Session 9
Stephan Haggard and Robert R. Kaufman, The Political Economy of Democratic
Transitions, 1995, pp. 3-21 and 309-79
pp. 3-21 and 309-334
Introduction
Existing theories of modernization (neo-liberal, Marxist) are inadequate or negligent in explaining the
relationship between the economic developments and democratic transitions of developing countries in
the last two decades. This book seeks to construct a political economy of transitions from
authoritarianism to consolidated democratic rule.
Theoretical orientation
Regime and economic developments depend on the strategic choices of key actors as constrained by
economic circumstances and existing institutions. The book’s analysis reëvaluates previous political
approaches to this relationship, based on three assumptions:
1. Economic-cum-social structures are essential to understanding politics.
2. Opportunities for political elites to mobilize support or opposition depends on how economic
policy and performance affect the income of different social groups.
3. Assessments of political or policy outcomes from economic cleavages and interests must
consider the way politics is structured by the institutional context
General concepts and arguments
All regimes in mixed economies depend on a bargain between political leaders and key support groups.
The reaction of key support groups to economic conditions (prosperity versus crisis) reveal how stable
and robust ($10 mil word) those bargains are. Democracies are more able than authoritarian regimes to
draw on support during times of crisis. Inability to avoid crisis or adjust to crisis will affect chance of
survival of authoritarian regime, and will affect capacity of authoritarian regime to control political change.
Economic crisis and the politics of adjustment
Economic crises have two components:
1. A deterioration in aggregate economic performance indicated by slowed growth and accelerating
inflation
2. Un-self-correcting deterioration: if prevailing policy approach continues, it will be accompanied by
continued economic deterioration
A variety of adjustment paths exists. The politics of these adjustments involve:
 How different groups react to policy changes by the state
 How the state manages these reactions
Initiation and consolidation of economic reforms
Initiation of economic reforms demands a centralized executive authority to overcome policy stalemates
resulting from the uncertainty of policy outcomes – strong executive:
 In authoritarian regimes, centralized executive via personal control of policy
 In democratic regimes, centralized executive via constitutional provisions
Consolidation of economic reforms demands the opposite – strong popular support:
1. Checks on executive discretion and delegation of authority to policymaking agencies
2. Reforms that appeal to a new coalition of beneficiaries
Economic policy and political stability in authoritarian regimes
Though authoritarian, these regimes still must accommodate the interests of some constituency, so
economic performance can be pivotal in dislodging them.
Military governments
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They lack rationale for remaining in power and organizational channels for building stable bases
for support.
They are typified by factionalism. The capacity to respond to economic crises varies with the
cohesion of the military establishment.
Elites associated with military regimes that exit under favorable economic conditions are
generally more able to impose an institutional framework to their favor than when the regime exits
under crisis
Dominant party regimes
 They provide rulers with a means of recruiting and coördinating subordinates within the state
apparatus.
 They provide a mechanism for coöpting and controlling social groups.
 They are more politically resilient than military regimes
 They provide rulers with a means to manage political reform.
Economic policy and performance in new democracies
New democracies face distributive pressures from emerging political groups as well as uncertainty from
groups loyal to the previous political order. Two variables distinguish different new democracies:
1. condition of the transition – during economic crisis or not?
2. condition of the party system – extensive fragmentation and polarization?
Governments undergoing democratic transitions in moments of crisis face both opportunities to launch
wide-ranging reforms, and challenges to satisfy demands of new groups.
Governments undergoing democratic transitions in moments of non-crisis are constrained by the relative
strength of groups aligned with economic project of outgoing authoritarian government.
Market reforms and the consolidation of democracy
Consolidation is process through which acceptance of constitutional rules is less affected by immediate
rewards and sanctions, and is more widespread and routinized. No single route exists. Democracies are
unlikely to last if there is no belief in the state’s ability to manage economy consistently. Consolidation
depends not only on economic performance but also on how representative institutions structure
distribute outcomes.
Empirical approach: selecting cases
This study includes twelve countries: Argentina, Bolivia, Brasil, Chile, Peru, Mexico, Uruguay, Korea,
Taiwan, the Philippines, Thailand, and Turkey.
 Includes most of the major middle-income developing countries that have undergone democratic
transitions.
 All are characterized by declining agrarian populations, substantial industrialization, sizable
middle and working classes and “popular sectors” and differentiation between business elites and
politico military organizations.
Primary concern of study is with variations in the transition process and in the characteristics of the new
democratic governments.
