An example of direct democracy at work. Caroline Copley writes:
Swiss voters on Sunday rejected proposals to introduce the world’s highest minimum wage……
About 76 per cent of voters in the wealthy nation dismissed the proposal made by Swiss union SGB and backed by the Socialist and Green parties for a minimum wage of 22 Swiss francs ($25) per hour, final results showed.
Read more at Swiss Voters Just Rejected A $US25 An Hour Minimum Wage | Business Insider.
Organizers submitted more than the 100,000 signatures needed to call a referendum on Friday……..Under Swiss law, citizens can organize popular initiatives that allow the channeling of public anger into direct political action. The country usually holds several referenda a year.
Read more at Swiss to vote on 2,500 franc basic income for every adult | Reuters.
Reuters Shanghai:
China on Wednesday said the U.S. government shutdown had exposed “the ugly side of partisan politics” in Washington and expressed concern about its effect on the world economy.
An editorial on the state-run Xinhua news service, considered a channel for Beijing’s official views, said: “The United States, the world’s sole superpower, has engaged in irresponsible spending for years.”
“In the view of the latest political failure, a replay of the 2011 summer drama seems likely, which is certainly a concern for U.S. foreign creditors,” it said.
“With no political unity to redress its policy mistake, a dysfunctional Washington is now overspending the confidence in its leadership,” the editorial said.
Chinese leaders must be both puzzled and perplexed by the current spat between Congress and the Senate. How can a government which considers itself a beacon of democracy — and which advocates democracy to emerging nations — exhibit such disfunctional behavior? Separation of duties between the President, Congress and the Senate — designed to safeguard the nation from excessive concentration of power — have evolved into a recurring political logjam. Both major parties are guilty of burdening future taxpayers with public debt, in order to buy off existing voters, and kicking the can down the road — avoiding unpopular political decisions that are in the long-term interests of the nation. Failure to address unsustainable welfare spending, for example, has allowed unfunded liabilities to balloon to more than $70 trillion by 2012.
Weak political coalitions have also led to unstable government and a short-term focus in many Western democracies. These issues are completely foreign to China’s Central Committee.
The Central Politburo Standing Committee (“PSC”) of the Communist Party of China is a committee of 7 members appointed by the Chinese Communist Party to run the country, with Li Jinping acting as General Secretary. No political group has the power to block decisions of the Committee, allowing them to focus on long-term goals rather than short-term considerations. Ascendancy of the PSC is one of the major contributing factors to China’s phoenix-like rise from the ashes of decades of political turmoil.
I am not advocating that we abandon democracy and revert to a one-party state, but we need to address the weaknesses in our current system and adopt some of the strengths of others. An outstanding example of this is the Swiss system where a similar central committee is democratically elected, based on proportional representation. All parties are represented on the 7-member Federal Council and decision-making is collective. Council members serve one year terms as the largely-ceremonial head of state. The strength of the system is its stability, with only one change to the composition of the 7-member Council over the last 50 years. This enables members to focus on long-term goals rather than on short-term political concerns — one of the reasons why the Swiss economy is one of the most stable and successful, ranked 8th in the world in terms of GDP per capita according to the IMF.
Powers of the central committee are restrained by a vibrant direct democracy where citizens regularly vote on national referendums. The power of voters to overturn their decisions maintains a strong check on the central committee throughout their elected term and would also curb the influence of special interest groups, another abscess on butt of many democracies.
While most recognize the need for change, a major obstacle is the power of vested interests that are likely to impede progress at every turn. Only a major ground-swell of popular support could sweep them aside. In a way we should welcome crises like the current impasse, as further cracks in the dam wall of public opinion. When the wall breaks, hopefully we can build a better system…..if we have learned from our past mistakes.
Read more at China: US Shutdown Exposes 'Ugly Side of Partisan Politics'.
When immigrants in Switzerland apply for citizenship, the decision is made in the municipality where they reside. While in some parts of Switzerland these decisions are made by elected representatives, in other municipalities individual applications are subject to a public referendum. Dominik Hangartner and Jens Hainmueller assess the impact of direct democracy on citizenship applications, finding that far fewer applications are accepted when a referendum is used. The applicant’s country of origin is the most important factor in determining success, with applicants from Turkey and the former Yugoslavia over ten times more likely to be rejected than those from other countries, such as Italy.
Economist Martin Jacques, author of When China Rules the World, sings the praises of China in BBC Point of View.
“Even though China is still a poor developing country, its state, I would argue, is the most competent in the world. Take infrastructure – the importance of which is belatedly now being recognised in the West. Here, China has no peers…….. we are in a new ball game. With the Western economies in a profound mess and with China’s startling rise, the competence of the state can no longer be ignored. Our model is in crisis. Theirs has been delivering the goods.”
