LIVING REVIEWS IN DEMOCRACY democracy.livingreviews.org | 2013

Strong Theories, weak Evidence The Effect of Economic Inequality on Democratization

Yannick Pengl ETH Zurich | Center for Comparative and International Studies | [email protected]

First published: November 2013 Most recent version available at http://www.livingreviews.org/lrd-2013-1

This paper summarizes the current state of the theoretical and empirical debate on the potential effect of economic inequality on the odds of democratization. This debate is reconstructed by first focusing on the seminal ‘new structuralist’ theories put forward by Boix as well as Acemoglu and Robinson. Subsequently, pre-existing quantitative studies on the potential inequality-democracy nexus are reviewed. It turns out that new structuralist theories are at best weakly supported by the empirical evidence. This may be partially explained by problems of methodology and variable operationalization. On a more theoretical level, this paper discusses nine potential problems of the new structuralist approaches that have been discussed in recent scholarly work on the impact of inequality on the likelihood of democratization.

Introduction The present paper first presents these two most important contributions to the ‘new structuralist’ literature and then moves How does economic inequality affect the emergence and on to an empirical and theoretical discussion of this relatively stability of democratic regimes? This question has kept political new strand of research. In doing so, it summarizes the existing analysts busy for centuries. Aristotle (1962: 173) once wrote that quantitative studies on the relationship between inequality and “where one set of people possesses a great deal and the other democracy and points to their potential methodological nothing, the result is either extreme democracy (mob rule) or weaknesses. It turns out that ‘new structuralist’ theories gain at unmixed oligarchy or tyranny due to the excesses of the other best limited support when confronted with quantitative empirical two.” Alexis de Tocqueville (2004: 266) similarly praised an evidence. Subsequently, nine theoretical problems that have “equality of conditions” as the most important precondition for been raised in the on-going scholarly debate on the ‘new democracy: "Between these two extremes [very few rich men structuralist’ theories are discussed. The final part of the paper and few poor ones] of democratic communities stands an concludes and identifies promising areas for future research. innumerable multitude of men almost alike, who, without being exactly either rich or poor, possess sufficient property to desire the maintenance of order, yet not enough to excite envy.”i New Structuralist Theories of Democratization Both Boix and AR use rational choice theory and formal game The modern social sciences have also extensively stressed the theoretic modelling to exploit the full potential of Dahl’s (1971: importance of a relatively equal distribution of economic assets 14–16) cogent intuition that regime choice, in its essence, for the emergence of democracy. In his classic account of depends on the relevant actors’ evaluation of the cost of democratization, Lipset (1959: 75) points at the moderating repressing opposition under pre-existing authoritarian effect of a large middle class and argues in almost Aristotelian institutions vs. the expected costs of tolerating the opposition fashion that a “society divided between a large impoverished and/or rule by other social groups under democracy. In both mass and a small favored elite would result either in oligarchy accounts, the relevant actors are conceived of as antagonistic (…) or in tyranny.” Robert Dahl (1971), in his seminal book social groups engaged in distributional conflict over scarce Polyarchy, spends a whole chapter on the destabilizing effects of resources: “the wealthy” and “the poor” in Boix and “the extreme inequalities on democratic regimes. However, it took citizens” and “the elites”, who are also assumed to be divided several decades until researchers have explicitly formulated along income lines, in AR (Boix 2003: 22; Acemoglu and plausible theoretical accounts and derived unambiguous Robinson 2006: 22).ii empirical hypotheses on how economic inequality might affect democracy. Carles Boix’s ‘Democracy and Redistribution’ Carles Boix (2003) as well as Daron Acemoglu and James In Boix’s account, inequality enters on the ‘cost of toleration’ Robinson (henceforth AR) have presented path-breaking side of the equation as faced by the wealthy. In relating accounts of democratization that, for the first time, explicitly inequality to the cost of democracy, he heavily relies on the shift economic inequality to the heart of the analysis (Boix 2003, political economy explanation of the size of government put Acemoglu and Robinson 2000, 2001, 2002, 2006). Due to their forward by Meltzer and Richard (1981)iii, who in turn build on main focus on macro-economic variables, their theories have the median voter theorem (Hotelling 1929; Downs 1957). The been dubbed “new structuralist” (Ziblatt 2006: 319). observation that income distributions are usually right-skewed (i.e. the mean income is higher than the median income), leads

