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COMMENTON "THE IMPACTOF CONSTITUTIONS ON EcoNoMIc PERFORMANCE,"By EISrER

Adam Przeworski Public Disclosure Authorized

Inthe indirect causal chain Elsterposits, institutionsaffect policiesand policies affect outcomes. Such arguments risk misspedfying the impact of institutions on policies or that of policies on performance. Take the argument that democracy fosters growth by safeguarding property rights (North and Weingast 1989). The validity of this argument depends on whether democracy in fact protects property rights and whether uncertainty decreases investment, neither of which is obvious. Public Disclosure Authorized Formulating theories of constitutional political economy-that is, of effects of institutions on economic outcomes-requires devising economic models. And the validity of such models is not always apparent. Suppose, for instance, that some institutional arrangements constrain tax rates. We will judge the effect of these insti- ntuions according to what we think about the effect of taxes on growth. Regarding precommitment, moreover, institutions with a large dose of what Elster calls "con- stitutionalism' may promote commitment, but not every commitment is to good policies. Elster's objection to the Przeworski and Limongi (1993) argument against precomniitment fails to recognize that while it is true that under the Kydland- Prescott assumptions precommitment is optimal, governments exposed to pressures from special interests may precommit themselvesto bad policies. Public Disclosure Authorized For accidental reasons, I believe, constitutional political economy tends to be associated with anti-statist beliefs that are not always well founded. Hence, even if we knew the impact of institutions on policies, we should remain skeptical about institutional prescriptions. What we sorely need is empirical knowledge about what works and what does not: crude facts. Yetoutside the OECD countries we know lit- tle about the effects of institutions. And much of the information we do have is sys- tematically flawed. The reason we know little about the effects of institutions is the most trivial one: money. Consider the insttutional features Elster considersimportant to economic per- formance: mode of election of the legislatureand the executive; provisionsregulating the separation of powers as well as checks and balances; political, social, and economic rights; emergency dauses; and amendment procedures. Checks and balances indude Public Disclosure Authorized Adam Przeworskiis Martin A. RycrsonDistinguished Scrvice Professor of PoliticalSdence at the Univer- sity of Chicago. Proceedngsof the World Bank Anwal Confemnceon Development Economics 1994 0199S Tbe Intcrnational Bankfor Reconstructionand DevclopmcntI THE WORLD BANK 227 j -.

228 CommentonSrhe Impwc of Consitwidonson Economic Peformance"

relations betweencourts and legislatures,veto powers, bicameralism,and the inde- pendence of central banks and other paragovernmental institutions. Amendment pro- cedures include supermnajorities,waiting periods, and confirmation methods. The list of rights is equally long. With 139 countries for which comparable economic data are available for the post-1950 period and a rough guess of an average of two constitu- tions per country, there would be nearly 300 documents to analyze. Moreover, as Elster notes, many of these constitutions are just pieces of paper-Haiti's constitution under Duvalier, for example. Institutions cannot be read from constitutions. We know, for instance, that although the legal independence of central banks is a poor predictor of economic performance, turnover of directors is a good one (Cukierman, Webb, and Neyapti 1992). Hence research is needed to ascertain each country's effective institu- tional framework, and collecting institutional data is expensive. Because of selection bias, research on the impact of institutions on economic per- formance is also systematically flawed. Suppose that we dassify political institutions as democratic and authoritarian and discover (as we in fact do) that democracies perform better economically. Running a regression with regime as a dummy inde- pendent variable yields a coefficient in favor of democracies. One might, therefore, condude that democracy is good for economic performance. There are, in fact, more than twenty studies that draw conclusions from such procedures. Yet infer- ences based on such procedures are fallacious. The reason is that the regimes we observe are endogenous with regard to their economic performance: the world nurtures successes and eliminates failures. The observed world is thus not a random sample of attempts. Suppose that on average regimes de not affect growth but one of them-democracies-is more likely to die (that is, to become dictatorships) when it declines economically. Because declining democracies will no longer be with us to be observed, comparative studies will observe that democracies are doing better. We cannot, therefore, draw inferences from endogenously generated observations but must correct for their selection. Sampling on the dependent variable only exacerbates the selection bias. And yet this is standard practice in studies of the Asian "miracle" economies, including the latest World Bank (1993) study of their performance.

