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Tuesday
Dec112012

300 Years in the Convent, 50 years in Hollywood

James is currently in the Philippines researching extractive institutions with Pablo Querubín. This is the first in a series of joint blogs by the three of us about the Philippines through the lenses of Why Nations Fail.

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Over the past 50 years one of the most extraordinary economic developments has been the rise of East Asia. This started with Japan after World War II, to be followed by the ‘Asian Tigers’ Singapore, South Korea and Taiwan, and after that Malaysia. Even Indonesia was doing well for a while, and in fact, it managed to squeeze into the World Bank’s much cited 1992 report on the East Asian Miracle.

But all East Asian economies have not been miraculous. Take North Korea for example. One of the most puzzling economic failures has been that of the Philippines since independence from the US in 1946, which also started with very similar levels of income per-capita to South Korea or Taiwan in the 1950s.

Those prone to the fallacy that particular countries leave particular immutable institutional legacies in their colonies might have thought that the Philippines had all the institutions to succeed. The US had built a democratic legislature and congress, they built schools and educated judges, and they implanted English as a national language that some social scientists have linked to economic success.

What with this and important linkages to the US market, for example a sugar quota which moved from Cuba to the Philippines after the Cuban Revolution, the country looked like it ought to have been set for success. 

Yet the Philippines was not in the World Bank’s report

Digging deeper, we will see that this is not a surprise. Though the Philippines is in East Asia, its history is very different from other East Asian countries. Reflecting on Philippine colonial history, Stanley Karnow in his book In Our Image: America’s Empire in the Philippines characterized it as being “300 years in the convent, 50 years in Hollywood.”

By this he meant to convey the impression that the Philippines had languished under colonialism, hidden in the convent and entertained by Hollywood, while the world had dramatically changed.

It was first colonized by the Spanish in 1565, though the great mariner Ferdinand Magellan had visited the islands in 1521 where he has been killed on the island of Lapu-Lapu (Mactan) near the modern city of Cebu. The key economic institutions that the Spanish used to control and exploit the indigenous peoples of the Americas, like the encomienda, were also used in the Philippines but there were important differences. For one, there were few Spanish settlers and the governance of the islands was left to the Church. Moreover, large parts of the archipelago, particularly the southern island of Mindanao, were never controlled by the Spanish until the 19th century and maintained de facto independence.

We met Mindanao in Why Nations Fail where we showed how the expansion of the Dutch East Indies Company had reversed development among the sultanates of this island. Though in the 17th century the Spanish ruled in Manila or Cebu, the Sultan of Maguindanao was still independent. (Such enduring independence was not unknown in colonial South America. Soon after the early conquest of Chile, the Spanish lost control of the south of the country to the warlike Araucanian and Mapuche Indians who were not conquered until the second half of the 19th century.)

Spanish colonialism was cast off in 1898, only to be replaced by US colonialism that lasted until 1946. Like many post-colonial experiences with democracy, that in the Philippines collapsed in 1972 with President Ferdinand Marcos’ declaration of martial law. His viciously kleptocratic regime was finally forced from office by a popular revolt in 1986. Now all that most people recall of this regime is the 3,000 shoes of Marcos’ wife Imelda (800 of which are now on show at the Marikina Shoe Museum in Manila).

On the surface this seems very different from the trajectories of other East Asian countries and the obvious explanation is the different colonial history. The Philippines is just a Latin American country stuck in East Asia, with Evita replaced by Imelda. Right?

In the next few posts we will dig deeper into the roots of poverty in the Philippines and discuss some of the explanations that have been produced to account for it. 

But first it is worth noting that the fact that the Philippines was on a par in terms of income per-capita with South Korea or Taiwan in the 1950s says little about what the long-run economic prospects of the societies were. Many other countries with radically different underlying growth prospects, such as Ghana, had similar income levels. All were emerging from long periods of colonialism: South Korea and Taiwan from that of Japan, the Philippines from that of Spain, and the US and Ghana from that of Britain. In nearly every non-settler colony, colonialism had the effect at best of trapping the country in amber. There was no chance of institutional change or structural transformation. Little chance of indigenous innovation or adaptation to a changing world. At independence, living standards often bore little relation to the long-run prospects for economic growth.

But what then were these differences that led to such poor economic growth in the Philippines? And how come they got stuck with Marcos rather than President Park or Chiang Kai-Shek?

Thursday
Dec062012

The End of 'Old Corruption' in Britain  

For a good part of the last month and a half, we have been studying different forces that led to the collapse of patronage politics in different countries (see  hereherehere, and here).

Patronage was an important problem in pre-modern Britain as well. The modern British state took a long time to build and patronage politics a long time to eradicate. It was only after 1485 and the end of the Wars of the Roses that the modern state started to emerge in Tudor England (as we discussed here).