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 1 Meltzer and Richards to conclude that under majority voting, the Rationalist Explanations for War (Fearon 1995), Boix predicts self-interested decisive voter would have an interest in revolutions and civil wars if “the poor underestimate the redistribution. The amount of redistribution the median voter repressive technology of the wealthy while the wealthy play chooses increases with the distance between the median and the down the organizational capability of the poor” (Boix, 2003: mean income, or, put simply, with income inequality within the 28). Depending on who wins, the result will either be stable voting population. By implication, this can also come as a result authoritarianism or a communist dictatorship (Boix 2003: 45). of extending the franchise to people, who earn below-median incomes (Meltzer and Richard 1981: 924). Boix takes this Note that the poor primarily enter the model as a factor that insight as the central element of a functionalist explanation of determines the repression costs on behalf of the rich and thus why or why not democracy is established in the first place. In affects their cost-benefit calculus of whether or not to grant more equal societies, extending the franchise only leads to democracy. Against this backdrop, Boix’s model has been limited redistribution from the rich to the poor and thus the criticized as being too supply-centric and neglecting the wealthy face lower ‘costs of toleration’ than in the case of “demand side of democratization” (Ansell and Samuels 2010: democratization in unequal societies. Provided that the expected 1570). Boix assumes the rational poor individual to be always in costs of redistribution fall below the repression costs needed to favour of democracy due to its expected benefits from uphold authoritarian rule, the rich will accept a transition to redistribution. Thus the mobilization of the poor, which is by democracy (Boix 2003). By implication, lower levels of assumption either absent or present, becomes the crucial factor. inequality should ceteris paribus be associated with higher The insights from Boix’s merely verbal discussion of the probabilities of transitions to democracy and lower probabilities informational sources of mass mobilization remains tentative, to of reversions back to authoritarianism (Boix 2003: 37). say the least. He neglects the possibility that both mass preferences for democracy and the ability of the poor to In his basic model and several extensions to it, Boix also overcome collective action problems might vary across countries considers a host of additional variables conditioning the impact with similar levels of inequality for other reasons than updated of inequality on the odds of democratization. The most information (Welzel and Inglehart 2008: 36). Even worse, both important one is what Boix calls “asset specificity” – a concept factors might be systematically linked to key variables of his denoting the degree to which wealth is tied to a given country model. and cannot be moved out in order to avoid taxation (Boix 2003: 38–40). Capital mobility implies lower asset specificity and iv Acemoglu and Robinson’s ‘Economic Origins of makes democracy less threatening for the wealthy. If tax rates Dictatorship and Democracy’ were too high, the rich would just exit the country. Anticipating this, the relatively poor median voter will set a rather moderate Acemoglu and Robinson partially circumvent this problem. Just tax rate in order to benefit from the modest amount of as Boix, they assume inequality to make democracy more costly redistribution that is feasible under conditions of capital mobility for the elites due to higher levels of taxation (Acemoglu and (Boix 2003: 24–25). Thus, democratization becomes more likely, Robinson 2006: 36). However, they also argue that elites will even if inequality is quite substantial. A high income elasticity to only make democratic concessions if they are faced with an taxation similarly reduces the impact of inequality on effective revolutionary threat from below – “the spark that democratization (ibid.). On these grounds, Boix argues, ignites” the whole process (ibid.). In order to pose such a threat economic development is conducive to democratization since it “the masses need to solve the collective action problem transforms “societies that rely on the exploitation of mines and necessary to organize themselves, they need to find the agricultural land to economies based on manufacturing momentum to turn their organization into an effective force industries and human capital-intensive businesses” and thus against the regime, and the elites – who are controlling the state makes capital less taxable. While globalization in the form of apparatus – should be unable to use the military to effectively financial integration has similar effects (Boix 2003: 41), the supress the uprising” (Acemoglu and Robinson 2006: 25). AR impact of trade is ambiguous: If labour-abundant economies expect this mobilizational capacity of the citizens to increase open for trade, inequality decreases and democratization with inequality, since they have more to gain from revolution or becomes more likely, whereas the reverse holds true for capital- democratization the more redistribution is possible. In other abundant countries (Boix 2003: 170). words, a certain amount of inequality is required to spur the demand for democracy in societies under authoritarian rule. Absent extremely low levels of inequality or asset specificity, (ibid.: 36) Combining these two opposing effects of inequality, repression cost becomes a crucial variable. Boix (2003: 26) AR predict it to exhibit an “inverted U-shaped ... relationship” regards repression cost as “a function of population shares, the when plotted against the probability of transition to democracy economic resources of each class, the extent to which individual and conclude that “democracy has the best chance to emerge in actors have overcome any collective action problems, landscape, societies with middle levels of inequality” (ibid.: 37). international aid and so son” but does not explicitly model it. Instead he assumes that the costs of repression can be either Apart from this theoretically more elaborate treatment of “high” or “low.” According to Boix (2003: 28–30), high inequality, the AR model offers further innovations. First, repression costs are often the consequence of information on instead of looking at a static picture, as Boix does, AR take “defeats in war, the death of the dictator, or internal struggles in inter-temporal dynamics into account. They regard the “de facto the ruling elite ... prompting citizens to update their beliefs on political power” that citizens must have accumulated to be able the probability of survival of the existing political arrangement” to mount a revolutionary threat to be transitory in nature. Being and thus facilitating their collective action. In the context of aware of this, citizens do not only claim redistribution, which is moderate levels of inequality and asset specificity, high the actual policy change they are fighting for. In order to also repression costs can trigger peaceful democratization. With high secure redistribution in the future, when their de facto political inequality and asset specificity, however, the wealthy have too power may be gone, citizens push for more permanent “de jure much to lose and choose repression. Drawing from Fearon’s political power” through the installation of democratic political

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 2 institutions (ibid.: 21-26). In fact, AR argue that democratic with inequality, which should therefore exhibit a linear and concessions represent the only way for elites to credibly commit negative correlation with democratic consolidation (Acemoglu themselves to “future pro-majority policies” (ibid.). and Robinson 2006: 37–38).

Second, AR explicitly model not only transitions to democracy Third, the structure of wealth is not only assumed to influence but also democratic consolidation (Acemoglu and Robinson the odds of democratization through the channel of capital 2006: 221–253). Their account of consolidation is basically mobility but also through its impact on repression costs. The their democratization model with reverse sign. Now, the citizens costs of repression and coups increase the more an economy have de jure political power and the elites from time to time relies on physical and human capital instead of agricultural land accumulate sufficient de facto political power to mount an anti- (ibid.: 31–32). democratic coup and change political institutions back to authoritarian rule (ibid.: 30–31). As coups are a rather unilateral In short, we see that although starting from very similar affair – no one has to ask the citizens to ‘grant’ a coup – their premises, Boix and AR arrive at fundamentally different likelihood merely depends on the elites’ calculus of their costs conjectures when it comes to the impact of inequality on vs. their benefits.v Quite clearly, the benefits of coups increase democratization. With a clear understanding of these competing hypotheses and their theoretical derivations, we can now take a first look at which model fares best when confronted with empirical evidence.

