Erm, this one is interesting

So Prof. Tim Besley of the London School of Economics, former All Souls Prize Fellow, ex-member of the Bank of England’s Monetary Policy Committee, the UK’s third most respected economist, and all-round impressive smart guy, has a new paper with Marta Reynal-Querol at the Universtat Pompeu Fabra in Barcelona.

I mention these credentials to emphasise how respected and mainstream these guys are before I mention the finding of their paper, entitled “The Logic of Hereditary Rule: Theory and Evidence” (pdf, seems to be quite an early working paper), which is that hereditary rule/monarchy outperforms democracy but only when the hereditary ruler is subject to few constraints on their power.

Hereditary leadership has been an important feature of the political landscape throughout history. This paper argues that it can play a role in improving economic performance when it improves intertemporal incentives. We use a sample of leaders between 1848 and 2004 to show that economic growth is higher in polities with hereditary leaders but only when executive constraints are weak.

This finding is mirrored in policy outcomes which affect growth. There is also evidence that dynasties end when the economic performance of leaders is poor suggesting that hereditary rule is tolerated only where there are policy benefits. Finally, we focus on the case of monarchy where we find, using the gender of first-born children as instrument for monarchic succession, that monarchs increase growth.

That is: hereditary monarchs with lots of legal power choose better policy than other systems do, including democracies, non-hereditary dictators, and weak hereditary monarchs, and this is reflected in higher growth.

The size of the coefficient suggests that, in a country with weak executive constraints, going from a non-hereditary leader to an hereditary leader, increases the annual average economic growth of the country by 1.03 percentage points per year.

That’s a really really big difference.

Of course, they’re not saying they actually favour hereditary monarchy!

Although we have tried to understand the logic of hereditary rule, we do not regard the findings of the paper as supporting the institutions of hereditary rule. There are many arguments against, going back at least to Paine (1776), about the inherent injustice in such systems. Moreover, the fact that many polities around the world have put an end to hereditary rule and establish strong executive constraints is no accident since this is arguably a much more robust way to control leaders than relying on the chance that succession incentives will safe-guard the public interest.

It depends what you want government to do. If it’s just there to guarantee a basic framework for society then as long as it worked, some sort of non-democratic system might be OK. Our having a stake in the electoral process hardly guarantees good governance (perhaps the opposite).

But lots of people value democracy not just because they think it gives us good policy: being part of a community; as an expression of human equality; an important type of positive freedom. These pragmatic arguments for and against different governance systems are not going to fully convince those types (and that’s fair enough).

Of course the bigger issue is that the paper could easily be proved wrong in the review process, that’s the point of interesting conjectures in working papers. And there’s a whole lot of other literature out there, some of which goes against Besley and Reyna-Querol’s work. But I tend to think that monarchy vs democracy is an empirical question. Whatever makes us freer, happier, richer is best.

The democratic cycle

Just as the business cycle seems to punctuate times of economic growth with periods of stagnation or recession, so there appears to be a political cycle in democratic countries, a cycle that features times of economic consolidation and progress with those of profligacy, deficit and debt.

In some countries a centre right government coming into office institutes policies that rein in spending and encourage the growth of the private economy. Supply side policies aid business development and expansion, and tax cuts increase rewards and act as incentives to economic expansion.

The growth that often follows the policies can lead to the re-election of the government that implemented them. The feel-good factor of improving standards, higher wages and inflation under control can enable such a government to secure re-election.

Memories are short, however, in the democratic cycle, just as they are in the business cycle. People come to take wealth and growth for granted, and to be less prepared to continue with the policies that led to them. People grow careless and are more ready to take political risks.

Quite often a party that proposes to concentrate on distributing the new-found wealth rather than on continuing to grow it, appeals to the electorate more than the one whose policies helped bring it about.

The centre-right government is replaced by one that leans more to the left. It sets about expanding benefits and growing the public sector. It tries to exact more from private business by increasing taxes. It needs to fund new programmes and borrows money in order to do so. For a time its largesse is appreciated, but increasingly investment and business find it harder to flourish in the new environment it has created.