Political Regimes and Per Capita Income Instead of commenting direcdy on Elster's artide, I will give some results of statis- tical analyses derived from a project I am working on with Mike Alvarez (De Paul University), Jose Antonio Cheibub (University of Chicago), and Fernando Limongi (University of Sio Paulo). Our data set covers 139 countries between 1950, or inde- pendence, and 1990, or the latest year for which data are available. Most analyses are based on 4,055 annual observations. All income figures refer to 1985 purchas- ing power parity dollars. For lack of space I do not present any details of the eco- nomic models but focus exdusivelyon the impact of institutional variables. In our study we define democracy as a regime in which some government offices are filled as a result of contested elections. A regime was classified as democratic if prnewoski 229 the chief executivewas directly or indirectly elected, the legislaturewas elected, there was more than one party, and elections were competitive. Thirty-seven percent of the annual observations were classified as democracies. Regimes that failed to meet these criteria were classifiedas dictatorships, a term I use interchangeably with "authoritarian regimes." The average annual rate of growth for the entire sample was 2.09 percent. When the growth rate is averaged by type of regime it appears that democracies grew by 2.44 percent a year and dictatorships by 1.85 percent. Because democracies are more vulnerable to economic crises than dictatorships, the expected lif oI a democratic regime that is declining is eighteen years, compared with sixty-eight years for a growing one. The expected life of a declining dictator- ship, on the other hand, is forty-one years, while that of a growing one is fifty-three years. Growth rates, in turn, depend on the level of development. Very poor coun- tries do not grow. The effects of poverty and economic stagnation combine, more- over, leaving poor democracies brittle, while wealthy democracies remain immune to economic performance. While the expected life of a very poor democracy (per capita income of less than $1,000 a year) that did not grow during the current year is less than five years, no democracy with per capita annual income of more than $4,335 has ever died, regardless of economic performance. To examine the effect of regimes on growth, we must therefore correct for the fact that regimes are endogenous. We estimate, therefore, a simultaneous model of selection and performance. Once this is done, the average rates of growth under the two regimes turn out not to be different. Regimes, it seems, do not matter for the growth of per capita income. The model of growth on which this conclusion is based is purely economic: growth is driven by investment, population growdt, catch-up effect, and interna- tional demand. Hence regimes are the only political variable considered. We can, however, introduce into the analysis of growth under each regime some institutional and political features that differentiate them. First, there is a burgeoning literature in political science that has its origins in the Condorcet jury theorem, which asserts that on issues about which there is no conffict of interest a larger assembly is more likely to make correct decisions. Second, we have the hypothesis of Olson (1982), according to which old democracies tend to stagnate because of the incrustation of interest groups. Finally, several scholars have argued about the effects of majority- inducing and minority-enerating electoral systems on economic performance. The Condorcet hypothesis finds no support in the empirical analysis: the size of legisla- tures does not matter for economic performance. The Olson hypothesis defends itself. old democracies grow somewhat slower. Democracies in which the largest party controls a larger share of seats in the legislature grow slightly fster. Adding these variables to the economic model does not change, however, the condusion that the two regimes do not differ in terms of growth?1 One conceivable explanation why no difference between regimes is found is that different mechanisms may work at cross purposes (Przeworski and Limongi 1993). The most frequent argument to the effect that democracies inhibit growth is that 230 Commenton "TheImpact of Constitutions on Economic ormKnaCa they process demands for consumption, therefore depressing investrnent. The argu- ment in favor of democracies focuses on allocative efficiency: dictatorships waste investment either because the rulers extract rents or because they use less informa- tion. If both hypotheses are true, the two effects may cancel each other out. Observed values show a much higher investment share in democracies, at 22.9 percent, than in dictatorships, at 14.9 percent. But this is again an effect of selection bias: investment rises with per capita income and there are few democracies among poor countries. Once we correct for selection bias, the regimes no longer differ in their capacity to mobilize investment. Allocative efficiency, however, is significantly higher in democracies. According to several recent models, regimes should have an effect on the size of the government, which in turn affects economic growth (Findlay 1990; Olson 1991; Przeworski 1990). We tested these models using alternative specifications of growth equations (Ram 1986; Barro 1990). Once again, the condusions were negative?2 While the question of whether democracy fosters or hinders economic growth is politically important, labeling political institutions as democratic or authoritarian does not capture insttutional features that are relevant to economic growth. When selection is considered, no difference in economic growth is observed between authoritarian and democratic regimes.