Study Inequality data Democracy data Effect of inequality Russett (1964) Land Gini Lipset (1959) Negative effect on ‘stable democracy’ Rubinson & Quinlan Income quintiles and Gini Jackmann (1974); Negative effect on levels of democracy (1977) Cutright (1963) Bollen & Jackmann Income quintiles and Gini Bollen (1980) No effect on level of democracy (1985; 1995) Muller (1988) Income quintiles, income Gini Bollen (1980) No effect on transitions. Negative effect on consolidation Midlarsky (1992) Land Gini, agricultural density, Freedom House Positive effect (land) on level of income quintiles democracy; income inequality without effect Muller (1995a; 1995b) Income quintiles, Income Gini Bollen (1985) Negative on level of democracy Burkhart (1997) Income quintiles Freedom House Inverted U-shaped influence on level of democracy Barro (1999) Income Gini, income quintiles Freedom House Negative on levels of democracy (weak) Przeworski et al. (2000) Income Gini Przeworski et al. Negative effect on both transition and (2000) consolidation Easterly (2001) Income quintiles Freedom House Negative on levels of democracy Boix (2003); Boix & Income Gini; % of familiy farms, Boix (2003) Income (land) inequality has negative Stokes (2003) index of knowledge distribution (positive) effects on transition, inconsistent (negative) effects on consolidation.vi Cervellati, Fortunato & Income quintiles Persson and Tabellini Negative on level of democracy Sunde (2012) (2004) Houle (2009) Capital share Przeworski et al. No effect on transition, negative effect on (2000) consolidation Soifer (2009) Income Gini Boix (2003) If interacted with state capacity, negative effect on transition Ansell & Samuels (2010) Income Gini, % family farms Boix (2003) and Income inequality has positive effect, land Polity IV inequality negative effect on transition Teorell (2010) Income Gini Freedom House and No effect on transitions or reversions Polity IV Freeman & Quinn (2012) Income Gini Polity IV Positive impact on transitions in financially closed economies, inverted U shaped impact on transition in closed economies

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 3 Quantitative Studies and their Problems out, individual- or household-level inequality data might As far as quantitative evidence is concerned, Table 1 lists 17 miss the theoretical target of their analysis. Instead, inter- studies that have been conducted over the past decades and group inequalities, for which almost no systematic data is viii gives information on the respective operationalization of available are more relevant. Using more indirect proxies inequality and democracy as well as the basic thrust of their for economic inequalities, like e.g. the percentage of results. In total, Table 1 reveals an inconsistent picture. Income family farms or capital shares is a viable alternative inequality has been found to negatively (9 studies), positively (2 strategy but requires careful theoretical justification and studies), curvilinearly (2 studies) not at all (3 studies), or only should be in line with the causal mechanisms one conditionally on a third variable (2 studies) affect democracy. postulates. Land inequality also fails to produce consistently negative 3) Choosing the right indicator for democracy is also not correlations with various measures of democratization. In this straightforward. The existing measures differ quite sense, the quantitative evidence on a potential inequality- substantially when it comes to conceptual questions democracy nexus is similarly mixed as the evidence on the regarding which definitional attributes to include, how to relationship between inequality and political conflict (cf. aggregate various indicators and whether democracy is a Lichbach 1989). dichotomous or a continuous concept (Munck and The ambiguity in results is not the only drawback of these Verkuilen 2002; Bollen and Paxton 2000). Moreover, the quantitative studies. Upon closer scrutiny, most quantitative decision to analyze democracy levels, transitions to or studies on the potential inequality-democracy nexus suffer from reversions from democracy should be in line with the severe limitations in terms of methodology and/or data quality. theoretical predictions of the respective model. For studies of democratization, the latter are usually preferable, since Following Wucherpfennig and Deutsch (2009), let me point to democratization is about temporal dynamics in democracy five common pitfalls in the quantitative study of levels and thus about As cited in Russett (1964: 442) the democratization and their specific implications for estimating presence of transitions and absence of reversions (i.e. the role of inequality.vii democratic consolidation).

1) Most studies might be subject to selection bias. Data on 4) The older studies mainly use mere cross-sectional designs income inequality usually covers only limited numbers of with a limited number of countries, whereas the newer countries and time periods. Data availability is usually not studies resort to time-series- cross-section analyses, in randomly distributed. Houle (2009: 600) shows that the which they are able to capture temporal dynamics and sample of observations included in the most popular actual regime changes. This further reduces the inequality dataset is systematically biased towards rich comparability of results. democracies. This might bias any estimation results derived with such data: if e.g. authoritarian states 5) Finally, the form of the relationship between inequality and exhibiting intermediate levels of inequality – many Middel democracy matters. Before Acemoglu and Robinson Eastern countries share these characteristics – are published their book, most studies only tested for a linear relationship but neglected the possibility of a non- systematically underrepresented in the data, any finding of ix an inverse-U shaped relationship between inequality and monotonic correlation (e.g. an inverted U). Only recently, democratization looses credibility (ibid.). scholars started to take this possibility into account, however with quite ambiguous results. Houle (2009) finds 2) The choice of the most appropriate indicator for inequality no and, if anything, U-shaped effect of income inequality is difficult. The most commonly used Gini index comes on the odds of transition, Ansell and Samuels (2010) report with a whole bunch of problems, even beyond data a monotonically positive effect, whereas Freeman and availability. Most inequality datasets combine information Quinn (2012) find an inverted U, but only in financially from different sources that may be problematic in terms of closed autocracies. comparability. Sources differ with respect to whether data on income or on spending is collected, whether the In sum, therefore, neither Boix (2003) nor Acemoglu and household or the individual is the unit of observation, Robinson (2006) receive overwhelming empirical support from whether net or gross income is reported and whether the the pre-existing quantitative studies. Neither is income or land data stems from one particular region or is representative inequality systematically linked to lower levels of democracy, for the whole country (Gradstein and Milanovic 2002: 10); nor do they consistently increase the probabilities of democratic Houle 2009: 597). The use of net or disposable income transition and/or consolidation. The inverted U-shaped data for testing hypothesis relating to democratization is relationship postulated by Acemoglu and Robinson also does particularly questionable. This data captures income after not appear to hold in general. redistribution through taxes and government has taken place (Milanovic 2009: 3). Provided that democracies Theoretical Problems and their Empirical indeed tend to redistribute more than non-democracies, a Consequences finding that lower inequality is statistically associated with While the weak evidence for Boix’s and AR’s theoretical the odds of democracy would risk being tautological. predictions may to a large part be traced back to the Moreover, as Acemoglu and Robinson (2006: 35–36) point methodological and data problems just outlined, the possibility

