Throughout the eighteenth century (and into the nineteenth), a single shilling pressed into the hand of a drunken man in a public house by a recruiting sergeant constituted the enlistment of a soldier in the British army. In France, the dreaded milice royale relied on a lottery to choose which peasants would be forced into the King's service. The army was not a popular institution, at least not for those who had to serve in its rank and file. Some joined because they liked the life, but most did so because they were coerced or needed the work or were fleeing from something worse.

Conscientious objection is a weapon of protest. It is not, however, a collective protest. It is an individual, but socially informed, act of resistance. It requires no organization, no mobilization of others, no group process. It is an action undertaken by single individuals albeit, generally, individuals who are part of self-conscious groups of war protesters.

Conscientious objection bears an obvious family resemblance to civil disobedience. Where it differs is that it has become a legal act of resistance. It was not always, so, however. Historically the term referred to opposition to war and conscription on grounds of conscience whether one consequently received a legal exemption from military service or whether one resisted the law by refusing to be conscripted.

A Critical Upheaval

Starting in Great Britain and the United States in the late 1970s and early 1980s, a political and ideological upheaval has vigorously reaffirmed ideas, once widely held but long since forgotten, about the state's “excessive,” “inappropriate” expansions and the need to reduce it to a more “suitable” size and ambit. Let me recapitulate briefly the tenor of these issues and the ways in which they were again propelled into the foreground. In this chapter, I outline the developments involved only insofar as they throw light on the rationale for downsizing the state by reducing public ownership and shrinking the compass of its welfare programs.

The arrival in power of Margaret Thatcher and Ronald Reagan, at the end of the 1970s and the beginning of the 1980s respectively, portended crucial changes in the last quarter of the twentieth century. In Great Britain, Margaret Thatcher brought to an end the era of the “postwar settlement” that had emerged there out of the wartime suppression of party politics and that embodied acceptance by both socialist and conservative parties of the goals of full employment and the maintenance of the welfare state. This agreement had set not only the framework but also the agenda for postwar economic policies, “for neither full employment nor the Welfare State could be maintained without an expanding economy” – as a British analyst rightly put it.

An Evolving Legal Framework

The Soviet Union disintegrated as a political and legal entity in 1991. Following the Accords on the Commonwealth, signed in Minsk and Alma Ata on December 8 and 21 of that year, the USSR was replaced by a fifteen-member Commonwealth of Independent States (CIS). In all the states of the new commonwealth, the Soviet Ail-Union legislation was discarded and its legal effects suspended except for certain laws and regulations that did not conflict directly with the new republican laws. Thus, every CIS republic started to develop its own distinct legal system.

The need for the sovereign Russian Federation to fill the virtual void of civil and commercial legislation to govern expanding market relations brought about an extensive production of new laws. But many of these laws were inconsistent and ambiguous, rendering the legal situation often confusing. Theory and practice of Russian law were also often at odds with each other, and thus the entire legal system remained in a state of flux – a situation likely to continue for many years to come. Uncertainties as to the government's capacity to continue reforms, as well as the struggles between the center, the republics of the former USSR, and the “autonomous” republics within the Russian Federation, further complicated the state of affairs. The Russian Constitution of December 1993, despite declaring all subjects equal, granted to autonomous republics the right to pass their own constitutions. The center-periphery conflicts over the ultimate redistribution of powers in the Russian Federation extended to the fifty-seven Russian regional oblasts and krais, which aimed to have the same status as the republics.

Introduction

Let me warn the reader at the very beginning that this is not a formal essay, though the title might suggest it. The verbal reasoning will, however, be as rigorous as possible.

The definition of “democracy” has been a matter of contention for decades. Some scholars have limited the characteristics used for the definition to electoral competition among politicians and parties for governmental powers. Others have included the rule of law and the separation of powers as well as other elements in the definition. Now, whereas everybody is free to select definitions at his discretion, one should keep in mind that definitions do not make much sense without being applied in the framework of a theory. Also, it should always be clear which definition is used.

In the present essay I want first to discuss some factors eroding the stability of democracy as it is defined in the second, broader sense mentioned above (Sections 2–4). This means also that some questions concerning the preconditions for the existence and development of such democracies have to be raised (Section 5). Specifically, the following hypotheses will be discussed:

1. Apart from a system of self-sufficient farmers, a free-market economy with private property rights is a necessary, but not sufficient condition for the existence of stable democracies.

2. Democracies with unlimited or nearly unlimited jurisdiction for simple majorities of the population (direct democracy) or representative parliaments tend to erode the safety of property rights and the rule of law and to steadily increase government activity.

