Government and Economies in the Postwar World: Economic Policies and Comparative Performance, 1945-85

By Andrew Graham; Anthony Seldon | Go to book overview
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Chapter seventeen

Political institutions and economic performance

David Marquand

Since Adam Smith, if not before, writers on economic matters have known that economic performance depends partly on political and institutional factors. Even those who believe that the competitive free market is bound, by definition, to allocate resources more efficiently than any other mechanism, and that public intervention in the market is therefore bound to do the economy more harm than good, accept that governments can affect economic performance for good or ill-for good, by removing barriers to free competition, and for ill by erecting or maintaining them. Other schools of thought believe that state intervention can, at least in principle, improve it. On either view, it is reasonable to suppose that the structure, values, and policies of the state must have something to do with its economic impact.

Unfortunately, attempts to discover how and under what conditions these political or institutional factors impinge on economic performance have not been conspicuously successful. Discussion of this topic rarely gets beyond anecdote, and often falls into the trap of circularity. Seeing a successful economy, and noticing that the political institutions in the society concerned have tried to promote economic success, we are apt to conclude that the success is the product of the institutions. By the same token, if a country's political institutions intervene in the economy, and the economy performs badly, we tend to blame the institutions or their policies. But these are not valid inferences. The successful economy might have been even more successful-and the unsuccessful one even more unsuccessful-if the institutions or policies had been different.

So it is not enough simple-mindedly to compare the political institutions and economic performances of the societies described in this book, in the hope that worthwhile institutional or political generalizations will emerge of their own accord. It might be better to proceed in the opposite way: to begin by looking at possible 'models' of the relationship between institutions and policies on the one hand, and economic performance on the other, and then to see what light they throw on the story told here. Three such 'models' suggest themselves: first, Paul Kennedy's (1988) model of imperial over-stretch; second, Mancur Olson's (1983) model of group-induced economic

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