Patrick Chovanec has a different assessment:
“China’s economic miracle was result of govt getting out of way and letting people improve their lives, not planning by all-seeing mandarins.”
China is a developing country, with rapid growth fueled by massive infrastructure investment and strong exports. The country faces diminishing returns on infrastructure investment and dwindling exports — not only from an economic slow-down in the West but from rising wages as the country attempts to boost internal consumption as an antidote to the middle-income trap that is already threatening growth in its richer provinces.
China also faces push-back from the West against trade advantages maintained by suppressing their exchange rate through vendor financing — balancing trade inflows on current account with outflows on capital account. Why else would a developing country hold more than $1 trillion of investment in US Treasuries at negative real interest rates?
Jacques claims that the Chinese state enjoys popular support:
“But does the Chinese state, you may well ask, really enjoy legitimacy in the eyes of its people? Take the findings of Tony Saich at Harvard’s Kennedy School of Government……… he found that between 80 and 95% of Chinese people were either relatively or extremely satisfied with central government.”
One of the most powerful tools of an oppressive state is fear: fear of the unknown. Many of their citizens would settle for the status quo rather than risk the turmoil that accompanies change. The same is true of many autocratic regimes. That does not make them a beacon of good government.
Western democracy has many problems but the solution does not lie with increasing the size of the state, nor with greater autocracy. Rather we should examine the most successful Western democracies and learn from them. Switzerland would be a good start. Their well-managed economy enjoys low unemployment, a skilled labor force, and GDP per capita among the highest in the world — 70% above the US. The stable democratic government runs with a strong tradition of consensus among political parties, while citizens hold a collective right of veto over government policy. The country boasts a pristine environment with minimal pollution, a strong human rights record — without oppression of its citizens or minorities — and no territorial disputes with its neighbors.
Which state would you say is the most competent?
Reproduced with kind permission from Steven Spadijer at Australian National University:
What is Direct Democracy?
Direct Democracy allows a prescribed number of citizens’ to veto an existing law or enact a constitutional amendment or statute independent of the legislature at a referendum. Today, these procedures complement the day-to-day representative government found in Switzerland and its 26 cantons, 7 German Länder, Liechtenstein, 24 American states and parts of Latin America.
Readers might notice that these regions are some of the wealthiest, well-governed and most stable countries in their region today. But do constitutions matter for economic performance? In particular, does the use of direct democracy matter from an economic perspective?
The Swiss Experience
Authors Feld and Savioz (see references below) found that per capita GDP in cantons which use Direct Democracy more frequently, and have easy access to these rights, are some 5 percent higher than in cantons which have infrequent use (even when controlling for income and other demographic variables). Feld also shows that direct democracy is associated with sounder public finances, lower levels of public debt, better economic performance and higher satisfaction of citizens.
Schaltegger with Feld then reveal centralization of public resources is more likely to occur under representative government while direct democracy is more likely to decentralize the provision of public resources, concluding that :
the empirical analysis provides evidence that referendums induce less centralization of fiscal activities.
In turn, such decentralization prompts vigorous tax competition between the cantons of Switzerland attracting capital from aboard as well as better education outcomes for all.
More recently, Funk and Gathmann find using Swiss data from 1890 to 2000 that a mandatory budget referendum reduces canton expenditures by 12 percent while lowering signature requirements for the voter initiatives by 1 percent reduces canton spending by 0.6 percent.
Pommerehne then examines the effects of direct democracy on the efficiency with which government services are provided. He finds that waste collection in Swiss towns having both a private contractor for the service and direct democratic elements is provided at lowest cost. Additional efficiency losses materialize if waste collection is provided in towns without direct democratic elements.
So far as its economic impact in Switzerland, direct democracy has brought with it unparalleled economic prosperity, despite the country being far from resource-rich.
Progressivism and Direct Democracy
It is important to note that Direct Democracy per se does not lead to lower spending. Rather, it accords with what citizens require given the context. If your infrastructure is state-of-the-art, then there is no need for lavish expenditure. Conversely, if it is dwindling (try taking a train from Western Sydney to the city), then it is a gun behind the door.
In Uruguay, for example, voters repealed privatization of the countries water supply and oil companies, “Norwegian-izing” their natural resources via the initiative process. Matsusaka noted that during the first half of the twentieth century in the United States, which was characterised by massive urbanisation and movement of people from rural to urban areas all of which required railways, roads and schools to be built), initiative states spent more — both statewide and locally, but lower state and higher local expenditure after controlling for income and other demographics.
