Inclusiveness, Growth, and Political Support
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Inclusiveness, Growth, and Political Support Richard Carson1 Published online: 15 June 2020 © EEA 2020
Abstract This paper links political support to economic growth. Governments gain support from wealth creation and income redistribution, and the quest for support links differences in economic systems to differences in political systems; inefficiencies persist when they raise support. Depending on how a government obtains it, the quest for support can either lower efficiency and raise the consumption cost of growth or lead to inclusiveness, efficiency, and sustainable growth, a kind of ‘political invisible hand.’ If they do not already exist, however, the incentive to adopt the institutions needed to make this invisible hand work well is likely to be low. Keywords Growth · Efficiency · Inclusiveness · Political advantage · Rent seeking JEL Classification D72 · O40 · P59
Introduction Can diverse economic and political change result from a change in a single underlying parameter? In this paper, I argue that it can if the parameter measures the ‘inclusiveness’ of a political system in an environment where governments obtain political support from two basic sources, wealth creation and income redistribution, and choose combinations of the two that maximize their support. Changes in these combinations—and thus in the way governments obtain support—cause multiple changes in social and economic variables that can change the very nature of societies. To gain political support from income redistribution, a government exploits differences in ability to supply support. Let ‘insiders’ be those with a relatively high ability to supply political support and ‘outsiders’ be those with a relatively low ability. Then government redistributes income from ‘outsiders’ to ‘insiders,’ contingent * Richard Carson [email protected] 1
Department of Economics, Carleton University, C870 Loeb Building, 1125 Colonel By Drive, Ottawa K1S 5B6, Canada Vol.:(0123456789)
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on insiders’ support behavior—e.g., by giving insiders monopoly or monopsony power or by taxing outsiders and subsidizing insiders. Insiders are therefore valued for their abilities to supply political support in return for rent rather than for their administrative/managerial/entrepreneurial talent. We denote this redistributed income by V, which is a form of rent (defined more precisely below), while competition for V by supplying political support is a form of rent seeking and represents an alternative use of resources to wealth creation. Below we interpret the evolution of growth in Japan (Beason and Patterson 2004) and in the former Soviet Union (Anderson and Boettke 1997), as well as the ‘Great Recession’ in the USA as consequences of political support from rent and rent seeking. The more a government relies on insiders for support, the greater will be the support derived from redistribution and rent seeking. This support, denoted by R, can take many forms—money, resources, campaign rallies, monitoring, delivery of votes, intimidation and repres
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