Over­com­ing demo­cratic my­opia

Financial Mirror (Cyprus) - - FRONT PAGE -

De­spite pos­i­tive in­di­ca­tors, the global econ­omy re­mains be­set with risks. And be­cause vir­tu­ally ev­ery one of those risks arises from struc­tural chal­lenges, mit­i­gat­ing them will re­quire long-term think­ing by lead­ers. Un­for­tu­nately, there is not a lot of that on of­fer nowa­days, par­tic­u­larly in the world’s democ­ra­cies.

The prob­lem lies in the dis­con­nect be­tween po­lit­i­cal and eco­nomic cy­cles. A nor­mal eco­nomic cy­cle lasts 5-7 years. But, ac­cord­ing to the McKin­sey Global In­sti­tute, the av­er­age ten­ure of a G20 po­lit­i­cal leader has fallen to a record-low 3.7 years (com­pared to six years in 1946). Fo­cused on win­ning the next elec­tion, politi­cians of­ten im­ple­ment poli­cies that will bring short-term re­wards, even at the cost of long-term growth or sta­bil­ity.

This trade-off is ex­em­pli­fied by widen­ing fis­cal deficits. In the United States, ac­cord­ing to the Con­gres­sional Bud­get Of­fice, the bud­get deficit is on course to triple over the next 30 years, from 2.9% of GDP in 2017 to 9.8% in 2047, ow­ing to the ef­fects of tax cuts and other bud­get-bust­ing mea­sures im­ple­mented to ap­peal to vot­ers (or, equally im­por­tant, to ap­pease donors). This un­der­cuts the gov­ern­ment’s abil­ity to make for­ward-think­ing in­vest­ments in ar­eas like ed­u­ca­tion and in­fra­struc­ture.

With politi­cians ef­fec­tively re­warded for my­opic think­ing, the western democ­ra­cies find them­selves strug­gling to se­cure sta­ble long-term growth in a way that, say, au­thor­i­tar­ian China is not. There are at least two ways to ad­dress this prob­lem in a demo­cratic con­text.

First, gov­ern­ments could be bound more firmly to their pre­de­ces­sors’ pol­icy de­ci­sions. That way, more for­ward­think­ing leg­is­la­tion that has been de­bated and en­acted will have time ac­tu­ally to take ef­fect, with­out the risk that it will sim­ply be re­pealed by a sub­se­quent ad­min­is­tra­tion.

The Euro­pean Union pro­vides one ex­am­ple of how longterm bind­ing com­mit­ments can work. The 1992 Maas­tricht Treaty com­mit­ted Euro­pean gov­ern­ments to cap pub­lic debt at 60% of GDP, and an­nual bud­get deficits at 3% of GDP. Since then, gov­ern­ments have grad­u­ally brought their coun­tries into align­ment with this stan­dard.

But, as the EU’s ex­pe­ri­ence also shows, such “bind­ing” obli­ga­tions are not al­ways treated as unas­sail­able, par­tic­u­larly dur­ing times of eco­nomic stress. In the af­ter­math of the 2008 fi­nan­cial cri­sis, it be­came clear that coun­tries like Greece, Italy, Spain and Por­tu­gal breached their Maas­tricht com­mit­ments.

Nonethe­less, es­tab­lish­ing com­mit­ments for gov­ern­ments that ex­tend be­yond elec­toral cy­cles can im­bue leg­isla­tive agen­das with a longer-term per­spec­tive, as they re­duce par­ti­san pol­icy turnover. Such an ap­proach would have been use­ful for US Pres­i­dent Barack Obama’s sig­na­ture leg­is­la­tion, the Af­ford­able Care Act. En­sur­ing that the ACA would re­main in place for some min­i­mum fixed term, rather than leav­ing it vul­ner­a­ble to im­me­di­ate re­peal by Don­ald Trump’s ad­min­is­tra­tion, might have en­abled a more fun­da­men­tal trans­for­ma­tion of Amer­ica’s flawed health-care sys­tem, in­clud­ing through im­prove­ments to “Oba­macare” it­self.

An­other way to en­cour­age longer-term think­ing among pol­i­cy­mak­ers would be to ex­tend their terms in of­fice to, say, six years – roughly the length of eco­nomic cy­cles. In­stead of spend­ing their en­tire term cam­paign­ing for re­elec­tion, pol­i­cy­mak­ers would have the time and po­lit­i­cal space to con­sider the nu­ances of com­plex struc­tural chal­lenges and for­mu­late poli­cies that boost the econ­omy’s po­ten­tial growth.

In some coun­tries, po­lit­i­cal lead­ers al­ready serve longer terms. In Brazil, for ex­am­ple, fed­eral se­na­tors are elected for an eight-year term. In Mex­ico and the Philip­pines, each pres­i­den­tial term lasts six years. In the US, by con­trast, mem­bers of the House of Rep­re­sen­ta­tives face an elec­tion ev­ery two years, forc­ing even the pres­i­dent and se­na­tors – who serve four- and six-year terms, re­spec­tively – to op­er­ate, to some ex­tent, on a two-year time hori­zon.

Of course, longer elec­toral terms are risky, as they could en­able in­com­pe­tent and other­wise prob­lem­atic lead­ers to re­main in power for longer. That is why the change would have to be pur­sued in tan­dem with an­other re­form: chang­ing the el­i­gi­bil­ity re­quire­ments for would-be pol­i­cy­mak­ers, with an eye to se­cur­ing lead­ers who have ex­pe­ri­ence not just run­ning for of­fice, but also han­dling real-world chal­lenges.

In a 2012 ar­ti­cle, the Uni­ver­sity of Not­ting­ham’s Philip Cow­ley noted that, in late 2010, the lead­ers of the ma­jor Bri­tish po­lit­i­cal par­ties had less ex­pe­ri­ence than any oth­ers of the post-war era. Sim­i­larly, a 2012 study by the Bri­tish House of Com­mons Li­brary re­vealed that, from 1983 to 2010, the num­ber of ca­reer politi­cians in Par­lia­ment had more than quadru­pled, from 20 to 90.

The rise of ca­reer politi­cians has co­in­cided with grow­ing cyn­i­cism about the ef­fec­tive­ness of elected lead­ers. In fact, ac­cord­ing to a 2016 World Eco­nomic Fo­rum sur­vey, cit­i­zens in demo­cratic coun­tries trust their lead­ers less than those else­where, while a 2015 Pew sur­vey found that more than 80% of US cit­i­zens do not trust the fed­eral gov­ern­ment to do what is right con­sis­tently. Such sus­pi­cion prob­a­bly con­trib­uted to the vic­tory of the po­lit­i­cal neo­phyte Don­ald Trump over Hil­lary Clin­ton in the 2016 US pres­i­den­tial elec­tion.

In any case, to­day’s eco­nomic risks will not go away, and they can be min­i­mized only with the type of re­forms that must form part of a long-term pol­icy agenda. In terms of craft­ing such agen­das, democ­ra­cies seem to be at a dis­ad­van­tage. But this need not be the case.

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