Monday, May 25, 2015

Political Order and Political Decay by Francis Fukuyama (Book Review #42 of 2015)

Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy

I read this book immediately after reading Volume 1 (The Origins of Political Order). This work examines the development of political institutions from the French Revolution to today, and the last 1/3 of the book looks at what causes decay in those institutions. I only give this book three stars because I felt like Fukuyama didn't really add much value to the extensive sources he cited and left so many aspects of political order and decay unexamined. The first volume included overviews of thousands of years of Chinese, European, and Middle Eastern history. The scale of this book was much more narrow and not quite as interesting. He at least quotes Acemoglu and Robinson's 2012 work, which I found much better than either this book or the previous one. One real weakness of Political Order and Decay is that Fukuyama fails to address how political institutions and governments evolve, adapt, or decay in response to cooperation with other governments. If "the state makes war, and war makes the state" what about attempts at common global cooperation, like adherence to U.N. resolutions and WTO rules? Several countries reformed their legal institutions and surrendered an amount of sovereignty in order to join the EU, for example. Fukuyama never really addresses this. Ultimately, both volumes are intended to be a critique of and complement to Samuel Huntington's work, which I admittedly have never read.

Fukuyama spends much space recapping what was discussed in the previous work. Political institutions decay because of institutional rigidity and patrimonialism. Patronage exists in every government, as legislatures pass laws that people advocate for. But this is distinct from clientelism where there is an outright favors-for-votes understanding. Clientelism as Fukuyama tells it is what differentiates good governance from bad. No country can get rich without effective government there is a correlation between economic growth and the quality of governance. But while Jared Diamond (Collapse) and others are looking at the decline of societies as a whole, Fukuyama is simply focused on government institutions that might decline while other institutions around them may be flourishing-- such as in the United States. Fukuyama defines the rule of law to broadly encompass check on arbitrary rule of the authority. While this is essential to economic growth, China is experiencing economic growth without really having the rule of law-- the only modern civilization never to have adopted the rule of law. But China has granted enough property rights for incentives to exist and allowed a modicum of economic freedom. Fukuyama later details Chinese attempts at developing adherence to rule of law pre-Mao and post-Mao.

A political order's current state of decay is dependent on what came first-- democratic capitalism or industrial progress. The U.S. Constitution was written when the colonies were agrarian and had no need for a strong central authority; authority could be delegated to local administrations and defense handled by militias. American political institutions were unable to change with the rapid change of the industrial revolution-- new technology, greater communication, greater mobility, and urbanization. The inadequacy of the institutions culminated in the Civil War, which saw dramatic expansion and organization of federal power (including the standing army). America is more reliant on its courts to not only enforce laws but to apply them than any other developed country. Hence we have an army of lawyers that make change difficult (rigidity) and judges appointed for life can change how laws are interpreted (for example, the minimum wage was ruled unconstitutional before it was ruled constitutional).

The necessity of the railroads created a problem of monopoly, which led to regulation. The American Economics Association was formed, in part, to propose ideas on regulating the railroads which included the Interstate Commerce Commission (ICC). Fukuyama is correct to draw the comparison to today's health care system-- a critical sector of the economy with a lack of competition, lack of transparency in pricing, government mandates leading to hidden costs, and not easy to innovate around in the short-run. The Madisonian system of checks and balances apparently did not anticipate the capture of government entities, such as the ICC, by those it regulated. So, Fukuyama deems regulation as necessary but problematic. It helps maintain a democratic state but is also in contradiction with the democratic state. He writes that the ICC could have been better if it were not a commission, but an independent body of technocrats set up more like the later-created Federal Reserve Board of Governors.

Technocrats can help run a system well but are anti-democratic, hence you see the "audit the Fed" movements alive among conservatives today. Democracy correctly puts checks on the executive in order to keep tyranny from happening as it has since the Greeks invented democracy, but making everything democratic and subject to the whims of the people leads to every decision becoming political, and good governance needs to happen despite the people. Fukuyama writes that the turning point toward technocracy came with passage of the 14th Amendment (1868), which has been broadly interpreted by courts to extend to corporations and used to overturn everything from abortion laws to school segregation in order to essentially protect the electorate from itself. Fukuyama writes that the 14th Amendment resulted in the merit system that governments employ today-- where workers cannot be fired for political purposes and therefore are able to be more objective. However, this merit system is also a double-edged sword.  Government workers who are not at risk of being fired lack the incentives to perform well that their counterparts in the private sector respond to. (Disclosure: I'm a merit worker in government.) Government workers in some states have successfully unionized, creating an even greater rigidity.

