National Post (Latest Edition)

Democracy is sacred but not perfect.

- Philip Cross is a senior fellow at the Macdonald-laurier Institute

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 Central bank independen­ce could be partly withdrawn, however, if ever the unorthodox monetary stimulus recently adopted during the pandemic reignites the inflation or financial instabilit­y that some political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.


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