Why Good Policy is Not Good Politics

What is the most important thing in politics that young people should know, but usually do not? I strongly believe that it the simple idea that was best formulated in Bruce Buena de Mesquita et al.’s 2003 book “Logic of Political Survival”: good policy is not necessarily good politics.

 

This is a spectacularly brief restatement of a very straightforward argument. Politicians are humans who by and large want to stay in power. Therefore they do whatever it takes for political survival. This implies that if there is a good policy (i.e. a strategy that improves social welfare) which is bad politics (i.e. reduces the changes to stay in power), politicians are not likely to choose it. This simple idea is key to modern political economy, explaining why (a) governments keep choosing obviously inefficient policies, and (b) what characteristics of political and economic institutions affect the chances that good policies are also good politics.

 

In my academic paper with Georgy Egorov (Kellogg) and Konstantin Sonin (New Economic School) “Why Resource-poor Dictators Allow Freer Media: A Theory and Evidence from Panel Data,” we consider one of the crucial examples of such “inefficient” behavior by the governments: media censorship. It is clear that censorship is very detrimental to society and the economy. If the government does not have any feedback on the performance of its own officials, it is unlikely to assess their performance and therefore will be unable to implement any policies. In democratic countries, it is well understood that the government cannot afford censorship – as well as it cannot afford electoral fraud, breaking rule of law, or expropriating ordinary citizens.

 

The situation is different in dictatorships where the rulers have a choice whether to allow at least partial media freedom or censor media completely. On the one hand, benevolent dictators are interested in media providing honest feedback on their bureaucrats. Indeed, if bureaucrats are not monitored, the dictator knows that this may result in growth of corruption and reduced living standards, which may eventually cost the dictator his job. On the other hand, media freedom presents a direct threat to political survival. Citizens may use it to make inferences about the abilities and performance of the ruler himself. Even worse (for the dictator), free media serve as a coordination device by making negative information, if any, common knowledge, which allows citizens to coordinate in revolting and replacing the ruler. It is therefore natural to expect that media will be less free whenever the ruler values job security over provision of incentives.

 

In our paper, we directly test this implication using the differences in natural resource abundance. Different countries (including different dictatorships) have different amounts of mineral resource wealth. Moreover, mineral reserves change over time. This allows us to conduct a very powerful empirical test. We check whether, in the very same country with the same history, culture, religion etc., an increase in resource abundance results in lower media freedom. Our theory implies that in dictatorships, this should be the case. Indeed, more resources imply more rents to expropriate; on the other hand, resource abundance implies less need for high-powered incentives to bureaucrats (resource rents allow making up for the inefficient bureaucracy).

 

This is exactly what we find. In non-democratic countries, an increase in oil reserves over time is correlated with lower media freedom (controlling for all other determinants of media freedom including those that change with time). Interestingly – and this is also in line with our theory – there is no such relationship in democratic countries.

 

Our econometric results are reinforced by many examples – the growth of oil price and oil reserves in 2000s was accompanied by substantial growth of censorship in Iran, Russia and Venezuela – but not in such large oil producers as Canada, Norway, or the U.S. The inefficient state-owned oil producer in Mexico, PEMEX, has depleted Mexico’s oil reserves – and this happened alongside growing media freedom. When the Soviet Union discovered West Siberian oil, it shelved its reform plans and entered twenty years of 1970-80s stagnation. And vice versa, once the drop of oil prices by a factor of three destroyed the value of Soviet mineral wealth, Gorbachev decided to introduce (initially partial) media freedom. As the famous New York Times journalist Tom Friedman writes in his “First Law in Petropolitics,” “Give me $18 per barrel, and I will give you democracy in …”. Our paper certainly proves him right, at least with respect to media freedom if not democracy.

 

Photo Credit: Wikimedia Commons

 

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Sergei Guriev

Sergei Guriev, Professor of Economics and Rector, New Economic School Sergei Guriev received his Dr. Sc. (habilitation degree) in Economics (2002) and PhD in Applied Math from the Russian Academy of Science (1994), and M.Sc. Summa Cum Laude from the Moscow Institute of Physics in Technology (1993). In 1997-98, Dr. Guriev visited the Department of Economics at M.I.T. for a one-year post-doctoral placement, and in 2003-2004, the Department of Economics at Princeton University as a Visiting Assistant Professor. Dr. Guriev’s research interests include contract theory, corporate governance, and labor mobility. He teaches graduate courses in microeconomic theory, contract theory, and economics of strategy. Dr. Guriev has published in international refereed journals including American Economic Review, Journal of European Economic Association, Journal of Economic Perspectives, and American Political Science Review. In 2006, he was selected a Young Global Leader by the World Economic Forum. In 2011, he was invited to join the World Economic Forum’s Global Agenda Council on Europe. In 2000 and 2005, he was awarded Gold Medal for the Best Research in Development Economics by the Global Development Network. In 2001, he was announced the Best Academic Manager in Humanities by the Science Support Foundation. In 2009-11, he was included in the top 100 of the President of Russia’s Cadre Reserve. In 2009, he was also awarded the Bill Maynes Award by the Eurasia Foundation. In 2009 and 2010 he received the Independent Director of the Year prize from Russia’s National Association of Independent Directors. In 2010, he received a Certificate in Company Directorship from the Institute of Directors (UK) and was voted the Best Independent Director by the Association of Managers of Russia and the Russian Institute of Directors. Sergei Guriev is a member of the President of Russia’s Council on Science, Technology and Education and of the Government of Russia’s Council on Grants for Leading Scientists. He is a Research Fellow at the Centre for Economic Policy Research, London. He is a member of the Scientific Council of the BRUEGEL think tank (Brussels) and of the Advisory Council of the Peterson Institute on International Economics (Washington, DC). He is a board member of Sberbank, Russia Venture Company, Russian Home Mortgage Lending Agency, Alfa-Strakhovanie Insurance Company, and the Dynasty Foundation. In 2008-09, he also used to be a board member at the Russian Agricultural Bank (Rosselkhozbank). Sergei Guriev is running a column in Forbes Russia (since 2006) and in the leading Russian business daily Vedomosti (since 2003); he has also contributed columns and opeds to the New York Times, Project Syndicate, Smart Money, Moscow Times, and Expert.

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