Growth slows down, the economy grows sluggish. People begin to feel less secure and less wealthy. They begin to question the competence of ministers who seem unable to manage the economy. The left-leaning government sometimes wins its first re-election after a term in office, but often with less enthusiasm than that which first put it there.

The economy stagnates under the impact of inappropriate policies, and a centre-right government is sometimes then elected to clear up the mess. It implements the policies that encourage investment, applies fiscal responsibility, and makes it easier and less costly for firms to take on new employees. Gradually the economy recovers, and the democratic cycle begins once again.

It might be a feature of democratic societies that whenever wealth and growth are created, a popular party will eventually secure election on the basis of promises to redistribute that wealth. The less well-off can always outvote the more well-off. It means that instead of a steady continuation of policies that allow the economy to grow, there is more likely to be a staccato, with periods that help the economy alternating with those that stunt it. This is more about politics than it is about economics.

The Spending Plan, courage, and politicians

A ring-fenced National Health Service, a bill poised to commit future governments to spend 0.7% of GNI on international aid, a triple lock on pensions, senior military figures pushing for commitments to higher defence spending: these are inauspicious times in which to contemplate cutting the UK’s £77 billion structural budget deficit, but contemplate we must.

Aside from the velleities and equivocations of the political parties when it comes to their respective deficit reduction plans (and most other things besides), the Taxpayers’ Alliance has today released their Spending Plan, which comes as a substantial contribution to the debate. The Spending Plan’s first goal is modest: to lay out a menu of cuts which would take public spending to 35.2% of GDP by 2019-20 – the level forecast by the Office for Budget Responsibility – its second more radical, to outline further measures which would cut spending to 31.7% of GDP, a level at which a single income tax of 30% could be implemented.

Despite the reasonableness of its first end point, or perhaps because of it, the Plan makes for sobering reading. An implementation of the first, less stringent, programme would, among other things, see the abolition of no less than three government departments (the Department for Business, Innovation and Skills; for Culture, Media and Sport; and of Energy and Climate Change), an end to national pay bargaining in the public sector, and a sizeable cut to Scotland’s grant from the UK government.

While the numbers add up, the issue is likely to arise in finding a politician willing to implement the proposals. As the TPA’s Chief Executive, Jonathan Isaby, puts it:

Our Spending Plan honestly sets out the savings that need to be made by whichever party or parties take power after the election. Today we challenge our political leaders to accept our plan or to produce a similarly rigorous set of proposals of their own which explain where it is that they would reduce spending instead.

The report recognises that reduced spending and deregulation are of no importance if they don’t lead to people being better off in the long run, and makes the welcome case that making the state leaner is desirable for reasons other than deficit reduction. David B. Smith sets out the case that market economies grow faster, while the ASI’s Director, Dr. Eamonn Butler, makes the ethical argument for lower taxes.

Despite the size of the challenge that future governments face, that markets have confidence in the UK’s ability to get its debt under control might serve as good evidence that all is, in fact, not lost. However, politicians would do well to come to the realisation that, whether those set out in The Spending Plan or not, radical decisions about the role of the state must be made; we can only hope this research helps them do that.

Ed Miliband’s TV debates law

Following the TV debate row in the UK, Labour Party leader Ed Miliband says a future Labour government would pass a law to ensure that live television debates become permanent features of general election campaigns. The law would establish a trust to establish the dates, format, volume and participants.

I was once shocked by the alacrity with which politicians proposed new laws as the answer to any problem. Then I came to see it more as an interesting fact of anthropology. Now I see it more as an art form. The invention that goes into making new, pointless or counterproductive laws is truly a pinnacle of human achievement.

It is sublime that a politician who cannot get other people to debate with him should propose a law to force them. Exquisite that this new law should be backed up and overseen by a new quango. Uplifting that the law’s proponents should think that the process would be fair, democratic, and easy.

