The Costs of Democracy

Demoracy and the Market. by Adam Przeworski

Review by: Ellen Comisso
Contemporary Sociology, Vol. 21, No. 3 (May, 1992), pp. 317-320
Published by: American Sociological Association
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SYMPOSIUM 317
ELLEN COMISSO

The Costs of Democracy

Departmentof Political Science

Universityof California, San Diego

Democracy and the Market, by Adam Przeworski. Cambridge: Cambridge University

Press, 1991. 210 pp. $39.50 cloth. ISBN: 0-521-41225-0. $12.95 paper.
In an earlier work, Adam Przeworski concluded thatdemocracy is conservativein the
European sense of the term:it rejects making
major changes not only in the ownership of
the means of production but also in the
distributionof income. In Przeworski's new
book, Democracy and the Market, he still
findsdemocracyconservative,but now in the
American sense: democracies can indeed
make radical changes in the distributionof
both propertyand income, but typicallythose
changes entail reducing the scope of the
public sectorwhile wideningincome inequalities.
Democracy and the Market is a genuinely
path-breakingbook. Przeworski's analyses
are complex and subtle, and one cannot do
justice to themin a briefreview. The volume
spans the globe and disciplines alike, ranging
comfortablyfrom Santiago to Bucharest and
from economics to political philosophy, and
providesus withan impressiveanalyticalroad
map throughthe various transitionsand their
aftermaths.That the map leads us not to the
Golden West of freedomand prosperitybut to
the far more sobering observation that "the
East has become the South" in no way
detractsfromits intellectualcontribution.
Przeworski begins with what he calls a
"theory of durable democratic institutions."
Taking the definingcharacteristicof democracy as "contestationopen to participation"
(p. 10), he argues thatit is consolidated only
when "all the relevantpolitical forces find it
best to continue to submittheirinterestsand
values to the uncertain interplay of [its]
institutions"(p. 26). Democracy is thus a
comsystemof "spontaneous, self-interested
pliance" (p. x), sustainable only when its
institutions
are "fair" (losers in one roundcan
become winners in the next round) and
"effective" (losing under democracy remains
"more attractivethan a futureundernondemocratic alternatives") (pp. 32-33). As such,
outcomes in a democracy always appear
uncertain.
The theoryis a provocativeand challenging

one, but not without its problems. In

particular, while Przeworski's proof that
outcomes "appear uncertain" under democracy is convincing, his proof that outcomes
are any less uncertainin a dictatorshipis not.
The argumentseems to turnon the observation thatin a dictatorship,anyone who knows
what the "power apparatus" wants also
knows what will happen, while in a democracy there is no such hegemonic actor. But
this assumes that the power apparatus is
monolithic,knows what it wants, and knows
how to achieve it-conditions rarely,if ever,
met. Uncertaintyis a factof political life, not
a unique attributeof democracy.
If, as Przeworski argues, democracies
consist of institutionscapable of eliciting
spontaneous, self-interested
compliance, how
likely are such institutionsto emerge in the
aftermathof authoritarianism?In chapter 2,
Przeworski elegantly articulates a question
central to modern democratic theory: What
makes a constitutionbinding?More precisely,
he notes thatsome constitutionsare observed
but do not endureformore thana generation;
others neither are observed, nor do they
endure; others endure but are not observed;
and yet othersare both observed and endure.
What explains the difference?
Abjuring sociological and macrohistorical
accounts, Przeworski argues that certain
featuresof the transitionare critical. Starting
from the assumption that democratic institutions must be created through negotiations
among political forces with differinginstitutional preferences, he suggests that two
variables are particularlyimportant:"Whether the balance of forces is known to the
participantsand, if so, whetherthis relationship is uneven or balanced" (p. 81). Three
hypothesesfollow: (a) if the balance of forces
is known and asymmetrical,institutionswill
simply ratifythe power asymmetryand will
endure only as long as this unbalanced
relationpersists;(b) if the balance of forcesis
known and balanced, "anythingcan happen,"
fromcivil war, to "temporizing"solutions,to

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318

SYMPOSIUM

the adoptionof institutionalarrangementsthat

eventually prove viable; and (c) "if the
relation of forces is unknown ex ante, the
institutionswill comprise extensive checks
and balances and will last in the face of a
varietyof conditions" (p. 82).
These are imaginative and compelling
hypotheses, with a good deal of empirical
evidence to support them. Nevertheless, a
growingbody of literaturesuggestsit may be
the contentof institutionsand the provisions
of constitutionsin relationto the tasks a new
governmentfaces thatmay be more important
for-democratic
stabilitythanthe way in which
a constitution is negotiated. Thus, much
evidence indicates that some institutional
frameworksare likely to produce political
instabilityno matterhow consensually they
are arrivedat.
The smoothestway to make the shift of
power under democratic political conditions
appears to be in a parliamentarysystemwith
electoral rules that help to "manufacture"
majorities.The Hungariantransitionis a case
in point. There, the institutionalframework
arrived at in the initial 1989 Roundtable
(when the balance of forceswas "unknown")
was indeed filled with "checks and balances," just as Przeworskiwould predict.Yet
had some of these provisions-such as the
requirementthat all laws of "constitutional
significance" be passed by a two-thirds
majority of the legislature-remained in
effect after the election, the countrywould
have become ungovernable.Thus, it was only
afterthe elections, when the balance of forces
was known, that viable institutionscould
evolve.
From this perspective, the postelection
balance of forces was highlyasymmetric:the
Socialist partyreceived only 10% of the vote,
the remaindergoing to parties emergingout
of the former opposition. Fearing that a
popular ex-Communist might still win a
presidentialelection,however,thetwo largest
ex-oppositionpartiesconcluded a classic pact
of the victors, amending the constitutionto
eliminatea directlyelected president.Nevertheless, it is difficultto imagine that this
solution, effectivelychanging the political
system from semipresidentialto parliamentary,would be reversedeven if the balance of
forces changes in subsequent elections, simply because any coalition strong enough to

