Thread by @edenhofer_jacob

Follow-up 🧵: Democracies differ in their capacity for implementing reforms that - while creating some losers - generate overall gains.
Lindvall calls this reform capacity, and sets out an interesting theory for explaining systemic variation in reform capacity.
👇Summary
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https://twitter.com/edenhofer_jacob/status/1605515288107024385

Lindvall's (global.oup.com/academic/produ…) key thesis:
power-sharing systems do not necessarily have lower reform capacity than power-concentration systems; in fact, when interest groups have moderately high informal power and/or reforms entail short-term costs, whilst ... 2/N

generating long-term benefits ("policy investments", see my 🧵Jacobs), power-sharing systems have higher reform capacity than power-concentration ones.
There are two theories of effective government according to Lindvall: Conventionally, effective government is ... 3/N

believed to require the concentration of power (concentration-of-power theory).
Only by placing as few constraints on our political leaders as is consistent with electoral accountability do we enable them to enact socially beneficial reforms by virtue of enabling ... 4/N

them to ignore the demands of the reform's losers. Implications: The dispersion of power entails a greater risk of democratic paralysis - the inability to implement reforms.
Lindvall argues that this view is mistaken, and defends the power-sharing theory of ... 5/N

effective government.
Whilst it is true that power-sharing institutions do not allow political decision-makers to enact reforms by ignoring the losers, they put them in a position to implement reforms by compensating the losers credibly, given certain conditions. 6/N

To see how Lindvall derives these claims, let me start with some preliminary points.
1) definition of reform capacity: “we can define reform capacity more precisely as the highest level of conflict that a political system can tolerate before ... 7/N

political decision-makers cease to adopt policy changes that benefit society as a whole.” (p. 5)
2) definition of power sharing: legislative or executive powers or both are divided between different parties. Various forms of power sharing: within executive ... 8/N

(coalition government), between executive and legislature (in presidential systems, this occurs in times of divided government, whereas in parliamentary systems this occurs when minority governments hold power), within legislature (bicameralism), between different levels ... 9/N

of government (federalism).
Power concentration is defined ex negativo: a single party controls executive and enjoys parliamentary majority, meaning that it does not have to negotiate with other parties to adopt legislation.

3) scope conditions
3.1) Lindvalls’s theory ... 10/N

applies only to positive-sum reforms, not to zero- or negative-sum ones. These reforms generate greater aggregate gains than losses.
3.2) Lindvall conceives of winning not in purely material or financial terms.
3.3) The theory applies only to policy changes that seek ... 11/N

to achieve some objective, which the vast majority of people agree is desirable.
Implication: Reform incapacity arises when the government fails to implement reforms that would be conducive to some desirable objective.
3.4) Political conflict is construed as a ... 12/N

continuous variable, rather than a binary one. So, the theory only applies to conflicts over divisible objects.

4) behavioural and methodological assumptions
4.1) Instrumental rationality: actors strategically choose that course of action which maximises the expected ... 13/N

probability of achieving their objectives
4.2) Criterion for distinguishing between zero- or negative-sum reforms and positive-sum ones: Lindvall relies on the Kaldor-Hicks criterion, whereby a policy change is beneficial when it is, in principle, to compensate ... 14/N

the losers at a cost lower than the winners’ total gain.
He adopts this principle to stack the deck in favour of the power-concentration theory. For instance, he could have employed the Pareto principle, which requires unanimity for reforms, and is, thus, more likely to ... 15/N

be violated by power-concentration systems than power-sharing ones.
4.3) Incorporating compensation theoretically must not give rise to indeterminacy. "From the outset, therefore, I heed Tsebelis’s warning that if we allow for the possibility of side payments without ... 16/N

explaining when they are possible and when they are not, theoretical models of political decision-making become indeterminate, and therefore useless. We know that political decision-makers do not always overcome democratic paralysis by compensating the losers, so it is ... 17/N

not enough to demonstrate that compensation is possible; it is necessary to also identify the conditions that make it so.”

