American Economic Association

The On-and-Off Connection Between Political and Economic Progress Author(s): Albert O. Hirschman Reviewed work(s): Source: The American Economic Review, Vol. 84, No. 2, Papers and Proceedings of the Hundred and Sixth Annual Meeting of the American Economic Association (May, 1994), pp. 343-348 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/2117856 . Accessed: 14/03/2012 17:10
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The On-and-OffConnection Between Political and Economic Progress

By ALBERT 0.
If a country'smovement toward democracy is viewed as the essence of political progressand its advance toward a just and prosperous society as economic progress, then our session's subject is, simply and bluntly,the relationbetween economic and political progress. This relation has often been visualized in a very few alternative, functionalforms such as the following: (1) "All good things go together"-economic progressbegets political progress as well as vice versa:the two go harmoniouslyhand in hand. (2) Next, there is the opposite pessimistic view that "everythinghas a cost" or "there is no such thing as a free lunch" -meaning in the present context that economic progress necessarily exacts a cost in the politicaldomainor vice versa: political advances are bound to jeopardize economic progress. (3) A third, intermediate, case might be labeled "per aspera ad astra":duringa first period, economic progress goes it alone while political progress must be held back or is even put into reverse gear, sacrificedfor the sake of the growing economy;during a second period, a rewardis reaped for the temporarysacrificeas politicalprogressis catchingup. The opposite process, with economic for progressbeing sacrificedtemporarily the sake of political advance, has been less frequentlyarticulated,but also has a realistic ring. Here the two variables evolve in a slightly more complex pattern, as in Simon Kuznets's (1955) proposition about the curvilinearrelation between economic growth and inHIRSCHMAN*

equality, or as in my own models of unbalanced growth and of "sailing againstthe wind" (Hirschman,1992 pp. 26-33).
I. FromEconomicsto Politics: The RatchetEffectand RelatedMetaphors

* Institute for Advanced Study, Princeton, NJ 08540. 343

In attemptingto establishthe true nature of the connectionbetween politicaland economic progress,these variouspatternshave been found to prevailin some countriesfor some periods, but it is now fairlyclear that none can claim to be predominant.This is convincinglyshown in the recent article by Adam Przeworskiand Fernando Limongi (1993) on "PoliticalRegimes and Economic Growth."Their careful and comprehensive review of the literatureis in the end thorinconclusive.Unoughlyand discouragingly der the circumstances,there is an almost cruelly mocking ring to the article's last sentence: "Clearly,the impact of political regimes on growth is wide open for reflection and research." in establishOne reactionto this difficulty ing a solid connection between economic and politicalprogressis to revertto the idea that economics and politics are two wholly separatedomains.As StephanHaggardand Robert Kaufman(1992) noted, political scientists analyzedthe recent wave of democratizationin LatinAmericaand Asia largely in such autonomous terms. This may well reflect disappointment over certain once popular, but by now discarded analyses of political events in the 1960's and 1970's which representeda last-ditcheffort to understand those events-in particular, the turn to authoritarianism duringthat period -in termsof "underlying" economicforces. However, this reversion to proclaiming the autonomyof politics and economicsmay be an overreaction. The two domainsdo exhibit many linkages that are quite intimate

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at one point, only to evaporate later. The troubleis that researchershave been unwilling-or that the model builders have been unable-to think in terms of on-and-off
connections, or of couplings and uncouplings, or of alternations between interdependence