Democratic Institutions and Per Capita Income Elster's article demonstrates that all democracies are not the same. Linz (1990a,b) recently drew the attention of political scientists to the differences between parlia- mentary and presidential regimes. Under parliamentary regimes the legislature can depose the govermment. Under presidential regimes the government se ires inde- pendendy of its support in the legislature. Of the total sample in our study, 59.4 per- cent of years were spent under authoritarian regimes, 24.2 under parliamentary democracies, and 12.0 under presidential democracies. (The rest were mixed demo- cratic regimes.) By distinguishingdifferent types of democratic regimes, it is possible to discern eco- nomic differences among them. Observed average annual growth rates are 1.88 per- cent for authoritarian regimes, 2.85 percent for parliamentary democracies, and 1.45 percent for presidential democraacies.After correcting for selection bias, we found using extensive specifications that economic growth is faster in parliamentary than in presidential democracies. We also discovered that democracy lasts much longer under parliamentary than under presidential institutions. Hence our findings support Linz's arguments about the superiority of parLiamentarismover presidentialismL

Condusion Tlhe conclusions derived from our rudimentary data allow for only a crude commen- tary on Elster's subtle and penetrating article. I have chosen the empirical route, how- ever, to demonstrate how little can actually be tested empirically.Data on institutions Przeworsi 231 are hard to collect. But with argumentsabout the effectof politicalinstitutions on economicperformance that are far fromobvious, we cannotallow theorizing to out- strip empiricalresearch. 1close with a point that extendsbeyond the impactof institutions.Policy evalua- tion researchruns two dangers.The first is purely methodological.Learning just from "successes'leads to biasedinferences: this is just elementarystatistics. Unless we have an understandingof the reasons a particularpolicy was chosen to begin with, our inferencesabout the effectof the policyon performanceare likelyto be biased.If the policywas chosen for reasonsthat alsoaffect the performance,one can- not expectthat it wouldhave had the sameeffect under different conditions. Second, policyevaluations that are conductedby the same institutionsthat have advocated these policiesin the past tend to be self-justifying:negative findings mean that the institutionerred in its policychoice, and this is not an easyadmission. As a result, the purported'lessons" appear at timesto be no more than restatedprejudices.

Notes 1. All the results we report are based on the assumption that the rate of population growth, which is much higher in dictatorships,is endogenousto regimes. 2. Note that we condnue to define regimes dichotomously.One reason we may find no difference between democracies and dictatorships is that there are two kinds of authoritarian regimes-in Przcworskiand Limongi's(1993) terminology,"autocracies," where the size of the government is too small,and Sbureaucracies, whereit is too large.We have not yet studieda trichotomousclassification.

References Barro, Robert J. 1990. "GovernmentSpending in a SimpleModel of Endogenous Growth. Journal of PoliticalEconomy 98: S103-2S. Cukinrman,Alex, Steven B. Webb,and BilinNeyapti. 1992. "Measuring the %udependenceof Central Banks and Its Effectson PolicyOutcomes." Workl Bank EconomicReview 6: 353-98. Findlay,Ronald. 1990. "The New PoliticalEconomry Its ExplanatoryPower for the LDCs." Economics and Poltics 2- 193-21. Linz, Juan J. 1990a. "The Pcrilsof Presidentialisn"Journal ofDemocracy 1: 51-69. -. 1990b. "The Virtuesof Parliamcritarism.iJournalof Democrcy 1: 8491. Nortb, DouglassC., and Barry R. WeingasL1989. "Constitutions and Commitment The Evolution of Institutions GovcrningPublic Choice in Sevcnteeath-CenturyEngland." Journll of Economic History 49: 803-32. Olson, Mancur Jr. 1982. The Riseand Decine of Nations. New Haven, Conn.: YalcUniversity Prcss. - . 1991. "Autocracy,Democrcy and Prosperity." In Richard J. Zeckhauser, ed., Stratqey and Cboice. Cambridge,Mass.: MIT Prcss. Przewnrski, Adam. 1990. Funddtmenalsof Pre and Applied Econois, vOL 40: The State and the Economy under Capitalism Chur, Switzerland:Harwood AcademicPublishers. Przrorski, Adam, and Fernando Limongi.1993. "PoliticalRegimes and EconomicGrowth."Journal of E&onomicPerspectives 7: 51-69. Ran, Rati. 1986. "GovernmentSize and EconomicGrowth: A New Frameworkad SomeEvidence from Cross-Secion and Time-SericsData." Amerian EconomniReview 76: 191-203. World Bank. 1993. hcE LEstAsian Mirakle Economic Growth and PublicPolicy. New York: Oxford UniversityPre CoMMENTON "THE IWACT OF CONSTTUMONS ON ECONOMICPERFORMANCE," BY ELSTER