3. […]

Introduction

The idea that “too much” democracy is bad for economic development has resurfaced again in recent years. In the economic literature, the main reason advanced is that democracy is “plagued” by redistributional impulses. Perhaps the most famous work to advance this theme is Mancur Olson's (1982) The Rise and Decline of Nations, in which interest groups are reclassified as “distributional coalitions” that pursue their own selfish interests at the expense of overall economic efficiency. The older and more established the democracy, the larger the number of distributional coalitions that have a chance to form and the more the economic landscape is “rent” with inefficient laws, regulations, and other practices that hinder growth. In a similar vein, the vast literature on rent-seeking, originated by Tullock (1967), Krueger (1974), and Posner (1975), identified rent-seeking and its associated social costs with democratic government and thus made it possible, by a strange twist of logic in which democracy is identified with the proliferation of economic monopolies, for monopoly to be elevated to the status of a serious problem.

Although critical of democratic processes, none of the above-named authors has embraced the notion that authoritarianism can facilitate economic development, and indeed, Mancur Olson in particular has forcefully argued the opposite (Olson, 1993). However, the closely related idea that insulating economic policy from democratic processes–“a little bit” of dictatorship–can be good for economic development has gained currency, especially in political science and among theorists of development from both economics and political science who specifically point to the capacity of authoritarian states to resist distributional pressures as the key to successful development.

Introduction

This essay takes an economist's perspective with respect to a long-debated question of political theory, namely, the conflict between democracy and constitutionalism. I intend to show that an economic analysis of the forces that govern competition and contracts in the political arena can shed some light on the tension between the view that constraints on the governing ability of the majority are inconsistent with the very principle of democracy and the opposite view that rule of law and constitutional boundaries are instead necessary conditions for democracy.

By extending some results of the economic theory of incomplete contracts to the analysis of political exchange, I will develop a simple argument in support of the view that the constitutional principle of isonomia–that is, the separation of legislature and government, which leads to democratically elected governments being subject to “equal laws”–is a necessary condition for the optimal working of representative democracy.

The essay is organized as follows. Section 1 discusses whether the standard economist's approach to “democracy as competition” justifies the view that democracy can be interpreted per se as an optimal procedure of selection of political leaders. The main argument will be that the democratic procedure may fail in this respect, possibly giving rise to adverse selection, if the conditions of enforcement of the (incomplete) contract that supports the political exchange are not carefully specified.Then, Section 2 reviews some of the main results of the recent economic theory of contracts, especially those concerning the enforcement mechanisms of incomplete contracts.

Introduction

The purpose of this essay is to develop an approach explaining democratic stability. To focus our attention, we begin by investigating the limits on sovereign or state power. We assume that all citizens have preferences, opinions, and values about these limits and about what acts violate them. This allows each citizen to classify state actions into two mutually exclusive categories: those they consider legitimate and those they consider a fundamental transgression of their rights. Notice that we define these concepts for an individual, not for the society. No automatic mechanism is assumed to create a societal consensus about such values. Citizens may have widely different views about these limits and about fundamental transgressions. Moreover, apart from their preferences about specific limits, citizens may also have varying views about citizen duty, that is, what they believe citizens should do in the face of a transgression.

The model is based on two assumptions about the relationship between a sovereign and his citizens. First, a necessary condition for an individual citizen to support the sovereign is that he not transgress what that citizen believes are his or her fundamental rights. Second, remaining in power requires that the sovereign retain a sufficient degree of support among the citizenry. Without the necessary support, the sovereign loses power.

These assumptions have significant implications for sovereign behavior. If, on a particular issue, there exists a consensus in society about what constitutes the legitimate boundaries of the state, these assumptions imply that the sovereign will avoid actions that violate these boundaries, he will be deposed.

Introduction: Three types of middle ground

Our subject is the meaning of democracy. It is necessarily a complex one, because the term democracy means different things to different people. Sometimes it is identified with a particular decision rule, at other times it conjures up the spirit of an age. Often democracy is defined by reference to lists of criteria (such as regular elections, competitive parties, and a universal franchise), yet sometimes it is a comparative idea: the Athenian polis exemplified few characteristics on which most contemporary democrats would insist, but it was relatively democratic by comparison with other ancient Greek city-states. Many people understand democratic government in procedural terms; others insist that it requires substantive–usually egalitarian–distributive arrangements. Sometimes democracy connotes little more than an oppositional ethic, at other times it is taken to require republican self-government, robustly understood.

Given this multitude of meanings, any defense of a particular understanding reasonably begins with an account of why an author proceeds in one way rather than another and who he or she seeks to persuade. My goal here is to sketch a view of democracy that stakes out a middle ground in three different debates about democracy. These are the debate between procedural and substantive democrats, the debate between those who defend democracy as an ideal type and those who think of the term as contextually defined, and the debate between those who think of democracy in purely instrumental terms and those who see it as an intrinsically valuable, if not the most valuable, political good.

