The Economic Policy Consequences of Electoral Systems: Can Proportional Representation Survive...

The Economic Policy Consequences of Electoral Systems:

Can Proportional Representation Survive

Globalization?

Eckstein and Electoral Systems

Bagehot, Finer (1924), Hermens: electoral system crucially affects political competition, democratic stability

Harry was deeply skeptical: in Eckstein-Apter Reader, inclined to view that

“. . . electoral systems have little, if anything, to do with the character and performance of representative systems . . . [and] “do not, in fact, have important consequences for other aspects of the policy process.”

After dismissing other views, made radical suggestion that

“. . . electoral systems only express . . . the deeper determinants of the politics of a society,” i.e. that they are endogenous.

Three major questions about electoral

systems (with tentative answers):

Do electoral systems have important, independent policy effects? (Yes.) In particular, do electoral systems affect

o trade policy (Maybe) and o international competitiveness (Yes) of countries?

Are electoral systems endogenous? In particular, are they affected by

economic globalization? (Probably, but jury is still out.)

Brief Review of Electoral Systems

Systems are more or less proportional, i.e. allocate parliamentary seats to parties in proportion to their share of popular vote (or not).

Major divide is between

o “List” or “Pure” systems of PR and

o Single-member district (“SMD”) systems

Stylized difference is given by Taagepera and Shugart:

Two-Party Seat-Vote Functions

0.2 0.4 0.6 0.8 1

vote share

0.2

0.4

0.6

0.8

1

seat share

Electoral College

SMD

PR

Policy Effects of Electoral Systems: Major Findings, 1980-present

More proportional electoral systems lead to:

Higher voter turnout More Leftist policies and coalitions (even when median voter is the same)

Policies closer to those of median voter

Higher government spending (as share of GDP) Less spending on “pork,” more on welfare and transfers

Greater redistribution Greater income equality

More “veto-points,” greater policy stability

Slower response to exogenous economic shocks

Most work empirical, but some recent advances in formal modeling:

Persson and Tabellini, Political Economics, Part III; Austen-Smith, article in Journal of Political Economy Soskice and Iversen, 2002 APSA paper Ticchi and Vindigni, “Endogenous Constitutions,” argue pretty convincingly that

PR survives in relatively equal societies, SMD in unequal ones. Much more controversial and contested claim, by Katzenstein, me, a few others:

PR favors trade openness, works against protectionist logrolls Evidence (mainly): most trade-dependent countries – usually, the smallest

ones – are likeliest to have PR.

Strong link to Hall, Soskice, et al., Varieties of Capitalism

PR seen as essential to Organized Market Economies (OMEs), as opposed to Liberal Market Economies (LMEs)

Chapter by Estevez-Abe, Iversen, Soskice: OMEs characterized by

particular structure of production and training:

o Skill-intensive, high-quality goods, depending on o Firm- or sector-specific training, whose risks are insured against by

Generous welfare state and Stable parties and policies; both guaranteed only by

o Proportional representation o Implied hypothesis: shift from PR to SMD undermines OME,

pushes toward LME (Italy?)

VOC also notes significant disadvantages of OMEs

Weak innovation Poor opportunities for women Slower adaptation to economic change

Must perhaps add

Higher, less competitive prices

On issue of PR and trade, VoC argues only

PR works for some countries in a global economy, ones with particular skill-intensive structures of production and training.

Focus on two questions:

Is PR good for trade openness?

Is PR good for adaptation to global economy today?

Trade, Size, and PR

Within OECD, small, trade-dependent countries

even more likely today than in 1970s to have PR:

Imports as a percent of GDP, 1999 OECD Non-OECD

0

20

40

60

80

100

120

proecd smdoecd prpoor smdpoor

PR SMD PR SMD Mean: 44.5 22.8 52.3 55.5 Standard Dev.: 20.2 10.3 21.1 17.6 Num. Countries: 16 7 29 13

Natural log of population, 2000 O E C D N on-O E C D

10

12

14

16

18

20

proecd smdoecd prpoor smdpoor

P R SM D P R S M D M ean: 15 .7 18 .0 14 .9 13 .5 S tandard D ev.: 1 .4 0 .9 1 .8 2 .6 N um . C ountries: 16 7 31 14

W ithin O E C D

o average P R country has 6.6 m illion people ; o average SM D country has 66 m illion .