Changes in political institutions must be examined in context of economic growth and other changes in the society. Fukuyama, oddly enough, does not note much of the overt evolution of U.S. institutions toward populist democracy. He never notes that America was founded as a Republic in order to insulate it from the illiterate masses (read some Gordon Wood). We forget today that Senators were only popularly elected in every state after the 17th Amendment (1913). America was revolutionary in giving all white males the right to vote in the Constitution (this didn't happen in England until after World War I), but the Founders intended a particular elite to govern. Giving African-Americans suffrage after the Civil War made the U.S. much more democratic than England, where only 40% of the population could vote up until the 1880s. He does note the changes that came with Jacksonian democracy, attributing the rise of clientelism to the increase in patronage due to the entrenchment of the political party system. Lexington, KY (my birthplace) makes a cameo here as Fukuyama notes it as an example of a relatively small place with an outsized political machine determining everything from congressional representatives to police officers-- similar to that of the later Tammany Hall in New York. However, clientelism does create a form of democratic accountability and participation. The politician must please his patrons or else be ousted.

Real progressive reform and a focus on scientific management came in the early 20th century. Besides the ICC above, Fukuyama focuses on the U.S. Forest Service, which began as a technocratic model headed by Gifford Pinchot under Teddy Roosevelt's Presidency. Pinchot was a competent expert/manager who was motivated and given wide discretion. The Forest Service was responsible for the long-run health of the forests and to maintain its overall profitability. It was "responsive, but not owned," and didn't have mandated rules. Pinchot and Roosevelt represented the "Elite American" class of people who were well-read and well-traveled abroad that Fukuyama laments no longer exists. The Forest Service serves as Fukuyama's example of political decay-- under Lyndon Johnson the service was mandated to do more fire suppression, which seems to be the primary focus of the service now. Fire is useful and necessary to the future health and profitability of the forest, but a government unresponsive to fires is at risk politically. Ironically, the emphasis on fire suppression actually led to more fuel for more frequent and hotter-burning and more dangerous fires today. Mandates took away discretion and dynamism, and the merit system entrenched certain incompetent and less-motivated managers. This has happened across government, and Fukuyama cites studies finding Americans would now rather work for non-profits than the government.

Hence, technocracy depends on benevolent directors, just as countries like China can experience increases in economic growth and standard of living with leaders like Deng Xiaping instead of Chairman Mao. This is an obviously slippery slope that has been dealt with in Western political philosophy since the Greeks, and Fukuyama pays it short shrift. He even argues with Hayek's knowledge argument: A central planner can never have all the information that millions of people voluntarily working together could have (hence the "magic" of the price system). Fukuyama argues that while this may be true at any (every) given moment, we can learn over time and correct our mistakes. But this is like arguing that history doesn't repeat itself and ignores the "this time is different" fallacy repeated so many times by would-be expert analysts and "benevolent" dictators.

It's fitting, then, that Bill Easterly's most recent book is titled The Tyranny of Experts as Fukuyama delves into the recent economic development literature to examine why some countries develop sound institutions and develop economically while others do not. He examines work by Easterly, Jeff Sachs, Acemoglu and Robinson, and Douglass North. Sachs, like Diamond, puts great emphasis on geography and factor endowment. Acemoglu and Robinson argue (persuasively in my opinion) that these are not the deciding factors. Fukuyama approvingly cites Easterly's work on poverty correlating with conflict. All economists  agree that factor endowments (natural resources) are crucial.

How British and French colonies reacted to introduction to the West depended on their pre-existing institutions. Were they high-trust societies with relatively homogenous people groups and a national identity? Or were they, like Greece and Southern Italy, more clan-like and lacking a strong state to enforce property rights? The author describes how the Britain and France tried to do colonialism "on the cheap," setting up extractive institutions and not investing much in developing the institutions needed to maintain good governance after independence. Nigeria is one country that went particularly badly, partly the consequence of being even less unified than Greece, with 200+ tribes all competing for power and patronage. Fukuyama argues that Nigeria is "weak in a moral sense," suggesting that cultural norms and mores matter and making Fukuyama the arbiter of morality and strength of weakness. This weakness and the clientelistic system is what keeps people from uniting to demand change since they indeed have a ballot box. The Arab Spring happened in the course of authorship, and this creates some issues for the author's analysis of countries where the clientelistic system is the status quo, as somewhat diverse entities united to demand change. But countries like Nigeria are more diverse and fractured than most.

