe tax ratechosen by the elitein stateµ t at time t.Considerthe following candidate r h equilibriumstrategy combination. For the elite, s t (µ ,E) 5 r r l r (f t 5 0,t t 5 tˆ) and s t (µ , E) 5 (f t 5 0,t t 5 t ), where t # tˆ. For the p j r r h r poor, s t (µ ,E f t 5 0, t t ) 5 (r 5 0) if t (µs) $ tˆ if µs 5 µ and t (µs) $ l t if µs 5 µ , for all s # t, and (r 5 1) otherwise.Then, the payoffs in this candidate equilibriumare given by

(7) Vˆ j(µh,E) 5 (12 tˆ)Ahj 1 tˆAH 1 b [qVj(µh,E) 1 (1 2 q)Vj(µl,E)]

(8) Vˆ j(µl,E) 5 (1 2 tˆ)Ahj 1 tˆAH 1 b [qVj(µh,E) 1 (1 2 q)Vj(µl,E)] for j 5 p and r. Now deŽne t such that V p (µh,E) 5 V p(R). t , tˆ existsby Assumption 2.Therefore, the above strategies are the bestresponse for the poor in all subgames.Next, we need to check whetherthey are the best-response for the elite. Clearly ,if the elitereduce the tax ratein state(µ h,E),this will immediately r h r causea revolution.Thus, s t (µ , E) 5 (f t 5 0,t t 5 tˆ) is optimal r conditionalon thehistory up totime t characterizedby t (µs) $ tˆ if h r l µs 5 µ and t (µs) $ t if µs 5 µ , for all s # t.In contrast,if theelite

26.We are now using s t instead of s ,whichstands for s conditionalon the publichistory of the game up totime t.Thepublic history includes all past actions (butnot mixing probabilities when these are used). 1196 QUARTERLY JOURNALOF ECONOMICS

r l r r l deviatefrom s t (µ , E) 5 (f t 5 0,t t 5 tˆ) to s t (µ ,E) 5 (f t 5 0, r t t 5 0), this will notcausea revolutionimmediately .It will onlydo sowhenthe state changes to (µ h,E).But inthis case,the elite can r h play s t (µ ,E) 5 (f t 5 1) and as wesaw above,the best-response of p h themasses is always s t (µ ,E f 5 1, .) 5 (r 5 0) irrespectiveof the historyof the game up tothis point.The payoff tothe elite from followingthis deviant strategystarting in thestate (µ l,E) is

r l r r r l V d(µ ,E) 5 Ah 1 b [qV (D) 1 (1 2 q)V d(µ ,E)]. Therefore,the above candidate equilibriumstrategy combination isasubgameperfect equilibrium if and onlyif V r(µl,E) given by (7) and (8) isgreaterthan orequalto Ahr 1 b qV r(D) V r (µl,E) 5 . d 1 2 b (1 2 q)

r l r l It is straightforward that if q 5 q*, V (µ ,E) . V d (µ , E) and at r l r l r l q 5 0, V (µ ,E) , V d (µ ,E). Also, V (µ ,E)falls fasterin q than r l r l V d (µ , E).Sothere exists q**,suchthat forall q , q**, V (µ ,E) , r l V d (µ , E),and thereexists no equilibrium with redistributionand democratization. Finally,when q . q*,theMarkov Perfect Equilibrium with redistributionand nodemocratization continues to be a subgame perfectequilibrium, and with reasoningsimilar to the above, we canconstruct others that featuresome redistribution both in state h l µt 5 µ and µt 5 µ ,but all theseequilibria havethe same structureof keepingthe poor just indifferent betweenrevolution and norevolution in thestate (µ h,E)—thus giving thesame payoffs tothe elite and thepoor.

DEPARTMENTOF ECONOMICS, MASSACHUSETTS INSTITUTE OF TECHNOLOGY DEPARTMENTOF POLITICAL SCIENCE, UNIVERSITYOF CALIFORNIA, BERKELEY

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