Pranab Bardhan

E Istergives us a dear analysisof the relationsamong three aspects of consti- tutional arrangements (basicrights, structure of government, and amendment procedures) and two aspects of econonic performance (efficiency and secu- rity). Since I agree with much of what Elster has to say, I will concentrate here on one point of serious disagreement and then go on to certain supplementary issues, and I shall give more examples from developing countries, particularly in Asia. While I agree that constitutional precommitments against political opportunism are important, I have some problems with Elster's discussion of the impact of civil and political rights on economic efficiency through the ability of poicymakers to precomnit. Elster argues that to be creaible and effective, precommitment needs democracy.The promises of an executive are much more credible if there is a well- established procedure for throwing the executive out of office for failure to keep those promises. Power, to be effective, must be divided. Yet in the recent history of developing countries economic policy, ronounce- inents have been much more credible when coming from a Park Chung Hee or even a Pinochet than from a Rajiv Gandhi. It is the division of powers in a democracy that sometimes makes promises difficult to keep. Promisesmade by U.S. presidents in international negotiations have sometimes been less credible than those made by their authoritarian counterparts. The U.S. Senate, for example, refused to ratify the second Strategic Arms Limitation Treaty, while Kremlin leaders did not face similar problems. More recendy, the U.S. Congress came very close to not ratifying NAFTA, until President Clinton could gain support from congressmen with expen- sive patronage-a problem President Salinas did not face to nearly the same extent. The existence of -well-establishedprocedures" for throwing out errant democra- tic leaders, moreover, does not in practice add much credibilityto their precommit- mentsa Take the case of infint industry protection, which has been popular in developingcountries, as it was in the early stages of industrializationin today's indus- trial countries. At the time when such protection is initiated, by the very nature of the argument for temporary protection, it is granted for a short period until the industrial infant can stand on its own. But in most countries infant industry protection PranabBardhan is professorof economicsat the Universityof Californiaat Berkley. Proceedig of die WorldBank Annul Confereceon DevelopmetEconomics 1994 232 01995 TheInternational Bank for Reconsuctionand Development/ IHEWORLD BANK Bardban 233 inevitablyruns up againstthe time-inconsistencyproblem. When the initialperiod of protectionis about to expire, politicalpressures for its renewalbecome inexorable, and in this way the infant industry soon degeneratesinto a geriatric,protectionist lobby.Given the concentrationand visibilityof benefitsfrom the perpetuationof this protectionand the diffusenessof its costs,there is httle organizedpopular pressurein a democracyagainst it. No connivingleader facesdismissal on this ground, making constitutionalprovisions for throwingout the leadershiplargely irrelevant here. The most successfulcases of infant industry protection in recent history have taken place under someof the authoritarianregimes of East Asia,particularly in the Republicof Korea and Taiwan(China). There have been some remarkableinstances in these regimesof the govermmentholding steadfasdyto its promiseof withdraw- ing protection from an industry after the lapse of a preannouncedduration and of then letting the industry sink or swim in international competition.Clearly, pre- commitmentdevices on the part of the govermnentdid not have to take any of the rather imaginativeforms of self-incapacitationwith which Schelling(1980) and Elsterhave made us familiar.While institutionalmechanisms for establishingcredi- bility are important, consistencyof past behaviormay be enough to establishcredi- bility in a repeated-gamesituation. Thisis not to saythat authoritarianregimes are inherentlybetter at establishingeco- nomiccredibility than democracies.I believe,in fact, that authoritarianismis neither a necessarynor a sufficientcondition for credibleprecomrnmiunent or for the auton- omy of the state. But I object to Elster'sassertion that to be credibleprecomniitment requiresa democraticconstitution. Nor do I find convincingElster's explanation that EastAsian authoritarian rulers are effectivelyconstrained by "protodemocratic"delib- erativecouncils. The experienceof EastAsian polities-particularly Korea and Taiwan (China)-in the crucialtwenty years from the mid-1960sto the mid-1980ssuggests that executivepower remainedlargely untrammelled despite the existenceof a dense network of ties betweenbureaucrats and privatebusiness, and the divisionof power was nowhere near what one normaUyobserves in a democracy.Political sociologist PeterEvans (1995) has describedthis as "embeddedautonomy." In discusing the impact of the structureof governmenton efficiency,Elster again stressesthe credibility-enhancingeffects of separationof powerswithin government and also the importanceof an independentcentral bank for controllinginflation. Let me first point out that in East Asia (includingJapan) central bankshave not enjoyed much autonomy,and yet one of the main ingredientsof economicsuccess has, until veryrecently, been the soundnessof macroeconomicpolicy. Even in India, wherethe central bank does not have much autonomy,the rate of inflationover the pasi four decadeshas been relativelymoderate (barringbrief inflationaryspells) and the cen- tral bank has generallyfollowed a conservativemonetary policy. Elster also fails to point out that some other aspects of separation of powers can have adverse effects on efficiency.A governmentstructure in which checks and balancesare centralmay involvea multipleveto power systemthat, to give just one example,may affectendemic corruption in a way not captured by standardassess- ments in the public choice literature that associatecorruption in a simpleway with 234 Comment on "The Impact of Constitutions on Eonomic Performance" government zegulations and rent-seeking. In a system of multiple veto powers the uncertainties inherent in corrupt transactions make corruption more