Fukuyama details how Britain and France's approaches to colonialism differed. Initially, British overseers were generalists and not familiar with the specifics of the country they were in. Most never learned the language and never gained trust. "Producing Denmark" was not the goal, as Denmark wasn't Denmark then. Supposedly, both Britain and France learned from their errors and made strides toward what we would now call economic development in the latter days of colonialism. As I read this portion I wondered "Does Fukuyama add anything of value to the vast literature on economic development?" I think not.

While conflict correlates with poverty, this mainly relates to internal conflict. Wars with neighbors are instead suggested by Fukuyama to be healthy. War requires rapid organization by government, organized industrial economic policy, and uniting somewhat diverse groups into a cohesive national identity. He suggests that Latin American countries have not developed as strongly as European countries because of the lack of war between states in South America (seriously). (He spent more time in Vol. 1 looking at the extractive institutions set up by Spain.) The author laments that economists ignore the effect geography has on military conquest and development. As I mentioned at the outset, he spends no time on peaceful cooperation between governments, like harmonizing laws and taxes to establish a customs union, trade agreement, or membership in a larger body like the U.N., EU, etc.

Fukuyama contrasts Costa Rica with its less-prosperous neighbors as well as Argentina. Argentina supposedly "proves" that endowments and geography aren't the most important, as Argentina has a variety of resources to draw from but has suffered from despotism, hyperinflation, and other maladies keeping it from becoming Costa Rica. He conveniently neglects to mention that Costa Rica is a haven for criminals and money laundering due to its lack of extradition treaties with the U.S., so much of its per-capita income is held by an elite few. He does not delve into Peronism but it's worth noting the strong national identity of Argentinians also has not seemed to correlate with good governance. South America's problems are further exacerbated by other powers' constant intervention, such as the U.S.'s Monroe Doctrine.

National identity is a double-edged sword, necessary for solid state-building but harmful as it can lead to nationalism. The Democratic process in Germany was obviously hijacked by nationalism. I think the promotion of nationalism by the Young Turks movement at the end of the Ottoman Empire and the war for independence after WWI, and the defense of nationalitic ferver today as a result, is a good example that Fukuyama does not recount. He does admit that the U.S. built its democracy at the expense of Native American lives. The rule of law did not apply to its Cherokee inhabitants and the U.S. Constitution represents such patriotism to some that it is essentially revered as holy and infallible document.

Greek and Italian problems in the eurozone are highlighted by the author. Greece and Southern Italy are low-trust societies where loyalty is to family. Is trust endogenous or exogenous? I'd say endogenous. Businesses tend to be family-owned for generations. There is still Shakespeare-esque rivalry among families and groups. In a stronger-state society, property rights are protected by a government such that one does not have to rely on family and clan (this is covered in Vol. 1). In Southern Italy, the mafia take the place of the state in providing protection. In modern times, brave judges have stood up to mafia rule and corruption, but at great cost. In Greece, public employment is patronage. Since the latest economic crisis and austerity measures, only one Greek public sector employee has been fired for every five private sector employees. Tax evasion is a national past time. I'm reminded of books I've read by travelers in the mid-1800s remarking that Greece had no schools of its own, relying on Westerners to build functioning schools.

Contrast this with England, which was already a fairly high-trust society due to various factors including the role of the Church in establishing law (see Vol. 1). Puritanism pushed further reforms in England and Europe, Fukuyama mentions William Wilberforce's religious effort to abolish the slave trade as an example. The industrial revolution undermined aristocracy and led to a growth of the middle class. As in Vol. 1, Fukuyama points out Marx's errors. Marx predicted that eventually capitalism would collapse as the factories were churning out goods on the back of the proletariat that only the bourgeoisie could afford. Eventually, too many goods would be produced than could be consumed and the system would collapse. Marx did not forsee that real incomes would rise such that the median voter in England would eventually be a middle-class worker who voted to secure greater rights and safety. Labour parties formed in Europe to represent the working class and trade unions became powerful constituents. This headed off Marxism in Germany. After the suffering of so many young men in WWI, greater suffrage was granted.

