May 2000 Fraser Forum: Do different political systems produce different economic outcomes?

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Patrick Basham, Jason Clemens & Debbie Roque

Data compiled by the Organisation for Economic Cooperation and Development (OECD) is ambiguous regarding the hypothesis that different electoral systems and types of government produce different economic outcomes. Using eight economic variables (real GDP growth, government outlays, government receipts, total average annual growth of both outlays and receipts, unemployment, inflation, and economic freedom) we tested the relationship between economic outcomes, types of government, and electoral systems between 1983 and 2000. Table 2 shows the results of the analysis. Of the five categories listed in table 2, parliamentary-plurality and parliamentary-PR have been discussed extensively above. Countries with hybrid governance systems are those that incorporate both parliamentary and presidential systems of government. Such countries include Austria, Ireland, Portugal and France. Note that only France is categorized as a hybrid-plurality, and only the US is a presi- dential-plurality.

Economic growth

Countries maintaining first-past-the-post election methods record higher levels of growth in real Gross Domestic Product (GDP) over the period covered. For example, parliamentary-plurality countries record average real GDP growth of 3.0 percent while hybrid-plurality countries experienced 2.9 percent average real GDP growth. The rates recorded by PR countries are much lower: 2.7 percent and 2.1 percent for parliamentary-PR and hybrid-PR respectively.

It is also interesting to note that the presidential-plurality country, namely the US, outperformed all other categories in terms of average real GDP growth with a rate of 3.4 percent.

Government outlays and receipts

Examining government outlays and receipts suggests that electoral systems affect economic outcomes while systems of governance may not. Countries with PR electoral systems generally have more interventionist governments. Parliamentary-PR and hybrid-PR countries recorded much higher levels of government—48.7 and 51.6, respectively, in outlays, and 52.0 and 48.5, respectively, in receipts. Plurality countries (parliamentary, hybrid, and presidential) scored much lower on the size of government, indicating some type of relationship between the system of election and the subsequent size of government.

This is important since it may partially explain the real GDP growth results examined previously. If, indeed, PR election systems lead to larger government, then it would be expected that, given the relationship between economic growth and the size of government, those countries would experience lower rates of real GDP growth.⁷

Again, it is interesting to note that the presidential-plurality country (US) recorded a much smaller government in terms of both outlays (32.9 percent of GDP) and receipts (29.5 percent).

The results for the average annual growth of outlays and receipts indicated very little difference between either government or electoral systems.

Unemployment

The results for unemployment vary greatly; there is no obvious relationship between either the type of government or the electoral system and the rate of unemployment. Once again, however, the US (presidential-plurality system) maintains a substantially lower average unemployment rate compared to other countries.

Economic freedom

We also tested The Fraser Institute's pioneering work on economic freedom⁸ against types of government and electoral systems. There seems to be a relationship between levels of economic freedom and the system of government, but not between the type of electoral system.

The economic freedom index scores of both plurality and PR parliamentary systems differ by only 0.2 points. Similarly, the index scores for hybrid systems differ by just 0.1 percentage point. However, the difference between parliamentary and hybrid forms of government ranges between 0.5 and 0.8 points.

Again, the US continues its superior performance. It maintains a 0.7 point advantage over the next highest ranking category of countries, parliamentary-plurality (7.9).

Why is the United States unique?

Perhaps the most interesting finding is the relative performance of the United States. As noted earlier, the United States maintains unique electoral and political systems. Arguably, it constitutes its own category of political system and, therefore, makes substantive analytical comparisons quite difficult. However, the positive economic and political effects of the American-style presidential system that can be inferred from this data is clearly an area in need of additional research.

Is the US's relative affluence a consequence of a constitutional system of government which explicitly limits the government's size and scope and which, through the separation of powers among the executive, legislative, and judicial branches of government, intentionally tangles the passage of legislation, thereby minimizing the opportunity for government involvement in the economic affairs of the nation?

Or, more elusively, is American affluence an evolutionary by-product of a social culture that inherently favours private economic solutions over public ones, that more enthusiastically rewards success, and that views technology-driven economic change as both inevitable and desirable—and largely, if imperfectly, transmits these values through its political culture?

Conclusion

Further and more refined analysis of the political and economic effects of particular electoral systems and models of governance should be encouraged to better assess respective systemic outcomes. Only by continuing this research will we ascertain whether or not a trade-off really exists between governance, electoral fairness, and economic outcomes.

