Democracy and the market: Political and economic reforms in Eastern Europe and Latin America

1. Democracy and the market:Political and economic reforms in Eastern Europe and Latin America Adam Przeworski University of Chicago

2. Summary - Features of democracies - How are outcomes enforced in democracies? -Why would they comply? -Competing views of compliance. -Democracy as an equilibrium -Institutional design -Transaction to democracy. -Why do outcomes appear uncertain?

3. DEMOCRACY 'The future is not written, because only the people can write it'' Adolfo Suarez. 2 quintessential features of democracy ; - Outcomes of the democratic process are uncertain -It's ''the people'',political forces competing to promote their interests and values, who determine what these outcomes will be.

4. -Democracy is a system in which parties lose elections. • -There are parties: division of interest,values and opinions. • -There is competition, organized by rules. • -There is periodic winners and losers • -Not all democracies are the same ; • yet beneath all the institutional diversity, • one elementary feature- contestation open to participation.-is sufficient to identify a political system as democratic.

5. - In democracy , multiple political forces compete inside an institutional framework • - Participants in the democratic competition dispose unequal economic, organizational and ideological resources. • -The protagonists in the democratic interplay are collectively organized. • -Democratic societies are populated not by freely acting individuals but by collective organizations that are capable of coercing those whose interests they represent.

6. - Democracy appears to be a system in which everyone does what he or she expects is for the best and then dice are thrown to see what outcomes are . • -From the view of all participants, OUTCOMES ARE UNCERTAIN. • But actually, actors know what is likely to happen , because the probability of particular outcomes is determined jointly by institutional framework. • -Hence, democracy is a system of ruled ORGANIZED UNCERTAINTY

7. - Voting- Majority rule- is the only arbiter in a democracy • - Outcomes cannot be predicted exactly under democracy • - Democratization is an act of subjecting all interests to competition of institutionalizing uncertainty

8. HOW ARE OUTCOMES ENFORCED UNDER DEMOCRACY? • -DEMOCRACY- RATIONALITY-COMPLIANCE • - How does it happen that political forces that lose in contest comply with the outcomes and continue to participate rather than subvert democratic institutions?

9. WHY WOULD THEY COMPLY? IS DEMOCRACY IN ANY SENSE RATIONAL? - Interests are often in conflict. Hence, there are winners and losers ,and compliance is always problematic. - Political forces comply with present defeats because they believe that the instutional framework that organizes the democratic competition will permit them to advance their interests in the future.

10. COMPETING VIEWS OF COMPLIANCE • -Why would they comply ? • 1) Compliance is spontaneous- decentralized and voluntary : Spontaneous self-enforcing outcomes ,or equilibria • + No one wants to act differently given what others would do in response.Such outcomes are thus self enforcing ; they are enforced by independent spontaneous reactions. • 2) There is always a policeman to set the rules,and punishes. : Bargains, or contracts • + Bargains or contracts are agreements in which at least one party has an incentive to renege but which hold because a third party effectively sanctions defections. • 3)People are motivated by a moral commitment to this social order even when it is not in their interest an deven when there is no one to punish them . :Norms

11. DEMOCRACY AS AN EQUILIBRIUM • - Democracy is consolidated when ,it becomes self-enforcing,that is , when all the relevant political forces find it best to continue to submit their interests and values to the uncertain interplay of the institutions. • - Democracy is consolidated when compliance constitutes the equilibrium of the decentralized strategies of all the relevant political forces.

12. What does it mean not to comply ? • - Some forms of individual noncompliance can threaten democracy when they are on a mass scale .But isolated individuals do not shake social orders. • -Only organized political forces have the capacity to undermine democratic system. • -Compliance depends on probability of winning within the democratic institutions. • -The more confident the actor is that the relationship of political forces will not take an adverse turn within the democratic instutitions,the more likely is this actor to comply, the less risky the subversion, the less likely are the potential antidemocratic forces to comply.

13. -To evoke compliance and participation, democracy must generate substantive outcomes: It must offer all the relevant political forces real opportunities to improve their material welfare. • -Democratic institutions must be effective: They must make even losing under democracy more attractive than a future under nondemocratic alternatives. • -Thus, to evoke compliance , to be consolidated , democratic intuitions must to some extent be fair and to a complementary degree effective. • -Yet under certain conditions these requirements may be contradictory, particularly with regard to economic issues. • -To be effective economically , governments may have to violate some property rights.

14. INSTUTIONAL DESIGN • - A stable democracy requires that governments be strong enough to govern effectively but weak not to be able to govern against important interests. • - If these observations are valid , democratic institutions must remain within narrow limits to be successful. And under some historical conditions there may be no space between the limits, consolidation of democracy is not always possible.

15. TRANSACTION TO DEMOCRACY • - Self-enforcing democracy is not the only possible outcome of transitions : strategic situations that arise when dictatorship collapses. • A breakdown of an authorian regime may be reversed, or it may lead to a new dictatorship.

16. WHY DO OUTCOMES APPEAR UNCERTAIN? - One characteristic feature of democracy is that , outcomes appear in a particular way uncertain to all participants. - It is as if all do what they think is best fort hem , and then some random device chooses the outcome, as if the results were decided by a throw of dice. - In reality there is no room for uncertainty , given the resources of partipicants and institutional framework , the outcome is determined. -Each actor can examine the resources and look up the the rules and determine who will lose or win, If they follow their best strategies. And yet the actors appear to behave as if they were not certain of outcome. -Is the source of uncertainty inherent in democracy?

17. LEN. – Whoever makes the highest bid gets his Money back, collects the Money on the table and a dolar from everyone who did not play.- so one player is richer than others and welath uniquely determines the outcome, this means there is no uncertainty here • JON .- The player who has the ace of spades wins . In this game wealthiest player will buy the most cards and will have the best chance of getting ace. • LOTTO- Actors decide to buy a ticket and wait for the winning numbers to appear on the screen . The outcome is fair , but it is only justification . • NOR- A game which actors do not know which strategies will produce the best outcomes. Throwing a coin • - Each actor decides interdependently what to do , and each actor know what is best to do at every moment . Yet outcomes are distributed probabilistically.

18. - If we look from the view of authoritarian regimes, or dictatorship, there is no distinction between law and policy. In this sense dictatorships are arbitrary. • - Under dictatorship the possible outcomes are not entailed by any set of rules. • - Under dictatorship , there is some one who is certain about outcomes. Under democracy there is no such an actor. • - Democracy is a system that generates the appearance of uncertainty because it is a system of decentralized strategic action in which knowledge is inescapably local.

19. Thankyou. Merve Karabulut