Comments: Politics and Productivity

Philip Keefer Development Research Group

The World Bank

Overarching lessons from case studies

Great project! Tries to get us beyond broadbrush analyses of political economy of growth/productivity.Key political characteristic of pro-productivity vs. anti-productivity legislation: “public” vs. “special” interests.What affects political choice between these? Key dimensions in this project:

• Status quo (is the constitution inherited from the pre-democratic era pro/anti-productivity?)

• Institutional arrangements (especially presidential authority, # veto players): is reform easy/difficult? Do veto players have pro/anti-productivity incentives?

• Interest groups: Fragmented or organized? Encompassing or narrow?

My main comments

Institutions + interest groups: • Effective in explaining individual pieces of legislation. • Less persuasive in explaining broad differences in

productivity.

Collective organization of politicians is key.• Can voters hold politicians collectively accountable for slow

growth? • Goes beyond fragmentation and veto players. • A more persuasive way to think about intra-regional

variations and, especially, differences with high productivity regions?

Other issues• Plata o plomo? More than electoral considerations in dealing

with interest groups? • What about commonly discussed issues in LAC politics (e.g.,

inequality, populism, social polarization)?

Reasons to look beyond political institutions

More public goods under parliamentary ~ prez (Persson and Tabellini) or with elections than without. Abstracts from key institutional detail. This project looks deeper -- agenda-setting power of the president combined with status quo (e.g., Brazil). Issues:

• Lots of places with strong president, weak parties (e.g., Philippines, Benin). What’s different about Brazil?

◦ Why is the Brazilian president more interested in the broad public interest, growth than the president of the Philippines?

◦ And is he really more interested in growth than the president of Perú?

• Lots of places with many checks and balances and higher productivity (Germany, US).

• Effects of checks ambiguous (depends on incentives of veto players).

Reasons to look beyond interest groups

The usual (and reasonable) arguments: Public-interested policy more likely with:

• Encompassing interest groups (Olson)• (Lucky) coincidence of public and narrow interests

Issues:• Interest group structure (decision to form peak level

organizations) may be endogenous to political competition. • Theory ambiguous: fragmented interest groups less able

to veto reforms, but more likely to support low-productivity reforms.

• Are interest groups systematically different across high/low productivity countries?

• “Extra-institutional” influence matters. Plata? Plomo? Philippines: both. Mexico: both (at least, drug war).

Another angle: credibility and parties

Attention is given to parties, but unevenly. E.g.: Chilean success traced to encompassing parties, but their absence not blamed for low productivity elsewhere.

Broad political credibility essential to public-interested legislation.

• Non-credible politicians rely on targeted payoffs (Keefer/Vlaicu).

• Ex: young democracies (Keefer).

Political parties are key to credibility.• Inter-politician credibility may be a function of

politician-voter credibility.• In any case, credible parties have longer horizons than

individual politicians.

“Institutionalized” parties

Parties that attract voter support independent of candidate identity are better able to make broadly credible promises.

• Party has an incentive to punish candidates who undermine party reputation.

• Expulsion from party costly to candidates.• Individual politicians can be held accountable for collective

political failures.

Less effective if machine (rather than competence, programmatic stance) is basis of party attraction to citizens.Lots of variation across LAC:

• Two “institutionalized/programmatic” parties: Mexico has the PAN, the PRD. Chile has left and right.

• One: Brazil has the programmatic PT; Argentina the machine-based PJ.

• None: Venezuela, Colombia, Guatemala, etc.

Social/historical factors that influence collective action

Other political analyses (e.g., of growth/ investment/ redistribution) focus on things like:

• Legacies of violence (Colombia)/discrimination (Bolivia)• Physical distance (costs of collective action high in the

Amazon)• Inequality (cheap for elites to play divide and conquer)• Government control of media

Useful to connect these to the productivity discussion.• Do these disfavor collective action in the public interest

(e.g., institutionalized political parties)?• Do they influence other RHS variables of concern to the

study?

What about inter-regional? LAC vs. East Asia?

A crude characterization of East Asian growth: • Leaders nervous about low growth, unwilling to surrender

power to the unwashed masses.• Still manage to make credible commitments to

businesses (you invest for productivity growth, we won’t expropriate you). How?

“Institutionalization” plays a big role: • A (larger than usual) subset of the population has

privileged ability to coordinate (military in Indonesia, Chinese Communist Party members in China, civil service in Singapore) (Gehlbach/Keefer).

• They can more easily sanction leaders who renege on promises.

• They are at the center of the investment/productivity surge.

Successful democracies: competition between institutionalized parties – missing in lots of LAC.

Final thoughts

Variations in the collective organization of politicians may loom larger in the politics of productivity than institutions/interest groups.Even if it doesn’t, some thoughts on case studies:

• Take a clearer stand on whether “fundamental” issues (e.g., as opposed to the possibly idiosyncratic alignment of interest groups) drives productivity policy.

• More directly inform the question: why does special interest influence vary from place to place; how do countries compare w/r/t incentives to pursue policies in the public interest?

• Institutions/interest groups get central attention; need more on how politicians appeal to voters.

• Would conclusions differ if the LHS variable was investment? In cross country growth regressions, productivity and investment effects of “weak property rights” the same.