Economic reform is impossible without political reform
Posted Date – Tue, 05/09/23 at 12:15pm
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Moments of dramatic change are always of interest to historians. Revolutions and violent regime changes are easily identified as moments of radical economic change. History is full of periods when fundamental structural change was necessary to facilitate trade or economic growth. Over the past 400 years, the machinery of the modern state has evolved to accommodate complex economic systems, from protecting private property to building vast financial and legal institutions to protect the capitalist order of things.
However, predicting the impact of political changes on economic reforms is not easy, nor can the implementation of economic reforms always be explained in terms of a country’s domestic political situation, which would erroneously assume that the nation-state is absolute. free entity. Moreover, radical economic reforms also occur in times of crisis, rather than political reforms, which makes it harder to name anything as a sine qua non for economic reform.
past revolutions
Having said that, one can still intuitively conclude that the most radical economic reforms require a change in the ruling party, at best a revolution. Perhaps the most famous example is the French Revolution, which manifested itself in the abolition of feudalism, the simplification of the legal system, and the removal of traditional fiscal policy controls that hindered industrial growth.
Many left-leaning thinkers, from Karl Marx to Eric Hobsbawm, have interpreted the French Revolution as a bourgeois revolution, marking the victory of an emerging merchant class over the landed aristocracy. Recent research has shown that by the mid-19th century, redistribution of church lands led to higher agricultural productivity and investment, although this meant greater inequality (Michalopoulos et al., 2017). For many of these periods of crisis, such as the Russian or Chinese revolutions, an overhaul of political institutions is essential to implementing any economic change.
complicated relationship
But to make this point a bit more complex, the question itself needs to be refined; what kind of political reform and economic change? In a paper published in 1996, Henry Bienen and Jeffrey Herbst argued that the relationship between political structure and economic growth is more complex than is commonly believed many. The paper discusses existing economic wisdom as liberal democracies naturally turn to liberalizing policies relevant to Africa.
The authors observe that for many nascent African states, there is no strong correlation between liberal democracy and liberalization, and even if there is, these countries do not necessarily have the institutional mechanisms to implement reforms. Sometimes, political reforms fail to make any changes at all due to inadequate bureaucracies, making it difficult to conclude that radical political reforms will be sufficient to bring about substantial material transformation of the regime. On the other hand, many countries under authoritarian regimes, such as South Korea and Singapore, witnessed high growth rates in the 1980s while maintaining free market policies.
As Keynesian economics cyclically returns to the buzzword, reforms in capitalist economies are also guided by the constant need to fix flawed systems. If Keynesian policy can be considered “far-reaching economic reform,” then clearly it does not require any violent revolution or political upheaval. In 1933, President Franklin D. Roosevelt announced the New Deal, which included a series of financial reforms, public works projects, and programs aimed at reviving the U.S. economy devastated by the 1929 stock market crash. True, Roosevelt did have to create new political institutions, such as the Civilian Conservation Corps, the Works Progress Administration, and the Civil Engineering Administration, but none of this fundamentally changed the existing political system.
arbitrary concept
Still, it is intuitively true that something in the political sphere ultimately determines economic policy. Right-wing governments are more likely to cut spending or introduce austerity measures, while left-wing governments are more likely to increase government spending and welfare measures if we are talking about liberal democracies. However, as Cambridge economist Zhang Hejun has argued, any boundary between “rational” markets and “irrational” political forces is entirely arbitrary.
In fact, the free market itself is an arbitrary concept. To prove the point, Chang points out the absurdity of the American conservative slogan, “Let your government leave my health insurance alone,” even though health insurance is a government-subsidized program. This makes the very act of drawing arbitrary borders around markets and deciding what falls within state control an act of politics in itself.
In conclusion, I do not think that revolutions or independence struggles reveal anything fundamental about how governments might legislate on economic issues. Rather, it is the specific political decisions about where the market’s apparent boundaries lie that may determine the extent of any political reform. If this is the key to determining economic reform, then economic reform must be inseparable from political reform.