costly than oth- erwise. I once asked an internationally successfulIndian business tycoon who was elo- quently describing the evil effects of corruption on India's economic growth how he reacted to stories of rampant corruption in the fast-growing economies of Southeast and East Asia (China, Thailand, Indonesia, the Republic of Korea, and even Japan). Drawing, I suppose, on his own considerable empirical experience, he said that the difference was that in India, unlike in the East Asian economies, you are never sure that the job will get done even after the bribe. One reason is the elaborately struc- tured system of multiple veto powers built into the internal organization of the Indian state. The uncertainty of corrupt transactions in a multiple veto system is not unre- lated to the inefficienciesof the 'independent monopolists" in bribe collection noted by Shleifer and Vishny (1993). They explain the rise of corruption in postcommunist Russiacompared with that under the communist regime in terms of the decline of the centralized system of bribe collection. Two other examples illustrate issues of constitutional political economy that Elster does not discuss. With regard to the effect of social rights on efficiency, for instance, Elater discusses education, health care, and unemployment benefits. Let me instead mention the issue of affirmative action as enshrined in a constitution. As one might expect in an extremely heterogeneous and hierarchical society, the Indian constitu- tion takes affirmative action very seriously and provides for quotas for access to gov- ernment jobs and to professional schools for historically disadvantaged groups. In recent years populist pressure has caused some state governments, and now the cen- tral government, to expand job quotas to cover other so-called backward social groups, so that the constitutionally stipulated ceiling of 50 percent of all government jobs that can be reserved for this purpose will be reached fairly soon. In a country where the government employs two-thirds of all workers in the formal sector, one can imagine the economic implications of this requirement (n terms of splintering the labor market and distorting incentives)-a prime example of how expansion of the political market under a pluralist democracy can constrict an economic market. Elster also fails to discuss the separation of powers between the federal govern- ment and constituent states and other local governments, an important constitu- tional feature of the structure of government in many large countres. Although this topic is too large to be covered here, I touch on an aspect or two of fiscal federal- ism and its effects on both economic security and efficiency, with some examples primarily from India and Cbina. In the theoretical literature on fiscal federalism there has been some discussion of the appropriate level of government for carrying out redistributive programs, taking into account such spillover effects as the interstate migration of taxpayers and trans- fer recipients. In the United States the idea of "new federalism" favors shifting fis- cal responsibility for some redistributive programs from federal to state and local levels. In India the constitution assigns to state governments responsibility for the major part of social and economic expenditures that direcly affect the poor (such as for health, education, and rural development). Yet in the allocation of tax bases Bardlban 235 the most income-elasticrevenue sources are left with the federalgovernment, pro- vidinga built-inbias toward fiscaldeficit at the state level.Without direct power to borrow from the market or to print money,state governmentsare dependent on transfers from the federalgovernment. With the transfersbeing substantiallycut in recent structural adjustmentprograms, there has been a serious reductionin state- level social and economic expenditures for the poor and for long-term capital investmentand maintenance. Finally,we should pay attention to the issueof further decentralizingpolitical and economicpower below the state level to the local govermmentlevel. Such decen- tralization,apart from limitingthe influenceof special-interestcoalitions that nor- mallytry to grab rents arisingfrom concentratedpower at the center,can tap into local people's large reservoir of information, ingenuity,and initiative, which is bypassedby large-scaletechnocratic development projects directed from above.Of course, localgovernments are also prone to "capture,"especially since it is easierfor the neighborhoodmafia to dominate a local institution,whereas at the nationallevel crooks from different regions may neutralizeone another to some extent. Land reforms and other measuresto reduce inequalitiesin wealth distributionare there- fore important to prepare the ground for effectivelocal politicalparticipation. One reason why the benefitsof developmentmay have reached out to most sec- tions of the population more effectivelyin many parts of East Asia (except the Philippineswhere, not coincidentally,land reforms have also not been effective)than, say,in India may have to do with the fact that localself-governing institutions (and what Putnam 1993 calls "networks of civicengagement" in Italy) in East Asiahave been by and large more vigorouseven under authoritarianregimes than they have been in democraticIndia. The only part of India where local democracyseems to havestruck roots is rural WestBengal (with a provincialcommunist government since 1977). But even there local self-governinginstitutions have been more effectivein carryingout a better and somewhatmore equitabledistibution of governmentsub- sidies flowingfrom abovethan in launchingautonomous development projects. In this respect the dramaticcommercial success of Chinesevillage and township enter- prisesin recent yearsstands out in contrast A major factor contnbutingto this suc- cess is China's systemof fiscaldecentralization, which compelslocal governments to raise their ownarevenue (a kind of hard budget constraint)and encouragesthem to do so by malcingthem residualclaimants to the revenuethey raise.This systemhas unleashedthe entrepreneurialenergies of local governmentsin unprecedentedways. The contrastbetween the Chineseand Indianfiscal systems is worth a majorstudy in the field of constitutionalpolitical economy of development