and autonomy.I would like to review here some already availableways of thinking in such terms.For this purposeit pays to scrutinize ordinarylanguageas well as the world of myth. As on-and-off connections have been experiencedtime and again,myth,language, and occasionallysocial thought have come up with a series of stories and expressions that gesture effectivelytowardwhat is to be understood. Let me first recall a metaphorfrom hand tools that entered the language of economics over 40 years ago. I refer to the "ratcheteffect." James Duesenberry(1949) created this term to describe the behavior of consumptionin relationto income during the business cycle: consumptionis a rising function of income as long as income increases but will resist following income on the downward path, as in a recessionpeople will dig into their savingsto maintaintheir accustomedstandardof living,at least for a time. Here is precisely the idea of uncoupling (or unyokingor unhinging),that is, of a functional relationship which ceases to operate at some point. Some time ago I came upon a similar situation in a growth context. During the 1980's, when indexes of economic performance leveled off or declined in some Latin Americancountriesunder the impactof the debt crisis, importantsocial indicators,such as infantmortality,illiteracy,and the extent of birthcontrolcontinuedshowingimprovement (Hirschman, 1987 pp. 11-12). Such improvementshad occurred earlier in response to rising incomes, but they had apparentlyassumed "a life of their own." At some point they were no longer narrowly tied to the "vagaries"of income. To the extent that these social advanceswere due to learning processes they became irreversible and started diffusion processes of their own. Such processes are essential to understanding growthand development.

That a behavior which is originally resisted and acquired only under the influence of extrinsic (positive or negative) incentives can become irreversible is also well renderedby the expressionthat the behavior eventuallybecomes "second-nature." A good deal of learningconsists in fact in this mysteriousprocess throughwhich a behavior acquired under duress (because it goes

against "first-nature") becomes secondnature.It has not been widely realized that this process-the replacement of extrinsic incentives toward a certain behaviorby intrinsic ones-is the exact opposite of the "crowdingout" of intrinsicmotivationas a result of the introductionof extrinsic(usually monetary) rewards.1 The becomingsecond-nature process appears to have aroused less interest than the crowding-out one, perhapsbecause it is auspicious,rather than worrisomeand dismal. Returningfrom ordinarylanguageto social science,the term "disjunction" has been used by Daniel Bell (1976) to describe how the culturaland artisticlife of modern societies no longerreflectsthe evolutionof society and economy in general. The term was meant to convey dissent from those sociological thinkers, from Karl Marx to Emile Durkheim and Talcott Parsons, who cultivated a vision of society as an integrated whole. In the Marxianscheme, for example, is supposed culture, the "superstructure," to correspond somehow to economy and society (the "infrastructure"). So, from the point of view of that scheme, when culture takes on a "life of its own," it seems fair enough to speak of disjunction:something that was supposedto be controlledby something else, acquiresautonomy.Curiously,in spite of his solid non-Marxistconvictions, Bell saw this autonomyas something vaguely abnormaland threatening. This negativeinterpretation comes to the fore in a fairytale or myththat reflectsonce

1As famouslydescribedby RichardTitmuss(1970), extensivelysurveyedby Robert Lane (1991), and recentlyreanalyzed by BrunoFrey(1992).

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again the notion of uncoupling. It is the story of the sorcerer'sapprenticewho, unlike the master, turns out to be unable to control the forces he has unleashed. Social processes of the sorcerer'sapprentice type are not hard to find. In the United States, for example, the Prohibition Statute of 1919/1920 gave rise to the emergence of "Big Crime"syndicateswhich organizedillegal networksof production and distribution of alcoholic beverages.But the repeal of Prohibitionin the 1930's did not cause Big Crime to disappear(Thomas Schelling, 1984 p. 178). In similarways, the processes previously describedas the "ratchet effect" and "taking on a life of its own" have potential for both good and evil. Onlywhen a behavioris said to become "second-nature"is it normallyassumedthat one is in the presence of genuine learning. Even this process can sometimes be given a negative interpretation by presenting it as the outcome of "brainwashing." Some important connections between economic and political progress or decline are best describedin terms of the concepts just surveyed,particularly when the initial causation runs from economics to politics, as in the following two well-knownexamples. The vigorousdevelopmentof the Spanish economy duringthe three postwardecades contributedin variousways to undermining the authoritarianregime established after the end of the Civil War by Francisco Franco. After the death of the long-time dictator in 1975, a fairly smooth transition to democracygot underway.But just then the international oil crisistemporarily halted economic expansionand caused large-scale unemploymentto appear. Fortunately,the new democratic institutions were able to acquire a "life of their own" and became "second-nature"to Spanish society (Juan Linz and Alfred Stepan, 1989 pp. 43-46). The opposite case is tragicallyillustrated by the history of Germany in the earlier part of this century.Here it was the rise of Adolf Hitler that was powerfullyassistedby economicforces-the GreatDepressionand