Outside the OECD, these patterns are reversed. So for whole set of democracies in 1999-2000, we see:

Imports as a percent of GDP, 1999 World SMD PR

0

20

40

60

80

100

120

IMPORTS smdimp primp

Mean: 47.9 44.0 49.5 Standard Dev.: 21.2 22.0 20.1 Num. Countries: 65 20 45

Natural log of population, 2000 World SMD PR

10

12

14

16

18

20

LNPOP smdpop prpop

Mean: 15.1 15.0 15.2 Standard Dev.: 2.2 3.1 1.7 Num. Countries: 68 21 47

Translates into o Average PR country has 4 million people o Average SM D country, 3.3 million

Quick, incomplete, summary of state of evidence

No link between trade and population outside OECD. Other scholars – e.g., McGillivray, Grofman, -- find no link within OECD. Kayser and I, in cross-section for 1990, found no link within OECD. Preliminary results on our OECD panel find some effect: shift from PR to

SMD lowers import share in initial year by about 1.6 per cent Can claim jury is still out, but it’s probably voting 10-2 against original

claim. Best we can say is: PR at least does no harm to trade. Important in light of

price data below.

Real Prices and PR:

More Recent Work

Rogowski and Kayser, AJPS 2002: in 1990 cross-section of OECD countries, PR

o weights consumers’ voices less, producers’

voices more (including organized workers) o encourages more anti-competitive policies o inhibits innovation o leads to higher real prices (10-12 % higher

than in SMD countries, controlling for all else) o threatens countries’ international

competitiveness ?

[Why real prices? What do they mean?]

Rogowski, Chang, Kayser, 2003: in 1970-2000 panel of

OECD countries, PR o in initial year, if adopted in previously SMD country,

raises real prices by 1-2 %; o over long run, raises real prices by 10-15 %.

Chang, Kayser, Linzer, Rogowski, research in progress: in

1970-2000 panel of all democracies, PR o leads to higher real prices, but o trend over time seems toward convergence o here is pattern over time, controlling for wealth, trade

exposure, exchange-rate fluctuations, etc.

Five-Year Moving Average of Real Prices,

All Democratic Countries and Years

0

2

4

6

8

10

12

14

16

18

20

1970 1975 1980 1985 1990 1995 2000 2005

SMD PR Linear (SMD) Linear (PR)

How does this happen?

Example: whole agenda of “structural reform” in Germany

o Cartels o Inefficient retailing o Opposition to innovation (Die Zeit and computerized type-setting) o Generous unemployment and welfare benefits

Why, if at all, does this matter? Does it

make countries less competitive?

In 1970s and 1980s, probably did not matter greatly:

o Many local monopolies, esp. in services (1992 reforms in Europe). o Little North-South trade; mostly intra-industry, among advanced

economies o OMEs could still flourish by specializing in specialized, high-quality

products

1990s brought very different kind of globalization:

o Great expansion of North-South (and, since 1992, East-West) trade

Goods Trade as Percentage of GDP

Country Category 1990 2001 % change, 1990-

2001 Low-income 27.4 39.8 +45

Middle-income 35.5 50.8 +43

High-income 32.3 37.9 +17

Current Euro zone

44.9 56.3 +25

World (countries weighted by population)

32.5 40.0 +23

Goods trade/GDP is actually higher in low and middle income countries than in developed ones.

More of developing-world exports are manufactured goods. Of total goods

imports into OECD countries from middle- and low-income countries, manufactures constituted (World Development Indicators, 2001)

o In 1990: 44 per cent o In 1999: 68 per cent

In some labor-intensive sectors, changes are already wrenching in OECD

countries: textiles from China

Wall Street Journal on Northern Italian textile industry (wool, silk,

cashmere):

“Threat From China Starts to Unravel Italy’s Cloth Trade: Close-Knit Industry Became European Powerhouse; Now, Quality Gap Narrows” o Zegna moves jobs to China o Smaller firms lay off workers

But also: far more trade in services. (Where Berlin luxury hotels do their

laundry.)

Upshot: “new” globalization forces economies,

developed and less developed, to

adapt more quickly accept more innovation rely on less specialized skills (demise of OME?) redeploy labor more quickly accept more inequality (also in non-OECD economies, e.g. India, post-

Communist states) All of this will be harder in PR countries (if this research is right).

Conclusion: Globalization probably threatens PR in at least

two ways:

Makes adaptation to world economy harder, with result that

o capital flees o unemployment rises o welfare state is threatened

[Germany again the example.]