How are compensation, power sharing and the problem of reform capacity related then?
In power-concentration systems, the party that controls ... 18/N

the executive can enact reforms without having to negotiate with other parties, thus giving the potential losers from reform little or no veto power. In that sense, governments have no incentive to compensate the losers aligned when they are aligned with the opposition. 19/N

Instead, they are ignored. In power-sharing systems, however, no single party wields that much power. The losers are either represented by a coalition party or the opposition. Since even opposition parties have some influence on policy making, the government can only ... 20/N

implement reforms by offering credible compensation to the losers. Compensation is a necessary condition for reform capacity in power-sharing systems.
When can governments in power-sharing systems offer credible compensation to the losers?
First, Lindvall defines ... 21/N

compensation as any "public policy that is adopted to provide benefits for individuals, groups, parties, or organisations that have been (or expect to be) harmed by another policy."
Such policies refer to monetary transfers to citizens, targeted tax cuts, subsidies ... 22/N

or non-monetary transfers between legislators in the form of, for instance, vote trading (log-rolling).
Secondly, Lindvall argues that political decision-makers in power-sharing systems have to solve two problems to implement reforms.

1) The economic and political ... 23/N

costs of compensation must be sufficiently low. Specifically, Lindvall distinguishes between four types of costs:
economic costs of compensation:
-> dilution costs: these arise when compensation compromises the objectives of a reform.
Political decision-makers have to ... 24/N

find the means by which to make the requisite side payments for the losers to accept the reforms. Typically, these side payments are indirect.
Losers will only accept some reform that is detrimental to them when some other reform that is beneficial to them is ... 25/N

implemented by way of compensation. Sometimes these compensatory reforms can undermine the objective(s) of the initial reform. In this way, compensation can dilute reforms or impinge on their effectiveness.

-> deadweight costs: administrative cost of implementing reforms 26/N

The more competent the bureaucracy is, the lower are the deadweight costs and vice versa. Crucially, dilution and deadweight costs vary across political systems, depending on how much room to maneuver political decision-makers have.

When politicians have more ... 27/N

options to create compensatory packages, there is more likely to be an option with sufficiently low deadweight and dilution costs such that the requisite side payments do not eat up the entirety of the total gain generated by the reform.

The number of ... 28/N

compensatory options available to political actors is an increasing function of the number of policy areas over which they have sole authority. Federalism, for instance, reduces the government’s room for maneuver – and so does delegation to supranational bodies or ... 29/N

independent agencies political costs of compensation:
-> internal costs: bargaining over compensation is time-consuming and/or entails expending other scarce resources
Even if dilution and deadweight costs are sufficiently low for reforms to generate an overall gain, 30/N

reforms might still become too costly when governments have to expend significant amounts of scarce resources to work out the specifics of compensatory bargains.

Why and how do the internal costs of compensation differ across political systems? Lindvall argues that ... 31/N

systems that promote face-to-face contact among all relevant veto players entail lower internal costs than systems where veto players are institutionally separated.
“On average, I therefore expect that internal costs will be low in negotiations within coalition ... 32/N

governments (1) and within legislative chambers (3), slightly higher in negotiations between governments and legislatures (2) and between legislative chambers (3), and significantly higher in negotiations across levels of government (4).” (p. 56) 33/N

-> audience costs: political decision-makers might pay a political (electoral) price for being seen to negotiate with their opponents because agents outside the policy-making process, notably voters or interest groups, react negatively to such negotiations. 34/N

Audience costs are lower in political systems that facilitate secret deliberations among legislators from different parties. Secret deliberations, in turn, require high levels of trust in politicians’ integrity by citizens.
In majoritarian systems, committee meetings ... 35/N

tend to be public, which is likely the result of the governing party facing weak incentives to negotiate with other parties to get legislation passed. In power-sharing countries, by contrast, committee meetings are often secret so as to minimise audience costs. 36/N

In summary, the political costs of compensation will be high if: policy-makers do not interact frequently with each other, if a large number of decision-makers are involved in a decision and if they are unable to negotiate in secret.

