The Productivity Gap: Economic Rent-Seeking and the Demise of Democracy

• In Event: Democracy and Democratic Backsliding

Abstract

Democracy's expansion is over. No new democracies have emerged since 2008 (See Boix, Miller and Rosato, 2015; expanded to 2018 by the author). Recent autocratic reversals in Venezuela and Turkey, coupled with the election of leaders like Donald Trump in the US and Andrzej Duda in Poland, have forced political scientists and the public in general to reevaluate the health of democracy in the twenty-first century. Why are developed democracies, which appeared impregnable just a few years ago, backsliding?

This article provides a theory of democratic erosion from a political economy perspective that explains this puzzle. The central argument is that a large productivity gap between economic groups motivates those with low productivity to use the state for rent-seeking. Expectations of lower wealth in the future force these groups to seek control of the state, in an attempt to compensate for their losses and prevent high productivity groups from continuing to increase the wealth gap. A Caesarian leader emerges from within the party system or as a political outsider and provides a political base and promises of rents to these elites in exchange for political power. 

Empirically, I develop two case studies and complement them with cross-national quantitative analysis. Consider the cases of the Spain and the United States, two countries that have experienced some level of democratic erosion in the past few years. In Spain, leftist political party Podemos emerged in 2014 to channel the political discontent caused by the domestic housing crisis of 2007 and the global financial crash of 2008. Government spending cuts and labor market reform in the private sector targeted low productivity sectors and workers, who bore the brunt of the adjustment. Pablo Iglesias, Podemos’ charismatic leader, shot up in the polls with promises of a large increase in minimum salaries, the nationalization of utility companies, and guaranteed monthly income for all citizens. His anti-elite discourse crystallized in popular catchphrases such as “la casta”, a slight against individuals with ‘pedigree’ and influential family lineage. Given the historical roots of the conservative Popular Party (PP) party in Franco's Spain, most of the casta has direct or indirect ties to the PP. In Spain's case, the struggle for state control was between low productivity workers and a set of elites that remained fairly united --no sectors were particularly productive in comparison to others. These united elites gave the conservative Popular Party greater leeway to crack down on opposition, increasingly restricting the right to protest through the “ley mordaza” and free speech.

In the United States, on the other hand, the productivity gap took the form of a pronounced elite cleavage, brought on by globalization and technological progress: high productivity sectors in technology and finance versus low productivity sectors in natural resource extraction, industry and, more specifically, manufacturing. The latter sectors were against the reelection of the Obama-Clinton coalition, and eventually threw their support behind Donald Trump rather than form a protective wall against a candidate with non-democratic traits. Thus, in the US, polarization was most pronounced in the economic elite, as opposed to among voters (Svolik 2018) or the political elite (Bermeo 2003, Linz and Stepan 1972). A high productivity gap between economic sectors facilitated the rise of Trump in the US, while in Spain, the productivity gap was between classes.

The quantitative analysis uses data from V-Dem to measure democratic erosion around the world, productivity data available from the World Bank (which I update to create a measure of the ‘productivity gap’, and wage share data to capture inter-class inequality. The primary hypothesis is that, in democracy, high levels of inequality and a growing productivity gap among economic sectors lead to democratic erosion. Inequality fosters the rise of a ‘democratic Caesarist’, while the productivity gap provides him with the required elite support to mount a credible challenge on democracy. Early results show strong support for this hypothesis, in particular in the most recent decade, thus backing up the evidence found in the case studies.

Author

• Joan C. Timoneda, Duke University