Fukuyama also examines Southeast Asia, particularly Japan and Indonesia. Sukarno, Indonesia's first President, is an example of the type of strong-armed coalition building leader Fukuyama likes. Sukarno unified an ethnically diverse population to fight for independence from the West. Like Mustafa Kemal Atatürk in Turkey (who sadly goes unexamined by Fukuyama), Sukarno oversaw a "guided democracy." Sukarno published his "pillars" on which governance rested. While rejecting Western-style capitalism, he opposed Marxism. While embracing the Islam of many Indonesians, he argued that there was no need for a strict Sharia state, and separated Islam from nationalism. He maintained that Indonesia would be integral to the international community and not just internally focused. Fukuyama does not detail that Sukarno eventually gleaned inspiration from Mao and adopted a heavier hand. Both the U.S. and the Australian governments supported armed resistance against him.

Fukuyama also looks at the development of the Meiji law in Japan at the turn of the 20th century. Japan had to import foreign law because it had no native institutions similar in many respects, and this was difficult since the Japanese language had no words for Western concepts such as "rights." Japan rejected the American Constitution and British institutions and decided to adopt a similar code as Germany's (Prussian legal code) at the time. China, in turn, imported much of their legal code from Japan. The point Fukuyama makes that various cultures do not have the same culture and even concepts in their language to translate a legal code from the West is an important one that deserved more thought. This has huge implications for the democratic institutions the West has tried to export. State-building is not the same thing as democracy-building, an important thing to keep in mind. Japan's 1948 constitution is contingent on U.S. military defense of the country, and should the U.S. pivot away from that Japan would have to adopt something else, and Fukuyama notes a desire among many Japanese to do just that.

China does not take up as much space in the book as in Volume 1. However, the author does chronicle legal reforms in 1911 and the eventual rise of Mao and the arbitrary application of law. The law could change at the whim of Mao from one day to the next with grave consequences, and it is a good reminder that laws should not change often. Aristotle's Politics still provides a good grounding for that idea in the West, although I think that concept is not well understood by young American progressives. While rigidity in the political system and laws contributes to its decay, China is an example of where lack of any rigidity in the rule of law has disastrous consequences. Post-Mao, village collectives were still run by the local government, but were allowed to turn a profit. This led to state-owned enterprises being free to operate and share the wealth. While much of the wealth is siphoned off by corrupt bureaucrats, that is simply the cost of not having implemented a real rule of law. The Chinese Communist Party's 10-year term limits helps keep things from becoming completely autocratic as they were under Mao or in much of the Arab world. Leaders are not permanent and can make incremental changes.

China is dealing with the same basic problem that every nation deals with-- who gets to participate in the political process? Fukuyama quotes from Montesquieu, John Stuart Mill, and Walter Bagehot on this topic, and the difference in suffrage among Western nations I note above. As the middle class grows, as it is in China, it demands and commands a greater say in the working of things. While the growing middle class may be initially progressive, demanding a shorter workweek, worker's rights, etc., it can also eventually side with conservatives against populists as populist policies are harmful to the small-to-medium sized businesses that the middle class own. Fukuyama believes China will eventually decay under its tenuous system lacking true rule of law, but it's not clear exactly how that will happen.

Only the last 1/3 of the book deals with political decay, and these are the best chapters. While the last 30 years have seen a "third wave of democratization," Western institutions like the U.S. are decaying due to their rigidity and patronage in the form of large interest groups. Focusing on the U.S., Fukuyama does not have much optimism. He writes that the political class is more polarized than the American people are themselves. But the media tends to follow the political class, so it looks worse than it is if you just talk to your neighbor. But a polarized political class leads to more polarized politics and a deadlocked Congress.

Britain, on the other hand, with its parliamentary system is more of a "democratic dictatorship." The majority party basically gets to determine the budget and more is left in the hands of technocrats who are not subject to interrogation and the various committees that the U.S. Congress has created to impede good governance. The U.S. Congress delegates control of agencies to the President but at the same time hauls it back through its ongoing Congressional committees. There is also no filibustering in the U.K.

In the end, it seems that a potential solution Fukuyama favors (without stating it outright) is a sort of public-private partnership. The government should outsource activities at a local level to private firms and others would a strong incentive to manage activities efficiently and yet be ultimately accountable to the government through contracts or other means. The more management that can be removed from the political process the better, providing that it is not left completely unaccountable to democratic checks and balances. In the U.S., plenty of states have adopted "P3" laws in this spirit, which Fukuyama doesn't exaine. I would have liked to have read such things in the book.

He closes the book with a recap of Volume 1 and how it relates to this volume. I felt like this book lacked too much original thinking, added little to the development literature it cites from, and left too much out. 3 stars out of 5 for being a great compilation of research.

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