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 4 remains that theoretical misspecifications bear their share of the The same criticism however does not apply to AR’s theory of brunt. In the following paragraphs, I discuss the plausibility of a democratic consolidation. As coups are a rather unilateral affair series of implicit or explicit assumptions underlying the game – forceful seizure of political power by the elites – it is their theoretic models of both Boix and Acemoglu and Robinson and cost-benefit calculus that matters. Citizens are not in a position how problems with these assumptions might explain the weak to ‘grant’ the elites a coup.xi Therefore, the ‘supply side’ of fit between the theoretical models and empirical data. coups is negligible. This makes it less ambiguous to gauge the effect of inequality on the likelihood of democratic breakdown. Inequality, the demand for democracy and costs of Inequality unequivocally increases the benefits the elites draw repression from the re-establishment of authoritarian rule, since democratic redistribution is more severe than in equal societies. Above, I have praised AR for partially integrating the demand On these grounds, Houle (2009) hypothesizes that inequality for democracy in their model. A certain level of inequality is does not affect the likelihood of democratic transitions but only needed to confront the elites with an effective revolutionary hinders democratic consolidation. These hypotheses are borne threat that sets the democratization process in motion out in his dynamic probit analysis covering 116 countries (Acemoglu and Robinson: 120–126). Below that threshold between 1960 and 2000 (ibid.). In this sense, Houle confronts level, autocracy is assumed to be stable. However, as Houle the theories by Boix and AR with the same sort of criticism that (2009: 594) points out, the intensity of protest might be classic modernization theory has been confronted with by assumed to vary continuously with inequality in such a way that Przeworski and his co-authors.xii even at low levels of inequality, the regime needs to deal with some sort of low-scale protest implying non-zero repression The mystery of collective action costs. In order for AR’s predictions to hold, one has to further assume that at low levels of inequality, maintaining autocracy is On a more general level, but still on the demand side of the always cheaper than redistribution under democracy. This might equation, both Boix and AR regard collective action on behalf not necessarily be the case. In a very equal society, of the masses as crucial element. Yet both accounts have been redistribution might as well be Iess costly than repression of criticized for largely failing to explain why, when and under low-scale protest that fails to reach the revolution threshold and which circumstances citizens manage to mobilize and kick-start thus result in Boix-style democratizations at low levels of the process of democratization (Keefer 2009; Houle 2009: 595; inequality (ibid.). Both repression and redistribution need to be Haggard and Kaufmann 2012: p. 513). To be fair, Boix (2003: financed through taxation. Hence, it is a priori unclear, which 28–30) and AR (2006: 36) briefly discuss the role of one comes at a lower cost. information and inequality in citizens’ mobilization. Moreover, AR (2006: 123–128) discuss three standard economic solutions AR’s conceptualization of protest or threat intensity is not only to collective action problems – ideological indoctrination, problematic at low levels of inequality. If protest intensity was providing selective private benefits and excluding non- assumed to systematically increase with inequality, which does participants from benefits – and some empirical examples, not seem implausible, repression costs would most probably where they have been put into practice in the context of also rise with inequality. If this is the case, the relationship revolutions. Nonetheless, things appear to be more complex. between inequality and democratization crucially depends on the positions and slopes of both the cost of redistribution and Haggard and Kaufman (2012) point at three potential factors the cost of repression curve plotted against inequality. In order that might determine the degree to which citizens can overcome to arrive at an inverted U-shape, one has to implicitly assume barriers to collective action and should therefore be seen as the redistribution cost curve to ‘start’ below the repression cost preconditions for inequality to affect the odds of curve and to have a higher slope in order to ensure that both democratization. First, economic development and curves cross at some point.x Only under such circumstances it modernization, especially in the forms of industrialization and can be argued that at high levels of inequality, elites prefer urbanization, may be at the basis of collective organization, e.g. repression to democratization, whereas at medium levels the in the form of organized labour movements (Haggard and reverse holds true. Furthermore, one has to conceive of a Kaufman 2012: p. 513).xiii Second, institutional preconditions of threshold level of inequality below which no substantial the respective authoritarian regime may matter (Geddes 1999). repression costs accrue in order to rule out Boix-style Previous experiences with democracy or other forms of democratizations at extremely low levels of inequality. Those “institutionalized opportunities for collective action” (Haggard are indeed rather strong assumptions. Quite evidently, one could and Kaufman 2012: 513) as well as the existence and easily come up with constellations of repression and organization of political parties (Keefer 2009) or trade unions redistribution costs implying democratization to be most likely (Collier and Collier 1991) are likely to play a role. Third, non- at low and/or high or even at all or no levels of inequality, rationalist accounts rooted in the literature on ‘social without necessarily being less plausible than Acemoglu and movements’ and ‘contentious politics’ stress more sociological Robinson. aspects and political resources such as cultural reference frames, nationalism and ethnic identities (Haggard and Hence, the demand for democracy and its effect on the Kaufman 2012: 513; McAdam, Tarrow and Tilly 2003). Against repression costs faced by the elites could be better specified not this backdrop, the inconsistent empirical findings might spring only in Boix but also in the more sophisticated AR model. from the authors’ failure to properly specify the appropriate collective-action-related scope conditions under which inequality may exert its influence.

