DEMOCRACY IS SACRED BUT NOT PERFECT.

It is a cliché to say that democracy is under attack, especially after Donald Trump's brazen attempt to hold on to the presidency culminated in a mob attempting to stop Congress from certifying the election of Joe Biden. The assault triggered a chorus of voices reminding us that democracy and freedom are the foundations of our society.

And so they are. But democracy is not perfect. As Churchill famously said, it is “the worst form of government except for all those others that have been tried from time to time.” For two generations, economists have shown how democracies are vulnerable to being corrupted by special interests, and how some sacrifice of direct democratic control of institutions can produce better governance than the unfiltered popular will typically provides.

Nearly a half century ago, the economist and political scientist Mancur Olson pointed out in The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities that democracies were especially vulnerable to rent-seeking. Special interests often coalesce to extract specific government actions for their own benefit, while those who pay the costs are diffuse and hard to organize. Over time, the steady accumulation of policies favouring various special interests to the detriment of the greater public good slowly reduces a nation's capacity for economic growth, a process Brookings Institution Fellow Jonathan Rauch coined “demosclerosis.” Government simply loses its ability to adapt. We can readily see Olson's scenario playing out in how Canada protects many sectors such as banking, airlines and telecoms from foreign competition, or indulges farmers protected from competition by supply management.

Economists have often suggested trading some democratic control for better governance. Central banks were granted increased independence from the political process in the 1970s and 1980s on the promise of lower inflation, which they attained by targeting first the money supply and then inflation itself. Central bank independence could be partly withdrawn, however, if ever the unorthodox monetary stimulus recently adopted during the pandemic reignites the inflation or financial instability that some political leaders predict will happen.

The question of democratic accountability lies at the heart of the debate over unprecedented government budget deficits. Do governments today have the right to spend profligately at the expense of future generations? The dilemma is intractable for any voting system. A proposal to give more weight to young people's votes violates our innate belief in one of democracy's fundamental principles: one person, one vote. This core egalitarianism, however, allows the fiscal burden to be unfairly shifted to generations that have no vote or control over the fiscal choices being made today.

Harvard economist Dani Rodrik articulates a more complicated conundrum for democracy in the era of globalization. His 2011 book, The Globalization Paradox, formulated the famous “trilemma” that countries can choose at most two out of three options: more globalization, deeper democracy, or greater national sovereignty. (Note to Quebec sovereigntists; there are no exceptions to this rule, so kindly explain which one you plan to drop.)

The trilemma means that if a nation embraces deep globalization, it suffers some loss of national sovereignty or democracy, and probably both. For example, when entering into trade and investment agreements, Canada cedes sovereignty by lowering tariff barriers and agreeing to abide by binding decisions from international panels or courts on how investors are treated. We also accept intellectual property rights that we and other (sovereign) countries have agreed to in these deals.

Rodrik himself would prefer less globalization in favour of national determination and the democratic process. Others, who may believe that leaving everything to legislatures will produce endemic rent-seeking, will prefer a different twosome from the trilemma options. Nevertheless, the idea of the trilemma underscores that democracy is not inviolate. A society can trade it off against other goals it rationally chooses to pursue.

Moreover, the loss of national sovereignty and democratic control due to globalization is easily exaggerated — and has been by opponents of freer trade. Despite being deeply integrated into the U.S. economy, Canada has chosen much different levels of government intervention and taxation, while retaining control of its health-care system and water supplies that critics said were both threatened by free trade. Similarly, trade deals clearly have not loosened the grip of our trading partners on their own vaccine supplies, forcing Canada to turn to the COVAX global vaccine-sharing program designed to help poor countries. Globalization may limit but hardly eliminates sovereignty and democracy.

Economists' critique of democracy may seem to be the opposite of their usual trust in letting market forces pick winners. In fact, economists are as acutely aware of the possibility of “market failure” as they are of “government failure,” in some cases more so. The seeming contradiction reflects the importance they and businesses attach to stability and predictable rules for investments that require long planning horizons. Economists fear that the popular will, coalesced in the opinion of a minister or other senior decision-maker, is often short-sighted, uninformed and variable. The remedy is to find workarounds for the worst potential excesses of the democratic process, while retaining democratic oversight. The unelected governor of the Bank of Canada, after all, is appointed by elected officials.

DEMOCRACIES

ARE VULNERABLE

TO BEING CORRUPTED.