Chapter 9: Economic Reform and Democratic Consolidation
This chapter asks the question: in new democracies , what are the effects of policy changes on economic
performance and democratic consolidation over the long run?
Critics of neoliberalism argue that
1. Stabilization and adjustment have adversely affected state capacity to promote recovery and
growth
2. These reforms have ambiguous effects on poverty and inequality
3. Failures of these reforms affect the prospects for democracy
It is too early to substantiate these claims in the post-transition phase. However, reconstruction of the
state and formulation of a growth strategy in new democracies ultimately depend on political institutions
that allow for affective management of market economy while remaining accountable to the interests and
aspirations of competing social and economic interests.
Neoliberal reform, the reconstruction of the state, and the prospects for growth
Disagreement continues on how to regain macro-economic stability, regarding pace, tools and content of
reforms. When stability is achieved, further questions include how to make it sustainable and how to
involve the state. Critics of orthodox stabilization and liberalization programs point out both negative
short-term and long-term effects, largely due to cuts in spending. However, not adjusting aggressively
also carries high political costs, particularly given existing fiscal and BOP problems that subsequently get
exacerbated.
No one adjustment path exists: there are many choices to make and many external factors to consider.
The benefits of radical reforms have outweighed costs in some countries. Many neoliberal reforms also
strengthen the state itself. The role of the state remains ambiguous.
A review by John Williamson of the Latin American countries in the 1980s contains no definitive,
consistent findings between economic performance and reforming or nonreforming countries. In this
book’s sample of countries, the consequences of radical reforms are inconsistent – successful among
some, uncertain among others. The most plausible conclusion that can be drawn from the “success
stories” of the sample (Korea, Taiwan, Chile, Thailand) is that as long as countries achieve and sustain a
reasonable degree of macroeconomic stability and do not grossly distort prices a variety of combinations
of orthodox and heterodox policy interventions can yield sustainable growth.
Problems of equity and poverty
The effects of economic reforms on poverty and inequality are difficult to assess because of the
impossibility of assessing the counterfactual: what would have happened under an alternative program, or
under none at all.
Generally, aggressive reform has led to sharper decreases in wages and employment in the short term.
If reforms succeed in promoting economic growth, they are likely to reduce absolute poverty over the long
run even if distribution of income is worse. The long-term consequences of successful structural
adjustments for the distribution of income are inconclusive – growth has had both negative and positive
effects. Data on poverty and income distribution is thin and unencouraging. However, the nature of initial
conditions of poverty or (in)equity is a significant in explaining the state of poverty and inequity after
economic reforms.
Democracy is in many respects inimical to radical redistribution. But targeting anti-poverty programs has
always been an option. So has expenditures on education, health services, and land reform, which
alleviate suffering and provide opportunities, as well as lead to growth.
The poor, who benefit most from these programs, are generally the least organized group. A coalition of
low-income and middle-sector groups could mobilize support for broader services financed by wealthier
groups. In light of these possibilities, democracies face such challenges as
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Reconstructing its tax system
Deflecting opposition from upper-income groups
Reorganizing health and education services
Economic growth, social welfare, and democratic consolidation
Economic growth is important for democratic stability and consolidation because it introduces trade-offs
such as compensation to groups negatively affected by inequity, social cleavages, political reorganization.
World Bank study found that democratic regimes rarely collapsed during economic growth. Though poor
performance did not lead to democratic breakdown, these findings suggest that economic factors are just
as important as political factors on the effects of regime changes.
 A review of the South American experience strongly detected serious strains related to crises of
the export sector.
 Economic difficulties in East Asia also affected the collapse of democratic institutions.
 Other factors in the 1980s and 1990s helped to sustain democracies despite economic
difficulties, such as the end of Cold War politics that gave the US and Europe less incentive to
support dictatorial regimes.
Though economic deterioration does not always lead to revival of authoritarian rule, it has a large
probability of leading to
 increased social violence
 increased political alienation
 increased social tensions
 decreased satisfaction with democracy and democratic institutions
A stylized model of political decay: economic deterioration leads to political cynicism and apathy – to a
decline in effective political participation and an inability of the political system to generate representative
ruling coalitions – to crime, civil violence, and organized revolutionary or anti-revolutionary activity – to
gradual erosion of democratic rule and respect for law and democratic institutions – to a diminished
integrity of electoral institutions and increased appeal of authoritarian solutions. Aiyah.