2) Commitment problems
37/N

Even if the losers can be compensated effectively and efficiently (sufficiently low dilution and deadweight costs) and political decision-makers can agree on the specifics of compensation at a reasonable cost (sufficiently low internal and audience costs), the winners ... 38/N

of reform face a commitment problem when promising compensation to losers, which they cannot always solve.
This commitment problem arises because it is rarely possible for winners to instantaneously compensate the losers.
Instead, compensation takes the form of ... 39/N

winners promising (a stream of transfers) to losers in the future.
Mechanics of commitment problem: For the winners it would be best to (a) implement the reform, and (b) renege on their compensation promise since this maximises their net gain from the reform. The losers ... 40/N

anticipate this incentive and will, thus, only agree to the reform if (i) they can credibly threaten to inflict sufficiently high costs on the winners should they renege on their compensation promise, or (ii) the winners take actions in the present that eliminate the ... 41/N

possibility of reneging on their promise in the future. Only then will the compensatory bargain be self-enforcing, which is necessary as there is no third-party that can enforce it. If either option is not possible, the losers will not agree to the reform in the first place. 42/N

Commitment problems come in two kinds:
i) short-run commitment problems: promises of compensation have to be credible until next election or as long as holders of political power do not change/the current distribution of political power remains unchanged. 43/N

These types of commitment problems are usually addressed by:
+ granting the bureaucracy a fair amount of independence
+ creating junior ministerial posts that are used to monitor whether the minister holds up her/his end of the bargain
+ delegating authority to ... 44/N

independent agencies
+ using legislative committees as monitoring devices

ii) long-run commitment problems: promises of compensation have to be credible even after the next election or even when the holders of political power change. 45/N

Long-run commitment problems are more difficult to solve than the short-run ones since they only arise when the losers from reform cannot be fully compensated in the short run.
“If the party that represents losers from reform is concerned that its political power will ... 46/N

decline before the compensation scheme is fully implemented—and that future governments will not be bound by any promises that the “winners” made when the reform was adopted—then the losers will resist reform even if a combination of reform and compensation would ... 47/N

in theory be to everyone’s benefit.”
It is more difficult to come up with institutional solutions to long-run commitment problems than to short-run ones. The above mechanisms for solving short-run commitment problems mostly depend, save for delegation to ... 48/N

independent agencies, on the distribution of political power remaining constant. Hence, long-run compensatory bargains must be self-enforcing, given the absence of (i) third-party enforcement, and (ii) institutional insulation.
Long-run compensatory bargains will only ... 49/N

work if parties can credibly threaten each other.
Lindvall argues that this condition is more likely to hold in power-sharing systems than in concentration-of-power ones.
Why? Because the former type of system means that ‘if political power is shared between ... 50/N

several parties today, it is likely that power will also be shared among several parties tomorrow’ (p. 66) and opposition parties can exert some influence on legislation.
Given that parties are likely to need one another in the future to be able to form a government, 51/N

they have strong incentives no to break their compensatory promises in the present.
Long-term commitment is more difficult in power-concentration systems since control of the executive changes hands between parties with often conflicting objectives. 52/N

The preceding implies that commitment problems are more difficult to solve if:
+ the bureaucracy is politicised,
+ parties that represent losers are unable to monitor the implementation of compensatory bargains, and + parties that represent losers expect to lose ... 53/N

power before compensation is fully implemented.
So: If power-sharing systems can solve the problems of keeping the costs of compensation sufficiently low and credibly committing to compensation their reform capacity will be as high as that of power-concentration systems. 54/N

Conversely, if either of these problems is not solved, reforms will fail in power-sharing systems.

This raises the questions as to what conditions have to obtain for power-sharing systems to have higher reform capacity than power-concentration ones? 55/N

This is the case when interest groups have moderately high informal power and reforms take the form of policy investments.
Let me explain each condition in turn, starting with (in)formal power.
Lindvall distinguishes between formal and informal power. 56/N

Formal power: power allocated by formal political institutions
Informal power: ability of interest groups to use “alternative political technologies”, such as strikes, lobbying, to prevent governments from adopting policies that are detrimental to their interests. 57/N

“The core of the argument that I wish to advance is that it is ... more complicated ... to compensate interest groups than it is to compensate political parties. This is why reform capacity is sometimes higher in power-sharing systems ... 58/N

(where key interest groups are more likely to be represented by at least one of the parties that control the government) than in power-concentration systems (where key interest groups more often lack access to formal political institutions).” (p. 87)
Why is it more ... 59/N

difficult for governments to compensate interest groups than parties?
-> Interest groups are not formal veto players, meaning that governments can, in principle, take the risk of implementing reforms without offering compensation to these interest groups. 60/N