the ensuing mass unemployment. Then, once in power in one of the world's most technically and culturally advanced countries, the Nazi regime went on its madly "autonomous"course to suppress democracy,unleash war, and commitgenocide.
II. From Political to Economic Progress:

Toward a Repertoire of History's Tricks

In exploring connections between economics and politics, social scientists have ordinarily given preferentialattentionto sequences where economic events clearly influence and shape the realm of politics. As just illustrated,politics then has a way of takingover, it becomes unhingedfrom economicsin line with the "on-and-offscheme. Examplesfor the opposite sequence, where politics would be the prime mover, do not spring to mind as readily, but it may be helpful to proceed by analogy with the Spanish and German cases. This involves examiningsequences of events startingwith some importantadvancetowarddemocracy and then looking at the economic consequences. Here a basic difference appears between economic and politicalchange:the latter is more likely to be discontinuous than the former. Advances toward democracy have typicallyoccurrednot as a result of some gradual"democratic upswing,"but because an oppressive regime has been overthrownor because a voting-reformlaw broadeningthe franchisehas been adopted. It is because such democratic advances typically happen as one-time events that much of the analysisof the economicconsequences of politicalchange ends up as exercises in comparativestatics. One compares the economic performance of democratic and nondemocraticcountries and hopes to be able to conclude that the former do better in the economic realm as well. An earlyexampleof this way of disposingof the problem is Adam Smith's well-knowndictum: "Little else is requiredto carrya state to the highest degree of opulence from the lowest barbarismthan peace, easy taxes, and a tolerable administrationof justice" (Dugald Stewart,1858 p. 68).

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Two remarks are in order. Such a constructionassumesthat all that is needed for economic growth to happen is some set of political prerequisites such as peace and secure property rights. With that set in place, it is the economy that is expected to acquire"a life of its own,"with no need for further interaction between economic and political forces. But such interaction obviously exists on a continuingbasis and needs to be understood.Secondly,the usefulness of the propositionsabout the political prerequisites of economic growth is doubtful. The exhortation to countries lacking "democracy"or "peace" to get their act together and procure such blessings is not notably helpful. If a country is unable to end its civil war to stop the killing, is it likely to do so to achieve a better rate of growth? I do not wish to be whollynegative.Comparativestaticsdoes have its uses. An example is AmartyaSen's (1983, 1994)point that a countrylike India with a reasonablyfree press, able and willingto denounceintolerable conditions and abuses, has a better chance to avoid faminesthan an authoritarian countrylike China.If nothingelse, such a finding packs a considerable hortatory punch. Yet, the main task of political economy remains to provide a better understanding of the ongoing interactionsbetween politics and economics. Not to attempt the construction of building blocks here is in fact an evasion of a real opportunity,in view of the very characteristics of a pluralistmarket society. As this society creates new wealth, it also generates problems of emerging inequality and regional or sectoral decline that are often unjustor felt as such. Hence there arise, in the political domain, demands for reform and political action. In turn, these reforms and actions have economic consequences. Political economists have not come forward with many generalizationsor conjectures in this field, perhapsfor good reasons. What indeed can one say about the likely consequences of democraticand social advances for economic growth? Without detailed knowledge about the nature of the