References Evans, Peter. 1995. EmbeddedAutonomy. Princeton, N.J.: Princeton UniversityPress. Putnam, Robert 1993. Making Democracy Tos Ciic Traditionsin Modem Itay. Princeton, N.J.: Princeton UnivcrsityPrcss Schelling,Thomas C. 1980. The Strategy of Conflict. Cambridge,Mass: Harvard UniversityPress. Sbleifer,Andrei, and Robert .ishny. 1993. 'Corrupion.' QuarrerlyJounal of Economics 108: S99-617. FLOOR DISCUSSIONOF "THE IMPACTOF CONSITrUmONS ON EcoNoMIc PERFORMANCE,"By ElSTER

Jnresponse to the objectionraised by Pranab Bardhan(discussant), Elsrer said that he claimed only that democratic accountability was a necessary condition for successful precommitment, not that it was sufficient. Some of Bardhan's country examples were examples only against sufficiency,he said. Elster found the Pinochet example fascinating. A student in Chicago is basing his dissertation on unknown empirical material about how the junta implemented self-limitation. The junta was actualy a constitutionally governed body with internal separation of power and checks and balances. That fact was not publicly known, so it could not enhance aedibility; indeed, Pinochet was seen as an omnipotent dictator, not as part of a self-limitingjunta. So their empirical disagreement, said Elster, boiled down to the interpretation of the East Asian economies, about which Elster knew very little. Bardhan, who was an eminent authority, had a different opinion, so Elster had to look for a referee. Ibrahim Shihata (chair) felt qualified to assume that role. The most powerful argument he'd found in Elster's thought-provoking article was that economic effi- ciency often requires precommitnent which, to be credible, requires that citizens be endowed with effective political rights. And EIster himself had recognized that while this is generally true, there may be alternative mechanismsto ensure the credibility of precommitment, even in the absence of political rights as typically perceived by Western democracies. Consultative bodies serve that function in Asian economies. The World Bank and the IMF impose precommitment when a system would not otherwise generate it. And history reveals great civilizations that have been built without political rights, as now perceived. So historically,Shihata continued, empir- ical evidence probably does not support the alignment of economic progress with democracy. But political rights do help to empower people by giving them more voice in decisionmaking, thereby making it more likely that governments will ulti- mately serve the interests of the people. A participant from one of the Bank's Africa infrastructure divisions observed that it is difficult to get benefits from decentralization without a system of political