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 5 Are unequal democracies really that threatening? Why democracy and not mere redistribution?

The theories of both Boix and AR crucially rest on Meltzer and If citizens rise up mainly for material gain, why do they fight Richard’s proposition that greater inequality leads to more re- for democracy and not only for the specific redistributive policies they want in the first place? Acemoglu and Robinson distribution under majority voting and thus makes democracy regard democracy as a credible commitment to present and more threatening for the elites. While this appears intuitively future redistribution. Under authoritarianism, they claim, elites plausible, whether it holds empirically, is debated quite would face an extremely salient incentive to renege on any controversially. Some studies do find that inequality is promise made in the face of a revolutionary threat as soon as associated with higher redistributive spending (Milanovic 2009; the de facto power of the citizens fades away. Anticipating this, Gradstein and Milanovic 2004), whereas others fail to find a the citizens will thus regard any such promise as cheap talk and statistically significant relationship (Moene and Wallerstein require a more credible commitment to redistribution. In this 2001, 2003; Perotti 1996).xiv If this key relationship does not framework, democracy is the only incentive-compatible hold, the models of Boix and AR are very unlikely to be of any solution, since it permanently equips the citizens with de jure empirical value. political power and therefore deprives the elites of any opportunity short of a military coup to reverse their agreement Soifer (2009) argues that, at the very least, the effect of to redistribution (Acemoglu and Robinson 2006). inequality on redistribution and thus on the odds of democratization appears to be conditional on the respective Is democracy really the only solution? Smith (2008) argues state apparatus’ capacity to effectively collect the taxes needed otherwise and claims that authoritarian rulers can sometimes to finance redistribution. Thus, he posits, democracy should be employ strategies of redistribution that are sufficiently credible less threatening in states with weak extractive capabilities, to buy off revolutionary threats. He illustrates his point with the regardless of the level of inequality.xv In his empirical analysis, example of Singapore, which for Acemoglu and Robinson Soifer uses the state’s ability to conduct a national census as a (2006: 44) represents a country in which wealth is distributed proxy for its capacity to tax. As expected, he finds a negative so equal that no effective revolutionary threat ever emerged. effect of inequality on the chances of democratic transition in First, Smith (2008: 19) demonstrates that Singapore exhibits administratively strong state, but no effect in states with weak consistently higher levels of economic inequality than extractive capacities (Soifer 2009). Argentina during its democratic transition in 1973. In AR (2006: 5–8), Argentina is portrayed as an extremely unequal Who acts? society oscillating between democracy and autocratic coups. Second, Smith (2008) shows that upon Singaporean The “new structuralist” theories of Boix and Acemoglu and independence, economic inequality was substantial. He argues Robinson have been deservedly praised for combining the that high inequality indeed spurred Socialist revolutionary strengths of modernization theory’s focus on macro-structural challenges to the ruling PAP. Instead of granting democratic socio-economic variables with an explicit specification of concessions, however, the PAP resorted to large-scale and long- political actors and political dynamics that have been stressed term spending on housing, education and health policies. These by rather process-driven accounts.xvi As Ziblatt (2006: 322) puts policies sharply reduced inequality and successfully staved off it, “their accounts improve upon the agentless structural revolutionary threats. From this, Smith (2008: 19) concludes functionalism implicit in modernization theory by reasserting that “authoritarian ruling parties can often provide a credible the primacy of collective actors' resources, preferences, and commitment to social actors sufficient to retain their support for strategies.” However, Ziblatt (2006) criticizes the long periods of time.” conceptualization of the relevant actors as “the rich, the poor, and the middle class” as not sufficiently justified in terms of Inequality of what? The differences between land and empirical relevance. With these abstract categories of actors, capital income Ziblatt (2006: 322) fears, the ‘new structuralists’ “risk suffering precisely the same absence of agency that mars modernization Both Boix (2003) and Acemoglu and Robinson (2006) argue theory.” In this respect, scholarship in the tradition of that land is less mobile and easier to tax than physical and comparative historical analysis might have an advantage by human capital. Hence, landed elites are expected to be focussing on actor categories that are more concrete in terms of especially wary of redistribution under democracy. However, historical substance: Be it landholders and the rising they do not systematically test the implications of this argument bourgeoisie in Moore’s (1966) classic account, or landowners for the inequality-democracy nexus.xvii Boix’s interpretation of and organized labour as argued by Rueschemeyer, Stephens, his empirical findings suggests that, if anything, land and and Stephens (1992). On the downside, however, these social income inequality have similarly negative effects on the odds of classes are likely to be more context-bound and it is far more transitions and consolidation. While a closer look at some of his difficult to make any general claims about their preferences and regression models yields a somewhat more inconsistent pattern interactions than it is the case with the mere income-based actor – land inequality surprisingly appears to be related with higher categories employed by Boix and AR (see Huntington 1991: chances of transition – Boix at no point reflects on the 39). possibility that land and income inequality could be theoretically expected to have different effects.xviii

