What it takes to build democratic institutions

BOSTON, Massachusetts: There are plenty of good models around to help both developing and industrialized countries build better democratic institutions. But with its abortive attempts to draft a new constitution, Chile is offering a lesson in what to avoid.

Though it is one of the richest countries in Latin America, Chile is still suffering from the legacy of Gen. Augusto Pinochet’s brutal dictatorship and historic inequalities. The country has made some progress in building democratic institutions since the 1988 plebiscite that began the transition from authoritarianism, and education and social programs have reduced income inequality. But major problems remain. There are deep inequalities not only in income but also in access to government services, high-quality educational resources, and labor-market opportunities. Moreover, Chile still has the constitution that Pinochet imposed in 1980.

Yet, while it seems natural to start anew, Chile has gone about it the wrong way. Following a 2020 referendum that showed overwhelming support for drafting a new constitution, it entrusted the process to a convention of elected delegates. But only 43 percent of voters turned out for the 2021 election to fill the convention, and many of the candidates were from far-left circles with strong ideological commitments to draft a constitution that would crack down on business and establish myriad new rights for different communities. When the resulting document was put to a vote, 62 percent of Chileans rejected it.

A second attempt repeated the same failings, only from the other direction. A right-wing convention majority, emboldened by the public’s reaction to the first version, drafted a constitution that also was rejected as a step too far. This experience should sound familiar because Chile is hardly the only country where an activist body has pushed for measures that a majority of voters oppose. Similar episodes are occurring around the world — not least in the United States — and trust in institutions is suffering as a result.

Can support for democracy be rebuilt? My own recent work with Nicolás Ajzenman, Cevat Aksoy, Martin Fiszbein and Carlos Molina may provide some clues. We find that people who have experience with democratic institutions tend to support them, but only if they deem democracies to be successful in delivering the kinds of economic performance, public services and other outcomes that they expect.

What people appear to want from democracies is telling. Support for democracy wanes during economic crises, wars or other periods of instability and improves when the public enjoys the benefits of good public services, low inequality, and limited to no corruption. The lessons seem clear. If we want to build a better democracy, we must start with democratic institutions’ ability to deliver what people want.

With inequality rising in many countries and global corporations becoming more powerful, it is reasonable for democracies to offer more redistribution and stronger protections for disadvantaged groups. But, again, the right and the left will go about this in different ways.

In Chile’s case, the left’s hardline anti-business agenda seems ill-advised. A better alternative is the model pioneered by Scandinavia’s social democratic parties, which rose to power after the 1929 stock market crash and the Great Depression when there was a palpable need for major institutional changes and policies to restore the economy to health and curb inequality.

There are many misperceptions about the origins of Nordic social democracy. While some commentators seem to believe that these countries were always predisposed toward equality and cooperation, others view them as “democratic socialist” role models. Neither perception seems to be true. Both Sweden and Norway were highly unequal at the beginning of the 20th century. Norway’s pretax income Gini coefficient (a measure of inequality on a scale of zero to one) was 0.57 in 1930, which means that it was more unequal than anywhere in Latin America today.

Both countries also experienced frequent industrial conflict. The workers’ parties that later became social-democratic parties were rooted in Marxism. But by the time they came to power, they had started moving away from their earlier commitments to revolution and rigid ideology. Instead, they campaigned under a broad umbrella, promising sound macroeconomic management and egalitarian reform of the labor market and education.

For its part, the Norwegian Labor Party made its U-turn from a hardline Marxist agenda after its poor showing in Norway’s 1930 election. Like Danish and Swedish workers’ parties at the time, it redirected its focus to more practical matters, implementing policies that people wanted. The party also promised a major educational reform to improve the quality of schooling in rural areas that were falling behind. After coming to power again in 1935, the party moved quickly to implement its “Folk School Law” the following year.

In recent work with Tuomas Pekkarinen, Kjell Salvanes and Matti Sarvimäki, we show that Norway’s school reform did more than improve the quality of rural schooling. It also had a profound effect on Norwegian politics because many of those who benefited from the reform (starting with parents) shifted their allegiances to the Labor Party, thus helping to create the coalition that would sustain Norway’s now-famous model of social democracy. Simply put, the party provided the services voters wanted, and voters rewarded it with electoral support.

The Swedish case is broadly similar. After its first election victory in 1932, the Swedish Social Democratic Party delivered on its promise of higher wages, industrial peace and a stable macroeconomic environment. It was then rewarded at the polls for the next several decades.

There are lessons here for those who want to strengthen democracy and build new institutions to combat inequality and protect the disadvantaged. The first step must be to show that democracy works by forging a reformist agenda that will succeed in delivering services to the population. Attempts to impose extremist policies (of the left or right) on voters are doomed to fail — and are likely to reduce trust in democratic institutions even further.

Daron Acemoglu is an institute professor of economics at the Massachusetts Institute of Technology and co-author (with Simon Johnson) of “Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity” (PublicAffairs, 2023).