This sessionwas chaired by IbrahimF. L.Shihata, vice president and generalcounscl, Legal Deparment, at the WorldBank Proceedngofthe World Banmnd Conferenceon Developmena onomics 1994 236 01995 TheInternational Bank for Reconstrucdonand Developmentf THE WORLD BANK Floor Discussionof "TheImpact of Constitutions on Economic Performance" 237

representation.Addressing his question to Bardhan, he asked if the very act of decentralization-passing responsibilitieson to lower-tier governments,even if those governmentsare authoritarian-can in the long run promote more popular participation than a system in which authoritarianismis pushed from way, way above.South Africa,he said, maybe a good test case.Change there has come about through a process of political accountability.There may be no redistribution.The questionis, will the processof politicalaccountability be sufficientwithout a redis- tribution of assetsto maintainthe same levelof politicalparticipation? It is no 'iccident,responded Bardhan,that in India communists-in name, but reallys --l democrats-have, by mobilizingpeople in an agitationalmode, essen- tially dcr'arded and now installedsome systemsof accountability.In connection with his villageservice in India, Bardhanwas pleasantlysurprised by how the land- less poor, disenfranchisedall these years,would stand up in a public meeting and say,what did you do with that moneyfrom the government?That had been unheard of in India for quite some time. It is easyto use agitationalpolitics to demandpolit- ical accountability,but the crunch comeswhen the governmentturns around and demandsthat communitiesrather than the center mobilizeresources. In East Asia, dating back to the nineteenthcentury, there has been a continuingtradition of self- governinginstitutions such as the water users (irrigation)associations resolving con- flicts through networksof civicengagement. By and large, these institutionsdo not exist in other developingcountries. Bardhanhad a questionfor Przeworski,who in discussingelection bias seemedto suggestthat democracy'slongevity is limitedacross different kinds of economicper- formance.Przeworski might be right, said Bardhan,but Bardhan'sreading of the lit- erature was exactly the opposite: that authoritarian regimesdo not survivecrises becausethey lack legitimacy.By his reading,authoritarian regimesare okay when the economy is performing well, but when an economy performs badly for an extended period, democraciessometimes survive just on the grounds of legitimacy, whereas authoritarianregimes do not. One could say there are two ways to think about the question, responded Przeworski.First, obviouslydemocracy should surviveacross a broader range of conditions becausedemocracies legitimize themselves not just through economic performancebut also through freedomfrom arbitraryviolence and so on, whereas authoritarianregimes typically legitimize themselves only through economicperfor- mance and sometimesmust be repressivein order to survive.'When I talk about an authoritarian regime surviving,I do not mean a particular regime; one military regimemay succeedanother, but there is a continuousspell of militaryregimes. If you look at the world this way-that is, 140 countriesover forty years or whatever period we have available-you will discoverthat democraciesare much more sensi- tive to economic performance, especiallyin poor countries, where authoritarian regimesare almost certain to survive.In countrieswhere annual per capita income is lessthan $1,000 in 1985 dollars,the expectedlife of authoritarianregimes is gen- erally 130 years,whether they do badly or not. This is the povertytrap: povertypro- ducesinstability, instability produces poverty, and both persist.Poor democraciesare 238 FloorDiscussion of Kw Impactof Constitutionsa EconomicPerformance' quite unstablebut extremelysensitive to economicperformance. They surviveless than fiveyears if they do badly and seventeenor nineteenyears (he didn't remem- ber which)if they do well. No democracywith annual per capita income above $4,335 (in 1985 dollars) ever fell. Once democraciesare wealthythey seem to be imperviousto economicperformance. A participantfrom Harvard Universityobserved that recent papers on constitu- tional and politicaleconomy have suggestedthat constitutions,to be effective,must reflecta broad socialconsensus. What worriedthe participantwas that there did not seem to be any possibilitiesfor socialconsenuius in the EasternEuropean and