References

Baylis, A.T. (1989). Governing by Committee. Collegial Leadership in Advanced Societies. Albany: State University of New York Press.

Crepaz, Markus M.L. (1996). "Consensus Versus Majoritarian Democracy: Political Institutions and Their Impact on Macroeconomic Performance and Industrial Disputes." Comparative Political Studies 29(1): 4-26.

Elections Canada (1998). Official Voting Results of the 36^th General Election, 1997. Available on the Internet at www.elections.ca.

Finer, S.E., (1975). Adversary Politics and Electoral Reform. London: Anthony Wigram.

Finer, S.E., (1982). "Adversary Politics and the Eighties." Electoral Studies 1: 221-30.

Lijphart, A. (1984). Democracies: Patterns of Majoritarian and Consensus Government in Twenty-one Countries. New Haven, CT: Yale University Press.

Lijphart, A. (1993). "Constitutional Choices for New Democracies." In L. Diamond & M.F. Plattner, (eds), The Global Resurgence of Democracy (pp 146-158). Baltimore: Johns Hopkins University Press.

Lijphart, A., and Crepaz, M.M.L. (1991). "Corporatism and Consensus Democracy in Eighteen Countries: Conceptual and Empirical Linkages. British Journal of Political Science, 21:235-246.

Linz, J. (1990). "The Perils of Presidentialism." Journal of Democracy 1(1): 51-69.

Mainwaring, S., and M. Shugart, (1997). "Juan Linz, Presidentialism, and Democracy." Comparative Politics 29: 449-471.

Organisation for Economic Co-operation and Development. (1999). OECD Economic Outlook.

Persson, T., and G. Tabelli, (1999). The Size and Scope of Government: Comparative Politics With Rational Politicians. Discussion Paper No. 2051 for the Centre for Economic Policy Research. Available on the internet at www.cepr.org.

Powell, B. (1982). Contemporary Democracies. Participation, Stability, and Violence. Cambridge, MA: Harvard University Press.

Wayne, Stephen J. (1992). The Road to the White House, 1992, New York: St. Martin's Press.

Notes

1. The following article is based on a paper submitted to Simon Fraser University by Jason Clemens, one of the co-authors, as part of his on-going studies.
2. Presidential systems incorporate aspects of both majoritarianism and consensualism. For further information on presidential systems of democracy see: J. Linz (1992). "The Perils of Presidentialism" in A. Lijphart (ed) Parliamentary vs Presidential Government and S. Mainwaring and M. Shugart (1997). "Juan Linz, Presidentialism, and Democracy" Comparative Politics 29.
3. For further information see: A. Lijphart (1984), Democracies, ch 1: The Westminster Model of Democracy.
4. For further information see: A. Lijphart (1984), Democracies, ch 2: The Consensus Model of Democracy.
5. It is important to note that there are myriad variations on the basic concept of electing representatives in accordance with the percentage of the popular vote received rather than according to which candidate received the most votes in a particular district.
6. A Progressive Conservative-Reform coalition would have required the support of one of the six "Other" parties in order to establish a coalition minority government.
7. See William Mackness (1998), Canadian Public Spending: The Case for Smaller More Efficient Government, The Fraser Institute; P. Grossman (1998), Government and economic growth: A non linear relationship, Public Choice; E. Peden (1989), "Government Size, Productivity, and Economic Growth: The Post-war Experience, Public Choice; G. Scully (1991), Tax Rates, Tax Revenues and Economic Growth, NCPA Policy Report No. 98, National Center for Policy Analysis, Dallas, Texas; V. Tanzi and L. Schuknecht (1995), Growth of Government and the Reform of the State in Industrial Countries, IMF Working Paper 130, Washington, DC; and V. Tanzi and L. Schuknecht (1997), "Can Smaller Government Secure Economic and Social Well-Being?" in Herbert Grubel, ed., How to Spend the Fiscal Dividend: What is the Optimal Size of Government? The Fraser Institute.
8. See, for example, James Gwartney and Robert Lawson with Dexter Samida, Economic Freedom of the World, 2000 Annual Report, Vancouver: The Fraser Institute, 2000.

Patrick Basham is The Fraser Institute's Director of the Social Affairs Centre. He is completing his Ph.D. in Political Science from Cambridge University.
Jason Clemens is the Director of Fiscal Studies at The Fraser Institute. He has a Masters Degree in Business Administration from the University of Windsor.
Debbie Roque is a third year Political Science student at the University of British Columbia. She is currently completing a Co-operative Studies term at The Fraser Institute.

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