make such a change would already have the

power to govern withoutit.
The last half of Democracy and theMarket
is devoted to the question of economic reform
in newly democratizing states. Chapter 3
offers an extremely insightful, normative
analysis of the systemicalternatives:capitalism versus socialism. Przeworski demonstratesthateven if major elementsof Marxist
critiques of capitalism are valid (i.e., it is
"irrational"), it does not follow that we
should thereforeturnto socialism (defined as
public ownership and central planning).
is not, alas, a proof
Capitalism's irrationality
of socialism's feasibility.Meanwhile, if we
analyze theoretically and empirically the
assumptions required for the operation of a
centrallyplanned economy, theresultsare not
encouraging. Consequently, Przeworski concludes, thereare no systemicalternatives,at
least as far as allocation mechanisms are
concerned. Markets may entail "irrationality," but they remain the most efficientform
of resource allocation.
Yet, he continues, economies utilizing
marketmechanismsvary enormously.But all
economies based on markets suffer from
distributionalproblems. Thus, regardless of
the forms property ownership takes, the
eradication of povertyin a marketeconomy
requiresstateaction "to assure a minimumof
materialwelfarefor everyone."
Przeworskibegins chapter4 by notingthat
the transitioncosts of economic reform in
both Latin American and Europe are likely to
be steep, involvinginflation,unemployment,
volatile changes in the distributionof income,
and at least temporary misallocations of
resources. Facing similar problems, political
leaders in both areas are likely to choose
similar solutions, and, in Przeworski's view,
those solutionsare likely to be radical, rapid,
"bitterpill" strategiesof economic changeeven when the population would prefer a
more gradual course.
The logic here seems to be that once
transitioncosts set in, popular confidence in
reformand the governmentthat promulgates
it startsto erode, leading governmentsto slow
down or abandon reformeffortsin order to
rebuild confidence. Since the loss of confidence is likely to occur under eithergradual
or radical programs, it makes sense for
political leaders to move as far as possible

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SYMPOSIUM 319
along the reformcurve beforedisenchantment
begins.
Yet, although it is "rational" for political
leaders to move radically at the outset and
thenslow down, theresultscan be profoundly
politically destabilizing: "Governments tend
to vacillate between the technocraticpolitical
reformsand
style inherentin market-oriented
the participatorystyle required to maintain
consensus" (p. 183). As a result,people learn
that elections don't matter (they will see
"radical" reformsno matterhow they vote)
and that"parties, unions, and otherrepresentativeorganizations. . . have no role to play
in policy-making" (since the success of the
bitter-pill strategy rests on ignoring the
interests affected). Thus, "democracy is
weakened."
In theory,the argumentis as convincingas
it is discouraging.In practice,however, most
elected governmentsin Latin America and
Eastern Europe have not opted for the
bitter-pillstrategy.Moreover, where it has
been tried(Bolivia, Poland, and perhaps now
Russia and Argentina), the major factor
behind it has been hyperinflation. This
suggests that in the absence of something
approaching economic disintegration, "rational" political leaders are quite reluctantto
take great leaps in the dark.
In addition, the evidence to date suggests
that "shock therapy"is likely to be far more
shockingthanit is therapeutic,partlybecause
the initial set of measures taken to stabilize
theeconomy turnout to have perverseeffects.
Thus, tryingto do everythingat once when no
one is really sure what "everything"should
be may even delay recovery. Przeworski's
assumptionthat"if thebitterpill strategyis in
factimplemented,the trajectoryof outputand
employmentis likely to correspond to the
politically more tolerable pattern of quick
decline and gradual recovery" (p. 157) may
not be valid. But if it is not valid, then it is
not rationalforpolitical leaders to opt forthe
radical strategy.
The foregoing suggests that there is no
fixed set of reformsall states must ultimately
enact priorto the onset of recovery.Thus, the
trade-offfacing any given government is
considerably more complex than simply
rapidityof reformversus social costs. Equally
important, that trade-off will be strongly
influencedby local conditions,botheconomic

