What is the effect of the type of political regime (democratic versus authoritarian) on property rights and enforcement institutions? This study explores these issues by examining the effects of regime type and duration on property and contract rights. It argues that property and contract rights are likely to depend on the expected duration of the democratic regime itself rather than the expected tenure of a particular democratic chief executive.
There has long been intense interest in the relations between democratic political institutions and economic progress. Recently, economists have developed an enhanced appreciation of the benefits for economic growth of the institutions of secure property rights and effective contract enforcement mechanisms. This study looks at the duration of political regimes and at the incentives that these create for political leaders. This focus on the duration of regimes arises naturally in an examination of property and contract rights, the beneficial consequences of which depend on the expectations regarding the behaviour of politicians and judges.
A dictator or autocrat who does not expect to last long and who wants to maximise his wealth has an incentive to appropriate whatever assets he can. However, an autocrat who expects to remain in power for a long time has an incentive to establish and then respect property rights for his subjects so that they will produce more output that the autocrat can tax. In contrast to a dictator, a democratic politician does not have the power to abrogate property rights, cancel contracts and seize assets. It is the very nature of a democratic regime that political leaders are constrained from repressing the political rights of opponents and these same constraints may limit their power to abrogate property and contract rights as well.
- Long-duration autocracies provide better property rights than short-duration autocracies.
- Long-lasting democracies provide better property rights than long-duration autocracies or short-duration regimes of either type.
- There is no indication that replacement of autocracy by democracy improves property rights or that movements of regimes in the other direction make them worse.
- In fact, results indicate the reverse: shifts in the direction of autocracy are associated with improvements in property rights.
The prospects for lasting democracy seem to depend on a variety of country characteristics including the level of income, the degree of social and economic inequality, the degree of ethnic and racial tensions, qualities of the government bureaucracy, the presence or absence of the experience of British tutelage.
- Many country characteristics favourable to lasting democracy are also favourable to good economic policy and good property rights, even apart from their effects on democracy. Hence, it is difficult to nail down the causal effects of democracy on property rights and economic performance.
- Theoretical considerations as well as historical evidence support the proposition that long-lasting democracy is favourable to property rights. Democracy is likely to be beneficial to property rights in countries where it stands a good chance of lasting.
- In countries that lack a stable democracy, there is no evidence to support those who claim that democracy is the key to improving the economic institutions favourable to economic growth.
- For a country for which a stable democracy is not a feasible option, a durable autocracy with a leader who is rationally maximising his long-term tax extraction may be, among the available political arrangements, the one most favourable to property rights.