And it was only after the Glorious Revolution of 1688 when the fiscal system expanded that the government started to create a meritocratic bureaucracy to collect the excise tax (as documented by historian John Brewer in his classic The Sinews of Power). But this did not end the patronage by any means.

The continuation of patronage politics in Britain, which came to be known as ‘Old Corruption,’ became one of the prime targets of radicals vying to change the British political system, particularly at the time of the French Revolution. Starting around then, a series of measures started to be implemented to eradicate it. For example, auctions for the sale of national debt were introduced for the first time to try to eliminate favoritism in the allocation of debt.

In recent work, for example, Elites and Corruption: A Model of Endogenous Reform and a test using British data, Mircea Popa of Harvard examines the forces that led to the eradication of Old Corruption. He argues that the fundamental source of Old Corruption was the executive and the King who used it to extract rents from the political system. Even though after 1688 Parliament was dominant, the King still formed the executive and nominated the Prime Minister, though such a minister had to command majority support in Parliament. Parliament tolerated this corruption for much of the 18th century because its worst features could be contained by threatening to reform the system if the executive was too egregious.

Popa argues that around the time of the French Revolution this implicit bargain fell apart because the conflict made the undersupply of public goods inherent in this system very costly. To expand the supply of public goods, Parliament would have had to grant the executive more tax revenue, but this made it very difficult to sustain the limited corruption equilibrium because the executive would have been tempted to grab the extra tax receipts. Thus Popa argues that the increased demand for public goods made it no longer possible to use implicit mechanisms to limit ‘Old Corruption’ and instead Parliament started to pass a series of legislative reforms which eliminated it.

Tuesday
Dec042012

Disrupting the Clientelistic Equilibrium in Chile  

Thus far we have examined various shocks to a clientelistic equilibrium that might disrupt it. The entry of new political forces which mobilize outside the system (Shefter), democracy (Lizzeri and Persico) and changed economic opportunities (Chubb). 

Another possibility is that changes in political institutions at a finer level than democracy could influence the incentives to be clientelistic. A large literature in political science argues that features of the electoral system can encourage clientelistic politics, because, for example, they make it easier to win office with a small number of votes, thus encouraging patronage rather than public goods provision.

A classic paper on this is by John Carey and Matthew Shugart, “Incentives to Cultivate a Personal Vote”. Carey and Shugart coded different electoral system on the extent to which they encouraged clientelistic strategies (Colombia won, or lost, depending on your perspective). The results suggest that, even ignoring such big transitions as movements towards democracy, changing things like the electoral system within a democracy might have large effects on clientelism. Though we are not aware of any empirical work that conclusively shows whether changing electoral rules does reduce clientelism, there is some research that is relevant here. First, as we have already discussed, Thomas Fujiwara’s research establishes how the change to an electronic voting system in Brazil made it easier for illiterates to vote, with a significant impact on the political equilibrium.

Second and more relevant, Jean-Marie Baland and James Robinson’s “Land and Power: Theory and Evidence from Chile” studied the introduction of an effective secret ballot in Chile in 1958. Before that, landowners, who could observe the way that their workers voted, coerced them into supporting right-wing political parties. This was particularly true of a class of workers called inquilinos who were resident on large farms and thus particularly subject to landlord control. When the secret ballot was finally introduced, the vote share of right wing political parties fell differentially in areas where inquilinos were an important part of the labor force (or electorate). Here the change in balloting procedures freed the inquilinos to vote for who they wanted, thus breaking down the clientelistic control of the labor force. Sometimes reforming the details of political institutions can have a major impact of patronage politics.  

Thursday
Nov292012

Disrupting the Dysfunctional Equilibrium in Naples  

In our discussion of factors that might create a transition from patronage to programmatic politics, our focus has been on politics, the emergence of new political parties that form outside the system of patronage (Shefter) or the transition to democracy (Lizzeri and Persico). Obviously, it’s not just politics but also economics that shapes the feasibility of transitioning out of patronage politics.

As Avinash Dixit and John Londregan pointed out in “The determinants of success of special interests in redistributive politics”, the poor value patronage more than the rich. This is intuitive (but of course it does depend on assumptions). A natural assumption is a diminishing marginal utility of income and a constant disutility of switching one’s vote in response to monetary rewards (or a disutility that increases with income). This would then imply that when someone is poor, the offer to buy their vote or give a job creates a larger increase in utility than when someone is rich. To get the same increase in utility a rich person would have to be offered more money or a higher wage (and with a constant disutility of switching one’s vote, the poor and the rich have to be given the same increase in utility for purposes of patronage politics). All of this then leads to a simple conclusion: patronage will be more effective and cheaper when targeted to the poor.