advance and the surrounding historicalcircumstancesit would seem foolish to hazard an answer.A democraticadvancecan either inaugurateor put an end to an era of political instability,and thus it can lead to either economic decline or growth. Fortunately, the historical record raises doubts about such total indeterminacy,at least for the countries with the most advanced economies in Western Europe and North America. These countries are also those that have enacted, discontinuously, a series of political and social reforms over the last two centuries. Does it then follow that these "democratic" advanceshave had on the whole a stabilizingeffect and have improvedthe "investmentclimate" so that economic growthcould gather strength? This is a rather surprisingconjecture,in Alexis de partbecause it directlycontradicts Tocqueville's famous proposition that, in France, attempts at reform prior to 1789 and in the earliest phase of the Revolution had fatally destabilizingeffects on the ancien regime. This was surely a remarkable insightfor the events Tocquevilleundertook to analyze. But, just because the French Revolution had aroused widespreadexpectationsthat its historyof progressive radicalization is apt to repeat itself, subsequent reforms played often a different, self-limiting and stabilizingrole. I now wish to advance one possible explanation,buildingon what I call the "jeopardy thesis" in my recent (1991) book, The Rhetoricof Reaction. By that term I understandthe argument that a proposed reformwill endanger an argument that previousaccomplishments, played a centralrole in the historyof opposition to reformin the 19th century. After the French Revolution,democratic and social advanceswere fought tooth and nail by the now alerted and highlyarticulate forces:every advancewas de"reactionary" nounced as though it were in fact synonymous with revolutionand would mean the annulment of previous advances toward "liberty."But then, with a reform having been adopted in spite of that strenuous opposition, it often turned out, to much surprise,that the reform,that famous"leap in the dark,"could be lived with.The result

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was enormous relief among the owners of capital, political stabilization,and a period of sustainedeconomic growthand prosperity. This interpretation yields a politicalbusiness cycle that wouldbe determinedby each wave of reform. Concern and alarm over reform proposals and over the connected agitationbrings a decline in investmentactivity,which then reboundsonce the reform has been passed and is being assimilated. The more persuasive the warnings about the disastrousconsequencesof reform, the more vigorous will be the actual upswing after the reformis passed and the warnings are disproved. This sequence is suggestedby the storyof how the hotly contested Reform Laws of 1832 and 1867 in England had a peaceful and prosperousaftermath.It should be interestingto examinewhetherthis somewhat paradoxicalpattern can be found to hold for similarepisodes in other countries.But economists familiar with rational-expectation models should not be overly surprised if prophecies of destabilization'a la Tocqueville turn out to be self-refuting,rather than self-fulfilling. Of course, I would never want to rely on the mechanismI have sketched.It would be folly to encourage "reactionaries" to make outrageous claims about the evil consequences of a proposed reform, with the cunning thought of eliciting feelings of relief, and hence economic upswing,once reform is adopted and proved not to be all that disastrous.Even if this conjunctionof events has "worked" a few times in the past, one cannot have any confidencethat it will do so again. Samuel Johnson once issued a fine warningagainst the intellectual pride that would lead one to act on the basis of such putative insights.In his philosophical novel Rasselas, he wrote: "Man cannot so far know the connexionof causes and events, as that he may venture to do wrongin order to do right"(1958 p. 576). What,then, is the point of my story?It is to affirmonce again that political and economic progressare not tied together in any easy, straightforward,"functional" way. There are the various on-and-off connec-

tions of the first part of this paper. Then there are stories, intricateand often nonrepeatable, like the one I have just told, that look more like trickshistoryhas up its sleeve than like social-scientific regularities,not to speak of laws. To make an inventory, to survey history's repertoire of such tricks, seems to me an appropriately modest way of tryingto make progresswith this difficult topic. REFERENCES
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Now?" Economic Journal, December 1983, 93(372), pp. 745-62. ._ "Freedoms and Needs." New Republic, 10-17 January 1994, pp. 31-38. Stewart, Dugald. "Account of the Life and Writings of Adam Smith," in Collected works, Vol. X. Edinburgh: Constable, 1858. Titmuss, Richard M. The gift relationship. London: Allen and Unwin, 1970.