Governance reform in a patron-client democracy

Posted in democracy, development, economics, institutions, politics by jrahman on November 17, 2013

Some time ago, I wrote about Prof Mushtaq Khan’s take on democracy in a country-like-Bangladesh.  He describes the reality quite depressingly well:

What political factions seek is not the construction of a coalition that can mobilize votes to allow a transparent renegotiation of taxes and subsidies, but a coalition that can mobilize organizational power at the lowest cost to the faction leader, to achieve a redistribution of assets and incomes using a combination of legal, quasi-legal, or even illegal methods. The organizational power of the faction is then used either directly to capture state power or to force an accommodation in the form of payoffs from the factions who are currently controlling the state. The faction’s access to economic resources either in the form of revenue or in the power to grab valuable economic resources legally or otherwise is then used to benefit faction members all the way down the pyramid, though the payoffs may be very unequal for different levels of the faction.

While factions may use generalized arguments based on class, region, or interest in its public discourse, no-one in society is under any illusion that the faction is out to look after itself at the least cost in terms of paying off voters and others who need to be mobilized occasionally. When factions do not deliver on these generalized aims, broader social constituencies may grumble but they do not really expect anyone to deliver on the publicly stated general social goals. However, if factions cannot deliver acceptable payoffs to faction members, the leaders are likely to get into serious trouble. Factions rarely fear a general public revolt, given that no other political organization can deliver what the public wants. What factions actually fear is that their sub-factions may be bribed away by other factions and that the coalition may crumble. Indeed, this often happens and accounts for the frequent changes of government in developing countries that usually lead to no discernible changes in government policies, but do lead to different sets of individuals making money in turn. Given the opportunistic nature of factional membership and the shifting offers and counter-offers made by different factional leaders, it is possible to explain the extreme volatility in the factional politics of developing countries in a context where government policies are often remarkably constant.

The question then is, how does a country like Bangladesh escape this patron-client democracy?  Khan’s implicit message is that one needs an important capitalist sector for there to be functioning democracy. But there is nothing in Khan’s story about the dynamics that produces the capitalist sector.

Turns out that Khan believes government has a role to play in kicking off that capitalist transformation.  It’s just that his prescription for reform is quite different from the traditional Washington Consensus stuff.

In a 2011 paper, Khan distinguishes between ‘market-enhancing’ and ‘growth-enhancing’ governance reforms.  The former includes stuff like securing property rights, enforcing rule of law, minimising rent-seeking and corruption, and providing public goods in a transparent manner.  Needless to say, in a patron-client democracy, this stuff is hard if not impossible.  Khan’s prescription is to push reforms that assists the government to:

– Organize and enable transfers of land and resources to productive sectors in a context where land and asset markets are generally inefficient

– Address labour market failures that result in inadequate training and investment in human capital

– Address failures in capital markets that result in inadequate savings and investment, and inadequate investment in learning and adopting new technologies

– Maintain political stability and acceptable redistributive justice in a context of rapid social transformation

Taking the two articles together, we get a reasonably clear picture of Khan’s thesis.  Many developing countries, including Bangladesh, are stuck in a ‘bad equilibrium’ where electoral democracy has degenerated into a competition for monopoly over patronage for a set period.  A capitalist transformation can shift these countries out of the bad equilibrium towards the ‘good equilibrium’ where democracy can function properly.  This capitalist transformation can be kick started by a government that maintains political stability, and directs factors of production towards sectors where they would be most productively used.

Couple of comments need to be made.

First, how is the government to know how and where to direct resources?  This is not simply saying, in a Hayekian fashion, that governments cannot know better than markets.  Khan makes it pretty clear that he doesn’t discard the market.  He is no unreconstructed socialist who believes the state should capture the commanding heights of the economy.  He accepts the market’s superiority when it comes to the economic organisation.  But he rightly points out that in a developing country, failures are likely in many factor markets, and state needs to step in.  The question is, how is the developing state to know when and how to step in?  Put differently, if these countries had such competent bureaucracies, would they be developing in the first place?  Moving from the abstract to, say, concrete Bangladeshi reality — do we think our bureaucracy has what it takes?

Second, even supposing that a few good bureaucrats could be found, ultimately patronage-providing politicians would have to run these reforms.  What’s their incentive to do so?  These countries are in the mess because at any given point in time, it’s in the politicians’ self interest to play the patronage game.  That’s why the status quo is an equilibrium.  Why would the politicians want to upset that status quo with things that will potentially damage their coalitions?

Let me elaborate with the first and last points on Khan’s agenda.  Khan wants political stability, including redistribution, in the context of rapid social transformation.  And he wants the state to organise and enable land transfer to productive sectors.  In English, this means grabbing farm land from the peasant, giving it to the capitalist to set up a factory which will employ the now landless peasant’s wife, giving her hitherto unimaginable life choices, grab some of the capitalist’s profits, and dole it out to the former-peasant-now-political-cadre.**  If you are the leader of either of our two bickering parties, would you embark on this highly risky strategy, or stick to the game of trying to win the next election at all costs?


*Is “Good Governance” an Appropriate Model for Governance Reforms? The Relevance of East Asia for Developing Muslim Countries, in Development Models in Muslim Contexts: Chinese, ‘Islamic’ and Neo-liberal Alternatives.

**For the record, I am 100% behind this programme.

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