Definitional issues

One might define democracy as a system of government in which the citizens choose either the persons to govern them, or the policies of the government, or both. If we define a constitution as a set of rules by which the above choices are made and the set of constraints upon the citizens and those in government, then all democracies have constitutions; for all democracies have rules for electing representatives, for deciding referenda, and for running town meetings. All democracies have rules, implicit or explicit, constraining those in and out of government.

Although all democracies have constitutions that define their institutions of government, all do not have written constitutions. The best known example of a country without a written constitution is, of course, Great Britain. Its governmental institutions are the result of an evolutionary process spanning seven centuries. So venerable are the institutions of government in Great Britain that scholars and laymen alike commonly speak of “The British Constitution” as if it was a document like the U.S. Constitution that could be read and whose language could be interpreted, a document that could in its entirety be discarded or rewritten. Most importantly, because the British Constitution is unwritten, it is difficult to interpret it and say when it is violated. Thus in Britain no Supreme or Constitutional Court exists that has the authority to declare acts of Parliament in violation of the constitution and thereby null and void.

Introduction

We assume that the reality that is captured by the word democracy embodies mechanisms similar, though not identical, to those contained in the reality that is identified as the market; we further assume that democracy can be correctly analyzed and understood with the tools and methodology of conventional neoclassical economic theory which were crafted to analyze and understand markets. Given these two assumptions, no less than four analytical building blocks must be assembled to model democratic politics. The first building block must focus on the factors that give form to the demand side of politics; a second must concentrate on the variables that shape and determine supply; a third must be concerned with the forces that work to bring about a reconciliation of supply and demand–an equilibrating mechanism also capable of tracking how democracies adjust when they are subjected to external disturbances;–and a fourth must pay attention to the various devices (legal, cultural, social, political, and constitutional) that serve to enforce equilibrium outcomes.

Before proceeding with our discussion, we make two points regarding the above assumptions. First, democratic politics, like market calisthenics, can be more or less competitive and therefore more or less responsive to the preferences of citizens–to the demand side of politics. The degree of competition which, at any moment, distinguishes a democracy is the product, again as in markets, of structural and behavioral attributes of the organization of supply and of demand.

Introduction

Our purpose is to assess whether the economic size of the public sector is too small or too big to promote economic growth, first in general for all countries in the world and then for political regimes dichotomized as democracies and dictatorships. Even if many believe that, as Rodrik (1992, p. 331) puts it, “it is the quality of intervention that matters, not its quantity,” we show that mere quantity does have consequences. Our econometric analysis extends and modifies that of Ram (1986), but we also seek to place the econometric analysis in a broader theoretical context.

Section 2 is an introduction to the perennial discussion of the relation between the state and the market. Section 3 summarizes alternative ways of thinking about the economic role of government. Section 4 sets up the econometric analysis, the results of which are presented in Section 5. Finally, Section 6 examines the impact of regimes.

The state and the market

Capitalism is a system in which most productive resources are owned privately. Yet under capitalism, property is institutionally distinct from political authority. As a result, there are two mechanisms by which resources can be allocated to uses and distributed among households: the market and the state. The market is a mechanism in which scarce resources are allocated by their owners: Individuals cast votes for allocations with the resources they own and these resources happen to be always distributed unequally. The state is also a system that allocates resources, including those it does not own, with rights distributed differently from the market.

Renewed interest in democracy–in its virtues and limitations, in its relationships to liberty, security, and stability, and in its connections to a variety of attributes such as its capacity to solve collective problems–has been motivated to a considerable degree by developments that have taken place over the last fifteen to twenty years. Foremost among these developments is the fact that a number of countries in the Americas and in Europe that had never experienced democracy, or had not been ruled democratically for many years, recently opted for that form of governance. Of considerable importance also is the fact that many of the countries that have recently chosen democracy had, for decades, functioned under the rules and conventions characteristic of planned collectivist systems. This fact has posed the question of whether democracy is compatible with economic collectivism or whether it requires the more or less simultaneous adoption of a capitalist market system. Conversely, inasmuch as people in these newly democratic countries are primarily concerned with their economic well-being, the question of whether the transition to a market economy is easier or more difficult under democracy has also been pushed to the fore. Of equal importance is the fact that the disappearance of economic collectivism as an alternative to capitalism (for the time being at least) has fostered a reorientation of systemic thinking, on both sides of the ideological spectrum, toward the subject of democracy in all its dimensions–the nature of the system, the way it works or can be made to work, its prerequisites, its results, and so on.