As globalization induces greater inequality, direct pressure (according to

Ticchi and Vindigni) for more majoritarian system

Some crucial tests of this argument for the future:

Italy (SMD) vs. Germany (PR) India (SMD) vs. Mexico (PR) New Zealand under PR

Alternative hypothesis: Harry was right all along. Electoral systems pale against deeper tendencies in societies: electoral changes, e.g. in Italy and New Zealand, may have little effect. But so far, our research suggest otherwise.

Appendix

Imports, as a percent of GDP, 1999

OECD Non-OECD

0

20

40

60

80

100

120

proecd smdoecd prpoor smdpoor

PR SMD PR SMD Mean: 44.5 22.8 52.3 55.5 Standard Dev.: 20.2 10.3 21.1 17.6 Num. Countries: 16 7 29 13

Imports, as a percent of GDP, 1999

Worldwide SMD PR

0

20

40

60

80

100

120

IMPORTS smdimp primp

Mean: 47.9 44.0 49.5 Standard Dev.: 21.2 22.0 20.1 Num. Countries: 65 20 45

Imports, as a percent of GDP, 1999

Worldwide Non-OECD OECD

0

20

40

60

80

100

120

IMPORTS poorimp oecdimp

Mean: 47.9 53.3 38.0 Standard Dev.: 21.2 20.0 20.3 Num. Countries: 65 42 23

Population, natural log, 2000

Worldwide SMD PR

10

12

14

16

18

20

LNPOP smdpop prpop

Mean: 15.1 15.0 15.2 Standard Dev.: 2.2 3.1 1.7 Num. Countries: 68 21 47

Population, natural log, 2000

OECD Non-OECD

10

12

14

16

18

20

proecd smdoecd prpoor smdpoor

PR SMD PR SMD Mean: 15.7 18.0 14.9 13.5 Standard Dev.: 1.4 0.9 1.8 2.6 Num. Countries: 16 7 31 14

Population, natural log, 2000

Worldwide Non-OECD OECD

10

12

14

16

18

20

LNPOP poorpop oecdpop

Mean: 15.1 14.5 16.4 Standard Dev.: 2.2 2.1 1.7 Num. Countries: 68 45 23

Government Spending as % of GDP, 1999

Worldwide SMD PR

0

5

10

15

20

25

30

35

gconsump smdcons prcons

Mean: 18.0 18.0 18.0 Standard Dev.: 5.1 4.0 5.5 Num. Countries: 64 20 44

Government Spending as % of GDP, 1999

Worldwide Non-OECD OECD

0

5

10

15

20

25

30

35

gconsump poorcons oecdcons

Mean: 18.0 17.3 19.2 Standard Dev.: 5.1 5.7 3.6 Num. Countries: 64 41 23

Government Spending as % of GDP,

1999 OECD Non-OECD

0

5

10

15

20

25

30

35

proecd smdoecd prpoor smdpoor

PR SMD PR SMD Mean: 19.7 18.3 17.0 17.9 Standard Dev.: 3.9 2.8 6.1 4.6 Num. Countries: 16 7 28 13

Worldwide:Three-year moving average

0

2

4

6

8

10

12

14

16

18

20

1970 1975 1980 1985 1990 1995 2000 2005

SMD PR Linear (SMD) Linear (PR)

Worldwide:Five-year moving average

0

2

4

6

8

10

12

14

16

18

20

1970 1975 1980 1985 1990 1995 2000 2005

SMD PR Linear (SMD) Linear (PR)

OECD:Three-year moving average:

-10

-5

0

5

10

15

1970 1975 1980 1985 1990 1995 2000 2005

SMD PR Linear (SMD) Linear (PR)

OECD:Five-year moving average:

-10

-5

0

5

10

15

1970 1975 1980 1985 1990 1995 2000 2005

SMD PR Linear (SMD) Linear (PR)

NON-OECD:Three-year moving average

-6

-4

-2

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005

SMD PR Linear (SMD) Linear (PR)

NON-OECD:Five-year moving average

-4

-2

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005

SM D PR Linear (SM D) Linear (PR )

Dependent variable is imports/GDP, OECD only Variable Coeff PCSE z P>z

lnpop -6.983 0.599 -11.66 0.000 rootgdp 0.037 0.029 1.27 0.204 lndxr3 1.881 0.493 3.81 0.000 smd -1.639 0.855 -1.92 0.055 constant 145.856 11.354 12.85 0.000

rho 0.917 Num. of obs: 645

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