One consequence of this reasoning is that the poor’s economic options might have a first-order impact on the cost and feasibility of patronage. If so, one way of ending patronage politics might be to improve the economic opportunities of the poor and of other target groups of patronage.

An interesting example of this is in political scientist Judith Chubb’s Patronage, Power, and Poverty in Southern Italy: A Tale of Two Cities. Chubb’s book is a wonderful analysis of how the patronage machine of the Italian Christian Democratic Party functioned. It provides powerful examples of how the party bought votes and how they made sure that people voted as they agreed. For instance, prior to an election a person would be given a left shoe and told how to vote. If they went through with the agreement after the election, then they got the right shoe. The genius of the whole thing was of course that, to both the voter and the party, one shoe was useless without the other, thus helping to cement the deal on both sides. 

Chubb’s analysis also explains how this system could function in a democracy even with a large number of voters. One reason was that though giving patronage employment was expensive, it didn’t just give the Christian Democrats one vote for each job, but the vote of the whole extended family connected to the employed person. By having a relative employed, these people got preferential access to many scarce resources, for example public healthcare. Such access didn’t cost anything (they just got ahead of other people in the queue), but it was very effective in ensuring political support.

Chubb’s book is split into two parts. The first shows this machine at work at full effectiveness in Palermo. The second part, more relevant to this post, shows how it crumbled in Naples in the 1970s. After the discussion of Palermo, it is quite a shock that this complex and very effective patronage machinery, which seemed to have every angle covered, just collapsed. How did it happen?

What Chubb shows is how important simple economic opportunities can be. In Naples, a regional development policy emanating from Rome led to the construction of car factories. These created new jobs which were relatively well paid, reducing dependence on patronage. Possibly also important, the car factories were taken over by northern communist trade unions. The combination of high paid jobs and unions was a double whammy for the Christian Democrats. The unions ended their control of appointments in the car factories while the higher wages meant that people were not so ready to sell their vote (or at least according to Dixit and Londregan’s logic which we just discussed) would have demanded a higher price, making this strategy more expensive and less feasible for the Christian Democrats). The result was a significant loosening of their grip on local politics, and in 1975 they fell from power.

Tuesday
Nov272012

Democracy and the Transition to Programmatic Politics  

After a long detour, we return to our discussion of the transition away from patronage politics.

Martin Shefter’s thesis about the transition to programmatic politics, which we discussed here and here, is about how patronage politics may be undermined by the entry of new political parties in a democracy. But shouldn’t democracy, and more generally the nature of political institutions, influence the incentive to use patronage politics? Perhaps democratization would change the incentives or ability of politicians to use patronage?

There are several ideas in the literature about whether and how democracy may reduce patronage. One of these follows from our earlier discussion here in the context of Robert Bates’s seminal book Markets and States in Tropical Africa. Politicians often prefer to curry favor through patronage, which can be targeted, to providing public goods, which cannot. If democratic institutions restrict the extent to which such targeting is possible, they will naturally tilt the balance towards providing public goods in order to win support.

Another specific mechanism has been developed in the interesting paper by Alessandro Lizzeri and Nicola Persico “Why Did the Elites Extend the Suffrage?”. They argue that the trade-off between public goods and patronage depends on political institutions and in particular on the extent of the voting franchise. If voting rights are narrowly distributed, for example as they were in Britain prior to the 1867 Second Reform Act, then in order to win a politician has to only attract relatively few people’s support. Patronage, which can be targeted specifically to these people, is then both feasible and effective. When voting rights are expanded, however, it gets more and more costly to provide patronage to win elections. Instead, the option of providing public goods more broadly in order to appease a larger segment of the population becomes increasingly attractive.

Lizzeri and Persico not only show that democracy will be associated with a reduction in patronage but also that, through this effect, non-democratic elites may in fact prefer to create democracy to maintain a narrow voting franchise. This is because, with a narrow franchise, it is politically rational for a politician to rely on patronage to win elections. But the same is true for competing politicians, who can promise patronage. The resulting competition would then resemble a prisoner’s dilemma — politicians outcompeting each other in promising patronage to a narrow group. Think of it this way: if a politician tries to win an election by offering public goods, another one can do better by offering patronage, which is more effective and cheaper. Because such prisoner’s dilemmas are costly to the participants, the elite politicians themselves may be better off when the voting franchise is extended and the patronage option is off the table. (Lizzeri and Persico’s is in turn an alternative but complementary theory to ours, developed in the paper “Why Did the West Extend the Franchise?” and in greater detail in our book Economic Origins of Dictatorship and Democracy; we’ll return to these ideas soon).

Of course the creation of democracy does not necessarily remove patronage politics. Political machines can adapt. But Lizzeri and Persico provide a solid reason to believe that there is one important mechanism which pushes democracy away from patronage politics.