Proceedings of the 2015 International Conference “ECONOMIC SCIENCE FOR RURAL DEVELOPMENT” No38 Jelgava, LLU ESAF, 23-24 April 2015, pp. 24-30 POLITICAL COMPETITION AND DEVELOPMENT IN LATVIA’S MUNICIPALITIES Janis Ikstens1, Dr.sc.pol. / professor 1 University of Latvia Abstract: A broad strand of research demonstrates a beneficial role of political competition producing more efficient policies and fostering economic development. This paper explores the linkage between political competition and economic development of municipalities in Latvia after the 2009 administrative reform. Empirical data do not support the above claim of the positive role of political competition and rather demonstrate an adverse linkage between political competition and development. Keywords: political competition, economic development, municipal politics, Latvia JEL code: A12, H11, O43, P16 Introduction One of the basic propositions in economics claims that competition drives economic efficiency and development. Oligopolistic or monopolistic markets tend to increase prices and reduce the quality of goods or services. This line of reasoning is not limited to economics only. Scholars of politics have pointed out that political competition may have various effects on results of the political decision making in that citizens function in politics as consumers do in the markets and politicians have incentives to act in the interest of a plurality/majority so as to avoid their removal from office. Besley, Persson and Sturm (2010) find that lower political competition leads to higher taxes and lower capital spending. Stigler (1972), Wittman (1995), and Besley, Persson and Sturm (2005) indicate that weak political competition can cause inefficient provision of public services. Falkowski and Olper (2014) highlight that fiercer political competition leads to a higher level of agricultural support. While the enthusiasm about beneficial effects of political competition on outputs of political system appears to be wide spread, there are a few studies that point to the contrary, with comparisons between democratic and non-democratic regimes leading the way. In particular, Przeworskiand Limongi (1993) demonstrate that the economic record of democratic regimes not necessarily is superior to that of authoritarian regimes. Mulligan, Giland and Sala-i-Martin Corresponding author. Telephone: +371 27331144; fax: +371 67140233; e-mail: [email protected] 24 (2004) provide empirical evidence that spending on public services in non-democratic regimes is not significantly lower than that found among democratic regimes. Lizzeri and Persico (2000) explain the adverse effect of political competition in the following way: “the tendency to focus on policies that provide particularistic benefits increases with the number of candidates at the expense of policies that benefit the population at large”. The role of political competition in shaping policies and generating particular policy outcomes in Latvia remains largely unexplored. Cross country comparisons (e.g. Li and Xu, 2004) aside, in-depth studies have focussed on how inter-party competition affects ethnic policy in Latvia (Nakai, 2014). This paper is aimed at reducing this deficiency as it will explicitly focus on the link between political competition and development in Latvia. In particular, the author explores the extent to which there exists a linkage between political competition at the local level and development of Latvia’s municipalities. The paper builds on the previous strand of research emphasizing the beneficial role of competition in politics. The aim of this paper is to explore the impact of political competition on municipal development. In particular, it is expected that a higher level of municipal political competition is associated with a faster pace of economic development in municipalities. Variables and operationalization The administrative reform in Latvia resulted in establishing of 1101 local municipalities (novadi) and nine major cities (republikas pilsetas) by 2009. At the time of finalization of the reform, each of these units was run by a council having between 132 and 19 seats, with the capital city of Riga constituting an exception and having a 60-strong city council. The councils are elected by popular vote for a four year term. Party list system with the Saint-Lague formula is used. Only political parties and their alliances are allowed to field candidates in municipalities where the number of residents exceeds 5000 persons of any age. There are numerous indicators for the level of development of each municipality such as GDP per capita, personal income tax collected etc. This paper will use a composite indicator – the Index of Territorial Development (ITD). It was developed in 2000 to capture aspects of economic and demographic development of each municipality. While scepticism about the usefulness of this index has recently grown (Hermansons, 2012), it remains widely used in public administration (allocation of government funding to municipalities; intensity of co- finance for the EU-funded projects; evaluation of territorial development etc.) and is the only index of municipal development with a time series from 1999. The index is designed so as to reflect the pace of development of a particular municipality in comparison to the national average taking positive values when the municipality develops faster than average, and 1 Initially, the number of novadi was set at 109 but it increased by one after the Mersrags municipality was separated from the Roja municipality in late 2009. 2 In 2010, the smallest number of council members was lowered to nine to become operational after the 2013 municipal elections. 25 negative values when it is falling behind. Annual ITD values for each municipality are endorsed by a government decision. Although key to many discussions, the concept of political competition has been defined and operationalized in various ways and there is no widely accepted method. One broad approach is to look at elections, the crucial event of vying for citizen support that significantly affects party or candidate prospects for the following term. A simple approximation would account for all players active on the market at a given point in time, i.e. the number of candidates in single-member districts or the number of candidate lists in multi-member districts. This method rests on the assumption that the mere number of competitors provides for competition. However, not all of competing forces stand an equally realistic chance to win a seat and, thus, have a small effect on the actual political competition. Therefore, several scholars have used closeness of elections as a measure of political competition (for example, Fiorina, 1974; Griffin, 2006) but these are more appropriate for majoritarian electoral systems with two main parties contesting the elections. Laakso-Taagepera’s index of effective number of parties (ENP) (1979) takes into account both the number of contestants and their support among voters. More recently, campaign funding has been seen as an indication of political competition as higher campaign spending has been taken as an indication of higher political competition (Abramovitz, 1991). Another broad approach is to consider indicators that apply to competition between elections. Here, the ideological distance between parties in the representative institution has gained some prominence – larger ideological differences provide beneficial circumstances for higher political competition. Weakness of this measure lies in that political organizations at the municipal level may not have well developed ideological profiles or may be groups of followers loyal to a local leader rather than adherents of a political platform. This weakness is addressed by considering changes in political support for a given party over several consecutive elections. Therefore, higher values of Pedersen’s electoral volatility index (Pedersen, 1979) may serve as an indication of more intense political competition. However, it may be complicated to trace splits, mergers, and name changes of parties at the local level, which would only obscure the actual competition. This paper analyses linkage between development and political competition at the municipal level in Latvia. Not only registered political parties but also associations of citizens are allowed to contest elections in smaller municipalities, which renders the between-elections approach inapplicable due to poor ideological articulation of most citizen associations and nearly untraceable organizational shape of followers of some local leaders. While campaign spending limits are tied to each municipality, parties do not provide public accounts of spending per municipality as impractical. Given the multi-party character of most local electoral contests, the effective number of parties will be used as a proxy for political competition – the larger the ENP, the higher the political competition. 26 Hypothesis, data and method This paper sets to verify the assumption that higher political competition at the local level is associated with a faster municipal development. To test the hypothesis, the author has chosen the only full term of four years following the completion of the administrative reform in 2009. Results of the 2009 municipal elections will be used to calculate ENP in each municipality at two different stages – (1) at the level of all valid votes (ENPvotes) and (2) at the level of seats held by successful contestants (ENPseats).