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 6 The notion that land inequality is particularly inimical to Open or closed economies? democracy can be traced back at least to Gerschenkron’s (1989[1943]) Bread and Democracy in Germany, in which he While AR’s basic model assumes a closed economy, they later attributes the concentration of land ownership in the hands of extend their analysis and model the effects of international trade the Prussian Junkers as a key obstacle to democratization. and financial integration (Acemoglu and Robinson 2006: 321– Moore (1966) as well as Rueschemeyer, Stephens and Stephens 348). They argue that the effect of trade depends on its impact (1992) also regard a landed aristocracy, controlling large shares on the income distribution. In labour-abundant countries, trade of agricultural land, as detrimental to democracy. can be expected to reduce inequality, whereas the reverse holds true for capital-abundant economies. The effect on the odds of Ziblatt (2008) tests the potentially differing effects of income democratization thus ultimately depends on where the and land inequality in an innovative quantitative analysis of a respective country is on the inverted U between inequality and Prussian parliament vote in May 1912 on a proposal to replace transition probability (ibid.: 41). As far as financial integration the inegalitarian three-class voting system with a more is concerned, AR postulate a similar effect. In labour-abundant democratic alternative. He finds that “representatives from countries, capital inflows reduce the returns to capital and electoral constituencies marked by high levels of landholding increase the returns to labour, thus attenuating income inequality were more likely to vote against democratic inequality. Moreover, the increased ease at which capital can be reforms”, whereas income inequality had no effect (Ziblatt moved across borders sets a limit on the levels of taxation that 2008). Do these results hold beyond the case of pre-WW I are possible in a financially open democracy. In sum, economic Prussia? Ansell and Samuels (2010) develop a formal model, in openness is argued to make democracy in labour-abundant which not the poor masses, but instead a disenfranchised yet countries less threatening for the elites (ibid.: 338–343). Given economically rising bourgeoisie à la Moore is the key driver of that inequality is sufficiently high to motivate citizens to democratization. Referring to Douglass North (1990) and demand democratization, this should increase the odds of Mancur Olson (1993), they argue that for disenfranchised elites, transition. autocracy is more costly than democracy, since they fear the constant threat of being expropriated by the authoritarian With respect to financial integration, Freeman and Quinn leaders.xix In their view, disenfranchised elites push for limited (2012) argue otherwise. They claim that free capital flows extensions of the franchise in order to secure a credible increase income inequality, but still foster democratization. commitment from the incumbent elites not to violate their They base their argument on three interrelated mechanisms: property rights. Elites grant democratic concessions if they face a realistic possibility of loosing a potential revolutionary 1) In open autocracies, elites as rational profit-maximizing confrontation with their so far disenfranchised competitors. investors would construct an internationally diversified How is this possibility related to inequality? Assuming that a portfolio of assets, regardless of whether democratic landed elite is in power, land inequality is detrimental to redistribution is a realistic threat or not. With only a part of democratization. It decreases out-groups’ motivation to their wealth remaining in the country, the introduction of mobilize for the protection of property rights, as they control democracy is less costly and coups do not tend to be worth less property in need of protection. In addition, land inequality the effort (Freeman and Quinn 2012: 62). lowers the out-groups’ chances of winning in a confrontation with the well-equipped incumbents. As a result, no substantial 2) Substantial parts of the respective country’s capital stock demands for democratization arise (Ansell and Samuels 2010: will be owned by foreigners, who also hold diversified 1553). portfolios and have only small stakes in the domestic politics of one out of many countries in which they are Extensions of the franchise only become an option if the wealth invested. In addition, financial openness allows domestic of disenfranchised industrial elites is growing. This increases owners of immobile assets to sell these to foreign investors their need for property rights protection and their chances to seeking diversification. This implies that even landowners prevail in a violent confrontation with the incumbent landed have less to fear from democracy, since they can trade their elites. The latter grant democracy in order to avoid a likely possessions into more mobile forms of wealth. As a defeat. Ansell and Samuels (2010) argue that the rise of corollary of these asset sales and the higher returns of industrial elites and a bourgeois class is typically associated diversified portfolios, the income gap between native with higher levels of income inequality and thus hypothesize a capital-owning elites and citizens can be expected to positive correlation between income inequality and democratic increase (ibid.). transitions.xx These expectations are confirmed in their empirical analysis. 3) As in AR, international capital mobility is assumed to limit the feasible level of taxation but not to such an extreme Midlarsky (1992), who surprisingly finds a positive relationship extent that citizens would prefer revolution to between land inequality and democracy tries to rationalize this democratization (ibid: 61). finding by arguing that inequality provided a basis for selectively allocating political rights that were later gradually In their empirical analysis, Freeman and Quinn (2012) find that extended. He further speculates that inequality might spur the inequality positively affects the probability of transitions in demand for democracy and revolutionary violence or that it financially open autocracies, whereas in financially closed even sets in motion processes of urbanization, which then autocracies the relationship resembles the inverted U as fosters democracy (Midlarsky 1992: 457–462). postulated in AR.