It won’t, of course. As I have mentioned here before, it is by no means clear that TV debates have any place in the constitution of the UK. After all, we do not live under a presidential system, and we do not elect presidents at general elections. Rather, we elect individual Members of Parliament in our local constituencies, and it is those MPs, or at least their parties, who decide who goes into 10 Downing Street. TV debates, by contrast, suggest that we are in fact electing a head of government. They suggest that individual MPs are of no account, mere members of that person’s Establishment. They suggest that we are electing an executive, not a legislature that can hold the executive to account. Already, the executive in the UK has far too much power over Parliament, and Parliament has too little control over the executive. TV debates can only make that imbalance more profound.

As for timing, who knows if the five-year fixed election cycle, introduced in 2010, will last? If parties split on key issues, for example, the country might find itself without a coherent government. The calls for a fresh election would be overwhelming. And how to decide who should debate anyway? Is it decided on the basis of current representation in Parliament (in which case UKIP, though polling 15%, would be nowhere)? Or on the basis of the polls (in which case the Lib Dems, currently part of the government, would be nowhere)? Should parties that stand in only part of the UK (the Scot Nats or the Ulster Unionists, for example) be represented in the national debate? If so, how deeply?

The only people who would win every time are the lawyers. I sometimes wonder if, like the mice in Hitchhiker’s Guide to the Galaxy, it is actually for their benefit that the world is currently configured.

President Cameron and the TV debates

David Cameron’s decision on the TV debates was one of the worst of his life. No, not yesterday’s ‘final offer’ to the broadcasters of only one 90-minute debate with seven (or eight) parties represented, and held well before the start of the ‘short campaign’ prior to the General Election of 7 May. Rather, it was his decision to push for TV debates five years ago, when he was Leader of the Opposition, that caused the damage.

In purely ‘political’ terms, that decision quickly back to bite him. It gave an opportunity to the Liberal Democrat leader, Nick Clegg, to come forward as the ‘Anti-Westminster’ candidate, boosting that party’s standing and forcing the Conservatives into coalition.

TV debates of course always help the underdog and damage the government. So now that Cameron is Prime Minister, he is facing the same calls for debates from Labour and the smaller parties, and is having to take the same criticism he launched at PM Gordon Brown last time, that he is ‘frit’ of defending his record.

But there are two, more fundamental problems. The first is that there is no logical way to decide which parties should be represented in TV debates. The debates are, after all, seen as a ‘national event’, rather than some throw-away entertainment, so it is important that they should be fairly structured. But it is impossible to include all of the dozens of parties, including pop-up parties, who contest seats in the General Election. So where does one draw the line? The Liberal Democrats may be sharing power, but they are polling little better than the Greens. UKIP has come from almost nowhere, but now out-poll the Liberal Democrats, so should they be included at the expense of the LibDems? And the Democratic Unionist Party (and Sinn Fein for that matter) may well stand only in Northern Ireland, but they are key forces there, so should they be on the platform too?

There simply is no objective way to decide. And no answer is going to suit every party. (And it is for this same reason that taxpayer funding of political parties can never work either – unless the two biggest parties simply divide the funding up between them and resist any claims from ‘upstarts’).

The most serious problem, though, is a constitutional issue. Britain’s governmental system is not supposed to be a Presidential one. True, the Prime Minister has many of the powers that a US President has, powers that once belonged to the monarch (like initiating wars and signing treaties, without troubling Parliament overmuch). But the Prime Minister is not just an executive, but still a member of the legislature – a Member of Parliament. When British voters go to the polls, they are supposed to be electing their local MP – someone who will actually hold the government to account. They might take into account what that might mean in terms of who moves in to 10 Downing Street, but in all but one constituency, that is not who they are electing.

There is an argument that the executive in Britain has too much power, precisely because it also controls the legislature. Of 650 MPs, a hundred are on the payroll, a hundred would like to be, and two hundred on the other side are lining themselves up with the same in mind. So party leaders and offers have enormous power, and Parliament has very little restraint on them. Maybe we should be separating the executive and legislative branches. Certainly, the last thing we should be doing is deepening the power of the executive further. But this is precisely the effect of TV debates. They focus attention on just one person, boosting centralism and central power. That is not healthy for any nation. Frankly, there should be no TV debates at all.