The Political Origins of Populism  
Tuesday, March 19, 2013
Daron Acemoglu and James Robinson

In our last post, we discussed the roots of Hugo Chávez’s rise to power and noted that these are intimately linked to the elite control of Venezuelan politics and economy. 

But why did this lead to a personalistic dictatorship? Why did many Venezuelans continue to support Chávez even after 15 years of disastrous economic management in the midst of a huge oil boom from which Venezuela should have benefited much more? 

The answers are related to what we refer to as the iron law of oligarchy in Why Nations Fail, whereby an extractive regime is followed by yet another extractive regime even if the rhetoric sometimes changes. 

In the case of so-called “Latin American populism” of which Chávez is just one example, there are some specific reasons for this iron law of oligarchy.

Populism often refers to a rhetoric of aggressively defending the interests of the ‘common man’ against the privileged elite and to policies that are motivated by such a rhetoric. Chávez, as been discussed in our last post, clearly satisfies this. 

But as one of the classic accounts of the economics of populism in The Macroeconomics of Populism in Latin America by Dornbusch and Edwards notes, populist regimes and policies often seem to hurt many of the constituencies they appeal to. They write:

Populist regimes have historically tried to deal with income inequality problems through the use of overly expansive macroeconomic policies. These policies, which have relied on deficit financing, generalized controls, and a disregard for basic economic equilibria, have almost unavoidably resulted in major macroeconomic crises that have ended up hurting the poorer segments of society.

How can we make sense of this?

One idea is to think that voters are just irrational. Venezuelans, for example, may not know what’s good for them and may just be taken in by Chávez’s showmanship against their real interests.

Though this is certainly possible, it is not the only possibility.

In “A Political Theory of Populism”, Daron, Georgy Egorov and Konstantin Sonin propose an alternative explanation.

According to this theory, the problem in many Latin American countries, including Venezuela, is their weak institutions. Voters are (legitimately) afraid that politicians are in the pocket of the rich elite or the “oligarchy”. Whatever their rhetoric, once in power they will implement policies in the interest of this rich elite. Weak institutions are central for this explanation because they prevent politicians from being bought or unduly influenced by this rich elite.

Given these concerns, many voters will reward signals of anti-elite behavior, because this will reduce the likelihood that the politician in question is in the pockets of the elite. The main theoretical result is that because of the signaling motive, ‘moderate’ politicians, who ideologically would like to adopt the best policy for median voter but still value being in office, will systematically choose policies strictly to the left of the preferences of the median voter, and will be rewarded for these policies at the polls.

Paradoxically, even closet right-wing politicians or those in alliance with the rich elite may also end up choosing policies to the left of the median voter’s preferences in order to masquerade as moderate or honest. 

In the Venezuelan context, this suggests a possible mechanism for why Chávez, despite his policies that were not beneficial for the median voter, remained quite popular.

An interesting consequence of all of this is that the rich elite may actually end up worse off relative to a situation in which they could not have disproportionate impact on politics. The fear of ‘political betrayal’ may lead to such a populist bias in politics that they will lose out even when they can control a significant fraction of politicians in the country. This too this provides a possible interpretation of the dynamics of Venezuelan politics.

A hallmark of politics in Venezuela, as well as in Ecuador, Bolivia and several other Latin American countries in recent past, is the willingness of the voters to dismantle checks and balances on presidential powers.

Venezuela is again an exemplar. After his first election in 1998, Chávez organized a constitutional assembly which re-wrote the constitution moving to a unicameral legislature, reallocating a wide range of legislative powers to the president. In contrast to what one might have expected from the standard principal-agent models of politics, voters did not oppose this lifting of checks and balances and constraints on presidential powers. The new constitution was ratified by 72% of the people who voted in a plebiscite in December 1999. In 2000, things got more extreme. Chávez now obtained the right to rule by decree for a year without having to get the approval of the legislature. In 2007 this power was renewed and extended to 18 months. It was renewed again in December 2010 for another 18 months. 

What explains this enthusiastic dismantling of checks and balances by voters? Once again, even if voter irrationality is a possibility, it is not the only one.

 

A companion paper by Daron, Jim and Ragnar Torvik, “Why Do Voters Dismantle Checks and Balances?” provides one answer. 

When voters are afraid that the rich elite will be able to buy off politicians — the president included — checks and balances become a disadvantage rather than an advantage. The reason is related to the raison d’être of checks and balances: they constrain the executive and reduce his rents. But an executive with little rents is very cheap to buy for the elite. 

Thus, paradoxically, voters may prefer to allow a president like Chávez to pursue policies that are self-aggrandizing and provide rents for himself, because this will make it less likely that the elite will be successful in co-opting him. 

In fact, if you listen to Rafael Correa in Ecuador, who have successfully campaigned for the dismantling of such checks and balances, this is more or less the reasoning that he articulates (though, unsurprisingly, he does not quite stress that he himself could also be bought off). 

For example, Correa argued explicitly that the major objective of his proposed constitutional changes was to reduce the de facto power of the traditional elite:

a new constitution is required … to extract the country from the economic, political and social blockade, to which the mafias who have always dominated, have condemned this country… of course today there are still other de facto powers and we are seeing them, these are powers that believe that they are owners of regions and the country, owners of truth, owners of the president of the republic.

He also emphasized that the serious threat was for the elite to use its financial power to bribe all level governments and politicians:

this government is not submissive, it’s not for sale and it doesn’t know, as someone said a long time ago “the geometry of the bent knee”,

… Maybe that’s why they don’t understand who we are. They try to find the man with the bag … in the figure … of the vice-president of the republic; they judge that way because there is a saying “each criminal judges based on their own condition.

All of this reiterates the challenge of the iron law of oligarchy.

Even when voters have a voice at the polls and can organize to take actions against the traditional elites, weak institutions inherited from decades or even centuries of elite rule and the fear of dominance of politics and society by this very elite can shape how the alternatives will play out, creating yet another type of path dependence of extractive institutions.

Article originally appeared on Why Nations Fail by Daron Acemoglu and James Robinson (http://whynationsfail.com/).
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