This was used to bypass the legislature dominated by farmers and allowed the US to urbanise itself. Together with existing evidence from later in the century which shows its ‘libertarian’ streaks, suggests that the voter initiative does not have a consistent effect on the overall size of state and local government.
However, in all cases Direct Democracy systematically leads to more decentralized expenditure. Indeed, Blume and Voigt note in Germany that the introduction of direct democratic elements in local constitutions led to higher rates of expenditures on local infrastructure. For example, Bavaria – one of the most efficient, well governed parts of Germany – has had over 1500 referendums locally from 1995 to 2005.
Reasons?
But why does direct democracy deliver results far superior to that of representative government? There are 3 broad reasons:
1. In a principal-agent framework, citizens are the principals and can only very imperfectly control their agent — the government.
In this situation, direct democratic institutions can have two effects, namely a direct effect, which enables the principals to override the decisions of an unfaithful agent, and an indirect effect, where simply the threat of override is sufficient to compel the agent to behave according to the principal’s preferences.
Potentially, reducing the principal-agent problem by way of direct democratic institutions could affect all of the economic variables discussed in this paper: if citizens prefer an expenditure level that is higher/lower than that preferred by the government, they should be able to achieve it via direct democratic institutions.
2. James Buchannan attributes the poor performance of representative government due to the theory of “adverse selection”:
[S]uppose that a monopoly right is to be auctioned; whom will we predict to be the highest bidder? Surely we can presume that the person who intends to exploit the monopoly power most fully, the one for whom the expected profit is highest, will be among the highest bidders for the franchise.
In the same way, positions of political power will tend to attract those persons who place higher values on the possession of such power. Is there any presumption that political rent seeking will ultimately allocate offices to the ‘best’ persons?
Genuine public-interest motivations may exist and may even be widespread, but are these motivations sufficiently passionate to stimulate people to fight for political office, to compete with those whose passions include the desire to wield power over others?
Under these monopolistic conditions it is entirely predictable that the system will adversely select odious politicians who act in their own interests, with secondary regard for the subjects they rule or that of the opposition. It is inevitable that the dishonest politicians will deliberately misrepresent the state of affairs to the public in their desperate attempts to secure votes, buying off special interest groups and powerful lobbies piecemeal with gifts from the public purse.
And it is only a matter of time before the megalomaniacs pursue some expensive, harebrained, self-serving scheme (like the EU, the Euro debacle, or a war – all of which were rejected by the people) that brings down disaster on their subjects. Does anyone, for example, believe Ireland would be in the position it is today if it had the Swiss system of government, handing over your own sovereignty to the EU? I doubt it.
3. By contrast, direct democracy allows one to serve no one but their own community and families. Buchannan further notes:
…direct democracy [acts as] an add-on or addendum to existing decision rules and procedures, as carried out through legislative bodies or through executive-administrative agencies, provisions for popular initiatives and referenda can operate so as to forestall collective actions that might otherwise be implemented.
And such provisions may exert an influence as a potential check even if no popular efforts toward actual organization of an electoral test are made. Legislators, executives, bureaucrats, and judges will keep arbitrary actions within tighter boundaries when they are subjected to potential reversals through popular referenda.
In sum, the effects of direct democracy add-ons to existing decision rules surely work toward reducing the range and scope for politicization, a result supported by classical liberals.
Conclusion
We can see there is a powerful case for direct democracy from an economic perspective. We can also see that direct democracy, like Switzerland, is a “neutral” force: when governments go too far toward the right, the initiative reverts government back to the left forcing them to spend on infrastructure to avoid unnecessary and crippling bottlenecks.
When the government goes too far left, direct democracy reverts the government to the right, decentralizing expenditure. Presumably, in Australia direct democracy would decentralize taxation and result in competitive federalism (note most centralized power proceeds undemocratically) – perhaps giving [Australia] a fighting chance to compete with Singapore!
References
Lars P. Feld and John G. Matsusaka, ‘Budget Referendums and Government Spending: Evidence From Swiss Cantons’
Lars P. Feld and Marcel Savioz, ‘Direct Democracy Matters for Economic Performance: An Empirical Investigation’
John G. Matsusaka, ‘Fiscal Effects of the Voter Initiative in the First Half of the Twentieth Century’
Lorenz Blume and Stefan Voigt, ‘Fiscal Effects of Reforming Local Constitutions: Recent German Experiences’
Christoph A. Schaltegger, ‘Tax Competition and Income Sorting: Evidence from the Zurich metropolitan area’
Patricia Funk and Christina Gathmann, ‘Does Direct Democracy Reduce the Size of Government?’
