Persson, Torsten, and Guido Tabellini. The Economic Effects of Constitutions

International Social Science Review, Spring-Summer, 2005 by Burgess Dwight Foster

Persson, Torsten, and Guido Tabelfini. The Economic Effects of Constitutions. Cambridge, MA: MIT Press, 2003. viii 320 pp. Cloth, $35.00.

Persson and Tabellini set out to redefine the nexus between political institutions and economic outcomes. They begin by describing Europe's political structure and its observed policies and outcomes. They argue that if a country's governmental structure is parliamentarian or presidential in make-up, this will determine or influence how economic markets behave. This at first seemed elementary because various forms of an executive branch will operate differently based on controls. The argument at hand becomes more complex when the authors argue that, on the whole, political scientists have not broached the topic of the "economic effects of constitutions" because institutional detail has been treated with languor--e.g., referenda and budgetary procedures have not percolated into a better understanding of fiscal policy.

That seems hardly possible while economic scholars subject their data to quite a bit of quantifiable formulae to remove subjectivity. The authors thus pose to the reader the questions they really want to answer. Their thesis seems to be: How would a revamped constitution play out in an economy? For example, assume that an electoral system of "one person--one vote" is transformed into a system in which only landed property owners cast ballots. How would this affect government spending and rent extraction? The reader begins to see that, indeed, a constitution has ramifications on the economy of the country and is not a stagnant artifice. As Persson and Tabellini note, "Drawing inferences about causal effects from cross-country comparisons is a treacherous exercise, and much of the book revolves around the question of how to draw robust inferences about causation from observed patterns in the data" (p. 7).

The review of the literature makes it apparent that the authors are really addressing a mixture of John Maynard Keynes with Adam Smith, sprinkled with purely political postures. The authors take a fairly complex proposition of Keynesian economics of government stimulus and the policies that would allow it and try to show the reader that the so-called "invisible hand" is not so imperceptible. Their aim seems to be to understand the contingencies of macroeconomics as opposed to considering the relevance of the "sub-national level" of the individual or microeconomics. They try to show correlations between a country's political institutions and their economic effects.

This reviewer personally would like to have seen a case study of the United States during slavery when four million slaves and millions of Native Americans were prevented by social policy from contributing. It would be helpful to consider white women, too, in American society and compare that to the outcome of the U.S. economy since 1950 and the country's quasi-inclusion of those groups. Research should show, for example, that white women have impacted various aspects of American society--such as economics--tremendously. Of course, one case study and one group might not be considered sufficient to establish validity. However, the authors do demonstrate that where one finds countries with less accountability and a meager economy (from its encumbering policies), constitutional design superimposes its will. Ineffective institutions (governments) make for inefficient outcomes (economies).

Persson and Tabellini subject their analysis to a broad scope, analyzing electoral rules and forms of government and using countless variables like the age of democracies. Probably the best graph that depicts their difficult undertaking is Table 2.1 (p. 31), which utilizes plus and minus signs to show influence of a variable on an outcome. It is not easily discernable, for example, if there is any positive influence of any kind on the "Form of Government" when compared to "Electoral Rules" under "Economic Performance."

Some of the problems with the reliability of their data involved the difficulty of obtaining input from countries whose policies of openness are arcane at best. This anomaly is explained and accounted for and does not in any way seem to affect their results. But many of their hypotheses behaved as envisaged: e.g., did rent extractions behave as theoretically predicted? (The answer is yes.) And though they conclude that presidential democracies have lower welfare outlays than parliamentarian democracies, the authors presumed the "graft" to be higher in the latter--but it was not. Their research's applicability to real-world scenarios is best seen in its speculation that "adoption of a presidential regime in Spain would (in the long ran) eliminate the country's lead over Greece in structural policy and productivity" (p. 275). This is especially interesting in that Greece was not initially a part of the new Euro scheme in which there is one monetary unit across many nations.

A bivariate relationship that this reviewer would like to have seen manipulated would involve this question: What would potentially be the market outcome on a policy of using a "North American dollar" whereby Mexico, the United States, and Canada shared economies of scale similar to the economics of scale created by the European policy of the Euro? How would it affect those three countries--and their constitutions? Moreover, would this improve the effectiveness and efficiency of these countries? Lastly, how would the policy of entrepreneurial government play out in the market in, say, Africa? These and other questions related to entrepreneurial government are open to inquiry in subsequent research.