and political. Those conditionsdiffernot only

between Eastern Europe and Latin America,
but within Eastern Europe and within Latin
America. Here, althoughPrzeworski's observations regardingthe similaritiesbetween the
regions are defensible, there are several key
differenceshe does not take into account. For
example, in Latin America, macroeconomic
disequilibriaare normallythe centralconcern,
whereas the changes required in the formerly
socialist economies are more microeconomic
in nature. Significantly,macroeconomic imbalances are far more susceptible to radical
action by the centralstate than are microeconomic rearrangements.The latter not only
demand a knowledge of what the particular
governmentslack, but also require a longer
time to take root. Hence, the efficacy-and
perhaps also the attractiveness-of a bitter
pill in Eastern Europe may be less pronounced.
This brings us to the uneasy tension
between economic reform and democracy.
Przeworski's view is that radical reform
makes sense for political leaders, but its
effectsand the "policy style" associated with
it underminedemocraticinstitutions.My own
view is equally speculative, but somewhat
different.
First, while I agree that radical reforms
"developed inside the walls of NorthAmerican universities"have negative consequences
forwhat I consider democracy,it is not clear
thateven radical reformneed destabilize what
Przeworski defines as democracy in chapter
1. That is, a "political process reduced to
elections, executive decrees, and sporadic
outburstsof protest"(p. 186) is not necessarily incompatible with "spontaneous, selfinterestedcompliance of the relevantpolitical
forces." Certainly, it may mean that labor
unions are moved out from the universe of
"relevant" political forces, but this is not
synonymouswith the abrogationof the other
purely procedural guaranteesthat make up a
formaldefinitionof democracy. Moreover, a
major decline in the strengthof unions can
easily occur with gradual reformsas well.
Second, as I have tried to show above,
depending on specific conditions, a gradual
strategyof economic reformcan be as much
in political leaders' interestsas a radical one.
Yet gradual strategiescan also be threatening
to democracy, insofaras they are inconceiv-

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320

SYMPOSIUM

able withoutan opposition powerful enough

to threatenthe governmentin an election.
Thus, if we examine the currentsituationin
Eastern Europe, a gradual strategymeans the
governmentrelinquishesthe rathersubstantial
controls over economic activity it inherited
fromstatesocialism relativelyslowly. Accordingly,it retainsa good deal of regulatoryand
even direct administrativepower thatcan be
used to diminish the costs of transitionfor
hard-hitgroups or regions. But by the same
token it can utilize these same powers for
partisan advantage, creating so many clients
throughits control of appointments,offices,
budgets, and regulations that it becomes
effectivelyunchallengeable in future elections.
Most East European governments are
currentlytoo sharply divided internallyto
pursue such a strategy;only Hungary has a
governmentthatis relativelyunited and with
a fairlyreliable majorityin parliament.And it
is no accident that it is precisely in Hungary
thatthe main fear of the opposition parties is
thatthepartycontrollingthegovernmentis on
the way to constructingits own version of a
"
new "party-state.
I conclude, then, that there is no clear
relationship between economic reform and
democracy.Radical reformsneed not threaten
the proceduralfeaturesof democracy,gradual
reformscan erode them,both can destroythe
substantive conditions needed to maintain
political equality, and in all cases, the
institutionalcharacteristicsof the government
will be an importantfactorin the outcome.
Meanwhile, if one returnsto Przeworski's
analysis in chapter3, one finds here perhaps
an even deeper dilemma for democracy. If
Przeworski's conclusion that there are no
systemic alternativesis correct, it implies a
sharp truncation of the historical distance
separating Left from Right. Ms. Thatcher,
afterall, was not in favor of starvation,and
while theLeft may seek to mitigatetheeffects
of some of her policies, it lacks a real project

for a differentsocial order. The lack of such

an alternativemay say more about the weak
position of labor unions virtuallyeverywhere
thandoes the presence or absence of channels
for consultation.That is, if thereis no larger
social project that the labor movement is a
vital part of, there is little to distinguishit
fromevery otherrent-seekinginterestgroup.
Equally important, the collapse of the
Left-Right political spectrum means that
elections are less a choice between alternative
social visions than a mechanismfor selecting
who will do pretty much the same thing
better. Lacking distinct,economically based
ideologies as a focus for differentiation,
parties not surprisingly have difficulties
mobilizing votes and creatingstable constituencies. One solution is to turn to cultural
politics as a substitute:partisan contests are
then foughtbetween liberalism and nationalism rather than between Left and Right,
wheretolerancefordiversitycan easily be the
loser. Indeed, the more it becomes accepted
that the governmentwill supply a minimum
of welfare for everyone, the temptationto
restrict"everyone" to only "real" Hungarians, Poles, Americans, or Germans may
increase.
From this perspective, the "authoritarian
temptation"grows not so much fromdisenchantmentwith economic reformor a failure
to "consult" in the course of pursuing it as
fromthe factthattheneed formarket-oriented
economic reformis so widely accepted thatit
ceases to be a meaningfulbasis for partisan
conflict and mass participation.This thesis
does not, to my knowledge, appear to be very
relevant to Latin America, but in Eastern
Europe, the traditional political spectrum,
from proponentsof gemeinschaftvalues on
one end to advocates of gesellschafton the
other, has been resurrectedvirtuallyeverywhere. Thus, the East may not have become
the South, but neitherhas Latvia become the
Netherlands.

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