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 7 When is inequality politically salient? Huntington (1991: 35) sees one of the main reasons for this in the simple fact that democratization is a complex phenomenon Furthermore, the reasoning of Boix (2003) and Acemoglu and involving “(1) the end of an authoritarian regime; (2) the Robinson (2006) as well as all cross-country studies on a installation of a democratic regime; and (3) the consolidation of potential link from inequality to democracy may be subjected to the democratic regime. Different and contradictory causes may a more sociologically oriented criticism, concerning the be responsible for each of these three developments.” The question under what circumstances economic inequality potentially differing effects of inequality on each of these stages emerges as a politically relevant factor in democratization have been empirically illustrated by Houle (see above). processes. Critical levels of inequality from which on the Huntington (1991: 38) further argues that: demand for democratic reforms is sufficiently strong or the supply is denied are likely to vary across spatial and temporal 1) No single factor is sufficient to explain the development of contexts. Different societies might show different levels of democracy in all countries or in a single country. toleration when it comes to economic inequalities. Bollen and Jackman (1985: 152) argue that some societies might emphasize 2) No single factor is necessary to the development of “equality of results”, whereas others are more concerned with democracy in all countries. “equality of opportunity”. In short “the political interpretation” of inequality matters (Bollen and Jackman 1995: 984). Ziblatt 3) Democratisation in each country is the result of the (2006: 321) makes a similar point in claiming that revolutions combination of causes. might occur at levels of inequality that are relatively unsuspicious in cross-country comparison, provided that there 4) The combination of causes producing democracy varies are rapid changes in inequality. Hence, longitudinal within- from country to country. country comparisons might be more appropriate than mere cross-country analyses. In sum, it appears that “what matters 5) The combination of causes generally responsible for one just as much as any ‘measurable levels’ of inequality are the wave of democratisation differs from that responsible for perceptions and possible misperceptions of real individual and others. collective actors embedded in changing social structures” (ibid.). 6) The causes responsible for the initial regime changes in one wave are likely to differ from those responsible for Notwithstanding the intuitive validity of this line of reasoning, later regime changes in that wave. it is not without plausibility to assume that inequality as perceived by the relevant actors is somehow systematically While recent scholarship has definitely made progress and the linked to objective underlying fundamentals. Hence, this point state of the art of democratization studies today arguably looks provides and insufficient basis for a wholesale rejection of the somewhat less sobering than back in 1991, a basic insight ‘new structuralist’ theories. At the very least, however, remains: The problems of potential equifinality and economic inequalities seem to be particularly relevant for conjunctural causation remain a formidable challenge for every democratization processes if they reinforce what Tilly (2003) student of democratization. dubs “categorical inequalities”.xxi This term refers to “organized differences in advantages based by gender, race, nationality, Haggard and Kaufman (2012) propose categorization schemes ethnicity, religion, community, and similar classification for both transitions to and reversions from democracy. First, systems” (Tilly 2003: 37). In Tilly’s account, the reduction of they distinguish between distributive and non-distributive such categorical inequalities is a crucial precondition for transitions. Distributive transitions conform to the new democracy. By stressing the importance of “inter-group structuralist theories and require the “mobilization of inequality” and at least verbally allowing for other than income- redistributive grievances on the part of economically based cleavages, Acemoglu and Robinson (2006: 35, 42) appear disadvantaged groups” as well as “authoritarian withdrawal” in to partially acknowledge this. response to increasing costs of repression (Haggard and Kaufman 2012: 500). Non-distributive transitions come in one Many roads may lead to democracy of three main forms: They may be the results of (1) international pressures and/or interventionxxii (2) intra-elite One of the main strengths of the new structuralist theories is rivalries;xxiii or (3) elite-driven reforms, implemented in the that they use a parsimonious framework build on clear belief that control over the process can be maintained (ibid.). assumptions to derive testable hypothesis that may hold across a Then, Haggard and Kaufman classify democratic reversions variety of cases. On the other hand, however, their generalist, if according to whether they are distributive or non-distributive in not universalistic aspirations have also been criticized as their nature. Among the distributive reversions, they distinguish main weakness (see e.g. Haggard and Kaufman 2012, Houle between “elite-reaction reversions”, in which elites intervene in 2009). It might well turn out to be an illusionary endeavor to order to restrict redistribution as predicted by Acemoglu and search for an explanation that covers most or even all instances Robinson and “populist reversions”, in which the incoming of democratization. This point has been raised before by authoritarian ruler promises more instead of less redistribution. scholars such as Linz, Stepan and (1978), O’Donnell and Among non-distributive reversions, there are cross-cutting Schmitter (1986), Huntington (1991), Collier (1999) and challenges exploiting “wide disaffection with the performance Przeworski et al. (2000). of democratic incumbents and invoke broad valence issues,

Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 8 such as economic performance and corruption” and intra-elite classic accounts of democratization from Lipset and Moore to reversions such as military coups with no clear distributive aims Dahl. However, it needed the groundbreaking contributions of (Haggard and Kaufman 2012: 508). Boix and Acemoglu and Robinson to shift economic inequality to the centre of analysis. Based on clear assumptions and In order to empirically assess which types of transitions and parsimonious theoretical frameworks, these accounts have reversions exhibit the greatest empirical relevance, Haggard and derived plausible, empirically testable hypotheses. In this Kaufman have compiled a qualitative dataset including causal respect, new structuralist theories represent a quantum leap in process observations of all transitions and reversions between terms of theoretical rigour. 1980 and 2000. They show that depending on which democracy measure they use, only 55 to 58% of democratic transitions When it comes to the empirical relevance of these theories, the have been distributive in nature. Even worse, they do not find picture looks less benign. The predictions of Boix and any systematic relationship between the level of inequality and Acemoglu and Robinson have only found limited support in the probability of distributive transitions – they appear to occur quantitative studies. This may in part be explained by at any level of inequality (ibid.). When it comes to democratic difficulties in appropriately measuring both inequality and breakdown, they find that 63% of reversions are non- democracy. Future research should therefore focus on collecting redistributive and that among the remaining 37% that are better data on inequality. A particularly promising point of distributive reversions, even 16% are populist and thus departure can be seen in pioneering datasets on inter-group contradict AR’s predictions (ibid.). While reversions indeed inequalities. Apart from issues of data quality and empirical tend to be more likely at medium and high levels of inequality, methodology, recent research has highlighted some theoretical the reason for this pattern does not seem to be explained by new problems of the new structuralist theories. structuralist theories. Along the lines of Huntington (1991: 39), these theories and more generally, income inequality might fare These problems include a neglect of the demand for democracy, better in explaining instances of democratization in the first a lacking explanation under which circumstances barriers to and/or second wave. However, this proposition has still to be collective action can be overcome, a potentially too abstract substantiated by systematic empirical evidence. conceptualization of political actors, a possible overstatement of the redistributive consequences of democracy, a possible At any rate, the theories of Boix and Acemoglu and Robinson overstatement of commitment problems, an overly simplistic are unlikely to hold in general. Thus, we can conclude that the treatment of economic openness, potentially differing effects of effect of economic inequalities, if they affect democratization at land and income equality as well as a neglect of the question all, is likely to depend on a host of conditioning variables as how political actors perceive inequality. On a more general well as on specific spatial and temporal contexts. The further level, new structuralist theories might be overly ambitious in specification of plausible scope conditions and alternative terms of external validity and fail to take the problems of routes to democratization remain promising avenues for further conjunctural causation and equifinality into account. A whole research. bunch of more recent articles has raised these issues, specified additional variables that condition the effect of inequality on the Conclusion odds of democratization, and empirically demonstrated the relevance of such scope conditions. Continuing along these As the present literature review has revealed, economic lines provides ample opportunities for both theoretical and inequality has recently emerged as one of the most prominent empirical innovation in the fascinating study of structural variables in the study of democratization. The democratization. potential detrimental effects of inequality on the odds of democratization have been frequently stressed and distributional conflict has long been an important element in the

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Center for Comparative and International Studies, ETH Zurich and University of Zurich Living Reviews in Democracy, 2013 | 14 i As cited in Russett (1964: 442) ii In both books, the analysis is later extended to models that include the middle class as a third actor. The basic insights, however, remain unaltered. iii For prior yet not as fully developed accounts see Romer (1975) and Roberts (1977) iv Boix uses „asset specificity“ and „capital (im)mobility“ interchangeably. The latter would be the more unambiguous term, since the concept of asset specificity has already been defined by Williamson (1981: 555) in a somewhat different context (the transaction-specificity of an investment). v See also Houle (2009: 595–598) vi However, effects not significant and consistent across all of Boix’s models (see e.g. models 1A and 2A in Boix (2003: 79), where inequality remains insignificant or positively affects consolidation). For the results of land inequality, see p. 91. vii Wucherpfennig and Deutsch themselves losely base their 5-point list of problems on Przeworski and Limongi (1997) as well as Sirowy and Inkeles (1990). viii For recent and pioneering data collection efforts on economic inequalities across ethnic groups see Cederman, Weidmann and Gleditsch (2011) and Alesina, Michalopoulos and Papaioannou (2012) ix Burkhart (1997) is a rare exception. x See Houle (2009: 594) for a similar criticism. xi Or, as Huntington (1996: 9 as cited in Houle, 2009: 596) puts it ”With only one or two possible exceptions, democratic systems have not been ended by popular vote or popular revolt.“ xii Przeworski and Limongi (1997); Przeworski et al. (2000). Their refusal of „endogenous democratization“ approaches has however convincingly been criticized as resting on dubious premises and erroneous interpretation of their own results: see Boix and Stokes (2003), Welzel and Inglehart (2005), Epstein et al. (2005). xiii See also Rueschmeyer, Stephens and Stephens (1992); Collier (1999) xiv Iversen (2006: 4) even claims that the hypothesis that „inegalitarian societies redistribute more ... has been soundly rejected by the data“ xv Or vice versa: “the stakes of the regime outcome are much higher when the state is able to enforce and administer the policies chosen by its leaders.” (Soifer 2009: 27). xvi See Kitschelt (1992) for a distinction between structure- and process-oriented approaches in the study of democratization. xvii Boix (2003: 75–97) uses an income inequality index for his analysis of the post-war era and a land inequality measure for his longer-term analysis. However, he never enters both measures in the same regression and is not concerned with potentially diverging effects of land and income inequality. xviii See especially Boix (2003: 90–92) xix “History provides not even a single example of a long and uninterrupted sequence of absolute rulers who continuously respected the property rights of their subjects” (Olson 1993: 572). North (1990: 51) sees democracy as a tool to “eliminate the capricious capacity of a ruler to confiscate wealth, and to develop third-party enforcement of contracts.” Both cited in Ansell and Samuels (2010: 1547) xx In an extension of their argument, Ansell and Samuels (2010) show that under certain circumstances, the rising bourgeoisie has an incentive to ally forces with the excluded masses and push for full democratization. The main implications with respect to different types of inequality remain the same. xxi The coincidence of economic inequalities and cultural differences also plays a major role in Michael Hechter’s (1975, 1978) work on the “cultural division of labour“ and “internal colonialism” xxii See Boix (2011) or Gleditsch and Ward (2006) for recent accounts of how international factors influence democratization. xxiii Schmitter and O’Donnell (1986: 19) claim: “There is no transition whose beginning is not the consequence – direct or indirect – of important divisions within the authoritarian regime itself.” Llavador and Oxoby (2005) present a formal model of how intra-elite competition can drive democratization.