Friday, 28 January 2011

A "dry" political system?

An interesting paper on "the political problem":

Economic Performance and Political Coordination in Portugal’s “Dry” Political System, by Carlos Pereira and Shane Singh:

"(...) we hypothesize that growth-promoting economic policy is more likely to be formulated when veto players have incentives to cooperate and are able to form solid, intertemporal agreements. Cooperative actors can rapidly adjust to changing external and internal factors and therefore formulate well-tailored economic policies. (...) In general, the Portuguese political system does not enhance cooperation among political players because it is “dry.” That is, it lacks tradable currencies capable of compensating coalition players for potential loses, it lacks internal and budgetary coordination capacity of governing, and it lacks a credible enforcement mechanism as a result of a politicized and inefficient judiciary system."

I have a number of quibbles with the paper, but I find the general argument concerning the difficulties in reaching agreements persuasive. Another good reason to read it, at least for me, was to be reminded of another article that focuses on more general aspects of the institutional impediments to growth in Portugal.


  1. Honestly, I truly dislike these papers on the link between political structure and economic performance.
    There are so many variables to account for, how are you going to create the conditions to study the hypothesis? To start with, IMHO the basic model is wrong; economic performance determines political stability at least has much has the opposite. Crises start to emerge during a government mandate and usually determine the results of the next elections, crisis are very seldom the product of a government decision. With the same political structure you can achieve high and low growth rates in the economy.
    But my main problem with this line of thought is the inference you can make. Humm National Socialism produced great economic results for Germany before the IIWW, so why not give it a try? China is producing high growth rates, so why not go for communism? Russia Oligarchy changed the face of the country…

  2. When I mentioned my "quibbles" what I had in mind was both the fact that the model does not take the external economic enviroment into account nor does it address the endogeneity problems you describe. Having said that, I'm not ready to do the heroic assumption that political structures have no impact on economic outcomes, nor do I think that the kind of inferences that result from such papers are necessarily the ones you describe.

  3. Portugal appears to have a "winner-takes-all" type of politics. The winner then has a monopoly of political and economic power, especially when distributing credit-financed benefits to the masses.
    The leader also has a major say in selecting his followers, top-down, like the election lists for the parliament, etc.
    Why bother with messy long-term bottom-up consensus-building and coalitions?