Paths to Inclusive Political Institutions

                       This post is a summary of the essay with the title above published in 2016 at   https://economics.mit.edu/files/19640

              In this paper we present a thinking about the circumstances under which inclusive political institutions, consisting of a state with a capacity and a broad distribution of political power, emerge. What makes a society economically successful? Most social scientists would argue that the critical factor are the economic institutions, the rules that create patterns of incentives and opportunities in the economic sphere and which shape saving, investment and innovation. We argued that economic institutions have to be thought of as an outcome of political choices which are shaped by political institutions which influences are aggregated by those who exercise power. In this case, lying behind economic institutions are political institutions. Two very successful historical instances of inclusive institution building, Classical Athens, and Early Modern England. In both cases, the historical evidence suggests that popular pressure and involvement was absolutely critical in the emergence of inclusive political institutions. Elite interests were at play too, but they had to find an equilibrium with those of society. In terms of democratization there is currently a great deal of consensus that democratization comes as a result of pressure from below rather than something that is willingly created by elites. Other arguments in the literature suggest that democracy emerges when elites give away power either because autocratic elites split, or because democracy can be a way of resolving conflicts between differents factions of elites, or because democracy solves a commitment problem that elites can not otherwise solve. These arguments may certainly apply in some cases. For example, many Latin America countries adopted democratic political institutions and held elections in the 19th century. Yet these were typically riven with fraud and malpractices and far from representing the broad distribution of power. Modern democracy emerged only in the 20th century and typically in the context of mass mobilization and demands for the excluded for political rights. The issue of where political pluralism comes from has been much less studied. Putnam (1993) is perhaps the most important empirical study of pluralism which is closely connected to his characterization of Northern Italian society having high levels of social capital or a very dense 'associational life'. Putnam traces the roots of this to the medieval organization of Northern Italy with its free communes, city states and mercantile political dominance. We argued that pluralism emerges from contestation with civil society playing an active role in demanding political change but only in the context where a 'broad coalition' makes these demands. In this essay we have advanced the hypothesis that the broad coalition is itself part of a co-evolution of state and society. In this essay we have argued that under some circumstances there is a basin of attraction where the two dimensions of inclusive political institutions are highly complementary. Indeed, they feed on each other to create a particular dynamic which leads to inclusive political institutions with a pattern of mutually reinforcing feedback. We argue that understanding this basin of attraction is a key to understanding the emergence of inclusive political institutions. Though in general the parameter space is multi-dimensional in this essay we have focused on one type of distinction which we believe is critical for determining the potential of different societies to move inside the basin of attraction: the strength and nature of social norms and informal institutions. The sequencing view we critique is similar to the one argued against by Tocqueville in "The Old Regime and the French Revolution", when he claimed that the French reformers of the 18th century, such as the Physiocrats, were mistaken when they sought reforms before political liberties. Rather political liberties are a critical complement to reforms and building the state, and one can not rely on automatic processes such as modernization to subsequently bring liberty. The Physiocrats, like many modern scholars, proposed that one should rely on education to make sure that state promoted social interests. The ideas proposed in this paper help to clarify just where the broad coalition comes from. In the classical Athenian and Early Modern English case, the answer presented here is that it came from social norms and informal institutions which facilitated not just the formation of the state, but also led to a distinct strengthening of civil society. Such argument may be though unsatisfying in the sense that it pushes the explanation for differences in political and economic development paths further back in time. Nevertheless, as we argued, divergent development historically is the result of institutional differences which start out small but acumulate over time. England did not experience the industrial revolution because of some huge shock to the society in the 18th century. It did so because of a long process of institutional change in which both the state and the society coevolved and entered into a virtuous circle ultimately leading to the broad coalition. England did not get onto this path because it was a radically different society from other Western European societies, but small differences mattered and it was inside a basin of attraction which turned out to have profound consequences.