Deeper history and democratic politics: HASS and university crisis

Voice and Growth: Was Churchill Right?

19 October 2002 draft VOICE AND GROWTH: WAS CHURCHILL RIGHT? Peter H. Lindert University of California - Davis ABSTRACT The debate over whether political democracy is the least bad regime, as Churchill once said, remains unresolved because history has been ignored or misread, and because recent statistical studies have not chosen the right tests. Using too little historical information, and mistaking formal democratic rules for true voice, has understated the gains from spreading political voice more equally. This paper draws on a deeper history, reinterpreting five key experiences to show how the institutional channels linking voice and growth are themselves evolving with the economy. Up to about the early nineteenth century, the key institutional link was property rights and contract enforcement. Since the early nineteenth century, the human-investment channel has assumed an ever-greater role. This trend will probably continue. A telltale sign of damage to growth from elite rule is the under-investment of public funds in egalitarian human capital, especially primary schooling, relative to historical norms for successful economies. On the afternoon of November 11th, 1947, the Opposition leader Winston Churchill gave the House of Commons, and posterity, his famous defense of democracy: No one pretends that democracy is perfect or all-wise. Indeed it has been said that democracy is the worst form of Government except all those other forms that have been tried from time to time; but there is the broad feeling in our country that the people should rule, continuously rule, and that public opinion, expressed by all constitutional means, should shape, guide, and control the actions of Ministers who are their servants and not their masters....” 1 In fact, Churchill was trying to block the advance of democracy on that November day. He was defending the power of the House of Lords to block measures advanced by a “Voice and Growth,” Page 1

ECONOMISTs have often argued that if an industry acts as a monopolist it would be desirable government policy either to break up the monopoly or, if this is undesirable because of increasing returns, to regulate and perhaps even nationalize it.' This proposition, although extremely well known and often accepted as obvious, turns out upon close examination to be far from obvious, and to involve several assumptions of doubtful validity. The argument supporting this proposition goes something as follows: Monopolies cause a maldistribution of resources, since the price charged by a monopolist exceeds marginal costs and an optimal distribution requires price equal to marginal cost. An optimal allocation would occur if the industry were made competitive, since price equals marginal costs in competitive industries. If the industry were a "natural" monopoly, price could be made equal to marginal cost either indirectly by government regulation or directly by government administration. Therefore, the recommendation is an anti-trust law to prevent or break up contrived monopolies and government regulation or government administration of natural monopolies. The non-sequitor in this argument is the sentence beginning with "therefore"; the recommendation of government intervention does not follow from the demonstration that government intervention could improve matters. Demonstrating that a set of government decisions would improve matters is not the same as demonstrating that actual government decisions would do so. This kind of inference is logically equivalent to identifying the actual workings of the market sector with its ideal workings. In Section I a theory of the workings of a political democracy under ideal conditions is developed. It is shown that an ideal democracy is very similar

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