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Przeworski: Democracy and the market

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Przeworski. 1991. Democracy and the market: Political and economic reforms in Eastern Europe and Latin America (ch 1). New York: Cambridge University Press.

In Brief

The key puzzle: Democracy makes winners and losers. Why would the losers choose to comply with the results? The key: democratic institutions help give political actors a "long time horizon. . . They allow them to think about the future rather than being concerned exclusively with present outcomes. . . . Political forces comply with present defeats because they believe that the institutional framework that organizes the democratic competition will permit them to advance their interests in the future" (19).

Two key ideas: institutionalized uncertainty, and consolidation

First, a definition of democracy. Second, the conditions for transition to democracy. Third, the conditions for consolidation of democracy.

Place in Literature

Compare with Haggard and Kaufman's later work, The Political Econ of Democratic Transitions; there are many parallels in the two arguments.

Chapter-by-Chapter

Chapter 1

"Democracy is a system in which parties lose elections" (10). Masses delegate their views to elites who represent them. Interests are thus organized into monopolistic, coercive groups (coercive because they must be able to keep their members in line, like in a union or party that has mechanisms for enforcing discipline). Conflicts are never resolved, only temporarily satisfied. Outcomes are not known ex ante: each party does the best it can, then rolls the dice to see who will win. "Democratization is an act of subjecting all interests to competition, of institutionalizing uncertainty" (14). As Schumpeter argued, the "common will" is by no means constant, if existant at all, in this process. Through deliberation, in fact, people often change their preferences.

The key puzzle: Democracy makes winners and losers. Why would the losers choose to comply with the results? The key: democratic institutions help give political actors a "long time horizon. . . They allow them to think about the future rather than being concerned exclusively with present outcomes. . . . Political forces comply with present defeats because they believe that the institutional framework that organizes the democratic competition will permit them to advance their interests in the future" (19).

Chapter 2

When an authoritarian regime ends, one of five outcomes is possible. Przeworski focuses on the fifth: establishment of a stable democracy (while also explaning how we might get one of the others instead). The possible chains of events are on page 62 in a nice flow chart. The situation depends crucially on whether the old regime extricates itself (negotiates its way out of power) or just falls apart.

If it extricates itself, then the game on pages 69-72 (in tables) is played. There are four players: hardliners and reformers within the regime, and moderates and radicals outside it. The version of the game on 69 is only preliminary--he uses it to show that democratization would never occur if preferences and knowledge were perfect. The final version of the game (72) shows that limited democratization could occur if the game were iterated, but it is not. So pages 73-74 discuss two things that could change the payoffs of the game, allowing democratization. First, radicals could become less radical; they could agree to accept limited democracy as good enough for now, then seek to work within the system rather than subvert it and demand more than reformers are willing to give. Second, moderates could decide that they are more afraid of the radicals than of the reformers, and could agree to limits on democracy that protect the reformers undemocratically (e.g. keeping the military independent from civilian control). Such solutions are inherently unstable, however, because democracy means these guarantees can be undone later if transaction costs aren't too high (and the military knows that, so the greater the democracy, the higher the risk of an immediate coup).

If the regime just falls apart, then one of three situations obtains, based on two key variables: whether the forces bargaining on the new institutional design are balanced, and whether the balance is known. If there is a known unbalance, then institutional rules will favor the stronger group. If there is a known balance, then civil war may result, so often a "temporary" democracy solution is set up--however, these solutions are by no means guaranteed to be stable (depends on transaction costs). If it is unknown, then a more Rawlsian solution is set up, with lots of checks and balances and majority protections. This is the most stable outcome.