This is the case for formal veto players – without whose agreement the government is quite simply unable to implement reforms.
-> Uncertainty about present informal power of interest groups: governments might mistakenly perceive interest groups as weak, which might ... 61/N

lead them to implement reforms without offering compensation, thus triggering a conflictual reaction by interest groups. Conversely, governments might offer too much compensation to interest groups on account of overestimating their strength
-> Uncertainty about future ... 61/N

informal power of interest groups: Interest groups’ informal power fluctuates over time. When interest groups expect their informal power to decline, it might well be rational for them to prefer confrontation to compromise in the future.

These three reasons show that ... 62/N

compensation might not be sufficient to prevent interest groups from contesting certain reforms. Power-sharing, by granting interest groups some formal power via their close association with certain parties, addresses the above three problems by stabilising ... 63/N

expectations about interest group’s current and future strength as well as reducing the risk of the government pursuing reforms without compensatory measures.
This argument yields three "testable" propositions: + If interest groups are so weak that they cannot ... 64/N

prevent the government from carrying out policies, then reform capacity is likely somewhat higher in power-concentration systems than in power-sharing ones. The reason being that in the latter parties representing interest groups’ interests have more influence and ... 65/N

are, thus, more likely to veto reforms. In contrast, in power-concentration systems interest groups enjoy no such (indirect) veto power. Instead, governments are free to adopt whatever reforms they deem desirable.
+ If interest groups have intermediate strength, i.e. ... 66/N

they are strong enough to pose a threat to the government, but not strong enough to force the government to always offer compensation, reform capacity will be higher in power-sharing systems, relative to power-concentration ones.
-> Governments are more likely to ... 67/N

underestimate the current and future strength of interest groups and they face commitment problems, which is why we are most likely to observe open displays of informal power in these types of scenarios.
+ If interest groups are very strong, i.e. they have so much ... 68/N

informal power that they can always force the government to offer compensation, the differences in reform capacity between governments in power-sharing and power-concentration systems will be small.
-> In both systems, governments have incentives to always offer ... 69/N

compensation when they adopt reforms.

Let us now turn to the second condition.
Lindvall argues that it is less risky for political decision-makers in power-sharing systems to make policy investments - to impose short-term costs to generate long-term gains. 70/N

Why? “In a power-sharing system, such policy reversals are less likely. As long as power sharing is expected to endure beyond the next election, political decision-makers in power-sharing systems therefore operate in an environment that is much less risky than the ... 71/N

winner-takes-all environment of power-concentration systems. Power-sharing institutions thus serve to reassure those who are in power today that they, or the groups that they represent, will be likely to receive a share of the benefits of a reform.” (p. 116) 72/N

In power-concentration systems, policy reversals are more likely, meaning that present governments are more worried about future governments acting in ways that undermine these policy investments. 73/N

Overall conclusion: To address the problem of reform capacity, governments in power-sharing systems have to solve the problems of (i) the costs of compensation, (ii) credible commitment to compensate losers in short and long terms, (iii) credible commitment by ... 74/N

expected future office holders that policy will not be reversed or used in ways that are detrimental to current government’s interests. 75/END

Addendum: Lindvall, in my view, ends his book with an interesting thought about democracy:
“The main point of democracy, in my view, is that it transforms political conflict from a fight into a game [terminology follows Rapoport here, with fights being defined ...

as conflicts where one side seeks to defeat the other, whilst games are defined as conflicts where one side seeks to dominate the other following rules which all sides accept]. This is an exceptionally important achievement. Immanuel Kant wrote more than two centuries ...

ago that the driving force of political history is the “unsocial sociability of man” (die ungesellige Geselligkeit des Menschen) (1991 [1784], Fourth Thesis). By choice and necessity, Kant argued, we are driven to live together in societies, but we also have competitive ...

instincts, which drive us apart. By transforming conflict into a game—in which the underlying tension between the social and unsocial plays out according to accepted rules—democracy thus addresses the basic problem of the human condition. The hope is that with time, democracy ...

will also turn politics from a game into a debate [a form of conflict, where opponents seek to change each other’s points of view].” (p. 138)