post- Sovietsystems. If the constitutionis a dependentvariable, to -:Iiat extent must it reflectthis kindof socialconsensus to be effective?Elster responded that for a con- stitution to be respectcdand have an impact,there probablyhad to be somekind of consensus,a relativelylarge majority.There werestandout examplesof this.At one extreme the Spanishconstitution was adopted in 1931 with a bare majority-54 percent,he thought; it was leftist, dogmatic,and anticlerical,and had very divisive consequences.The framers of the 1949 constitutionfor the Federal Republicof Germanydecided that any documentthat they adoptedhad to be approvedwith an 80 percent majority.It was adopted by 81.5 percent of the membersof the con- stituentassembly. Following up on Przeworski'spoint, Elsterdid not think that any- body had studiedcorrelations between the majoritywith which a constitutionwas adopted (as an indepcndent variable)and durability and effectiveness,and he thought that there would be huge methodologicalproblems in doing so. At least in theory-perhaps in heaven-one could do it. A participantfrom the GeorgeWashington University, knowing that Elster had written on Marx, was pleased that Elster had taken economicperformance as a dependentvariable but was surprisedthat he did not regard institutions,constitu- tions, and economicperformance as dependentvariables and technologicalchange as the dynamicindependent variable. The participanthad heard litde about tech- nologyat the meetingand wonderedwhere that came into Elster's thinking.Elster said that he had deliberatelychosen not to addressthe questionof constitutionsas dependent variablesas it was a totally separate issue, one he had addressedin a paper for the EuropeanPublic Choice meeting in Valencia. Oliver Williamson(speaker from another session) addressed a comunentto Przeworski,who had said that more "crude facts" are needed.Which facts?asked Williamson,who did not think that the factsspoke for themselvesand thought that we neededa lensfor lookingat them if we weredoing microanalysis. There were too many ficts out there; we need somethingto focuson. We need all the factswe can get, respondedPrzeworski, especially in foreigncountries undergoing adjustment and structuralreform, about which we started with no knowledgeand no past experi- ence.We have had two, five,seven cases whose histories have rapidlychanged the beliefsof everyonewho has followedthem. If we systematicallylooked at what we thoughtnot so longago we wouldsee that, by and large,we havechanged our minds. We have no model for the best way of learningfrom past experience.And lenses allowyou to falsify.To be brutal, said Przeworski,once politiciansand organizations Floor Discussionof 'The Impact of Constitutionson &onomic Pnformancef 239 such as the Bank commit themselves publidy to a particular policy or orientation, they interpret all evidence in their favor. We must avoid that. Shihata concluded the session. First, as a lawyer, he felt flattered that law's rele- vance and importance were finally being recognized. When he wrote about law in the 1960s he felt unappreciated by his audience-basically economists-who seemed to feel that he was intruding on their domain. Now there was much greater recognition of law's role in development, whether under the rubric of institutional economics or otherwise. At this conference, however, the concept of law had been confined to written text, whether the subject was basic law (the constitution) or lesser law (legislation, regulation, and what some call soft law). But law is what is applied as law, what the population sees as law. It is a mistake to analyze law only on the basis of the written text; one must also see how it is applied (law enforce- ment is as important as legislation, if not more so) and how conflict is resolved (in the judicial system). If law were seen as a process encompassing legislation, applica- tion, enforcement, and conflict resolution, some comments might have been differ- ent, especially in the session on the new institutional economics. Second, the constitution seemed to have been regarded mainly as providing safe- guards against the excesses or arbitrariness of the state, as if the state had a monop- oly on either. But a constitution should address all forms of excess or arbitrariness: those of the state, those of the market, and those of the population. The more mod- em constitutions are drafted in that broader sense and reflect some of the points under discussion.