Democracy and the market:

Political and economic reforms in

Eastern Europe and Latin America
Adam Przeworski
University of Chicago
Summary

- Features of democracies
- How are outcomes enforced in democracies?
-Why would they comply?
-Competing views of compliance.
-Democracy as an equilibrium
-Institutional design
-Transaction to democracy.
-Why do outcomes appear uncertain?
 DEMOCRACY

'The future is not written, because only the people can

write it'' Adolfo Suarez.

2 quintessential features of democracy ;

- Outcomes of the democratic process are uncertain

-It's ''the people'',political forces competing to promote

their interests and values, who determine what these
outcomes will be.
 -Democracy is a system in which parties lose elections.

 -There are parties: division of interest,values and opinions.

 -There is competition, organized by rules.

 -There is periodic winners and losers

 -Not all democracies are the same ;

 yet beneath all the institutional diversity,
 one elementary feature- contestation open to
participation.-is sufficient to identify a political system as
democratic.
 - In democracy , multiple political forces compete
inside an institutional framework

 - Participants in the democratic competition dispose

unequal economic, organizational and ideological
resources.

 -The protagonists in the democratic interplay are

collectively organized.

 -Democratic societies are populated not by freely

acting individuals but by collective organizations that
are capable of coercing those whose interests they
represent.
 - Democracy appears to be a system in which
everyone does what he or she expects is for the best
and then dice are thrown to see what outcomes are .

 -From the view of all participants, OUTCOMES ARE

UNCERTAIN.
 But actually, actors know what is likely to happen ,
because the probability of particular outcomes is
determined jointly by institutional framework.

 -Hence, democracy is a system of ruled ORGANIZED

UNCERTAINTY
 - Voting- Majority rule- is the only arbiter
in a democracy

 - Outcomes cannot be predicted exactly

under democracy

 - Democratization is an act of subjecting

all interests to competition of
institutionalizing uncertainty
 HOW ARE OUTCOMES ENFORCED
UNDER DEMOCRACY?

 -DEMOCRACY- RATIONALITY-COMPLIANCE

 - How does it happen that political forces

that lose in contest comply with the
outcomes and continue to participate
rather than subvert democratic
institutions?
 WHY WOULD THEY COMPLY?
IS DEMOCRACY IN ANY SENSE RATIONAL?

- Interests are often in conflict. Hence, there are

winners and losers ,and compliance is always
problematic.

- Political forces comply with present defeats

because they believe that the instutional
framework that organizes the democratic
competition will permit them to advance their
interests in the future.
 COMPETING VIEWS OF COMPLIANCE

 -Why would they comply ?

 1) Compliance is spontaneous- decentralized and voluntary : Spontaneous

self-enforcing outcomes ,or equilibria
 + No one wants to act differently given what others would do in
response.Such outcomes are thus self enforcing ; they are enforced by
independent spontaneous reactions.

 2) There is always a policeman to set the rules,and punishes. : Bargains,

or contracts
 + Bargains or contracts are agreements in which at least one party has an
incentive to renege but which hold because a third party effectively
sanctions defections.

 3)People are motivated by a moral commitment to this social order even

when it is not in their interest an deven when there is no one to punish
them . :Norms
 DEMOCRACY AS AN EQUILIBRIUM

 - Democracy is consolidated when ,it

becomes self-enforcing,that is , when all the
relevant political forces find it best to
continue to submit their interests and values
to the uncertain interplay of the institutions.

 - Democracy is consolidated when

compliance constitutes the equilibrium of the
decentralized strategies of all the relevant
political forces.
 What does it mean not to comply ?

 - Some forms of individual noncompliance can threaten democracy when

they are on a mass scale .But isolated individuals do not shake social
orders.

 -Only organized political forces have the capacity to undermine

democratic system.

 -Compliance depends on probability of winning within the democratic

institutions.

 -The more confident the actor is that the relationship of political forces
will not take an adverse turn within the democratic instutitions,the more
likely is this actor to comply, the less risky the subversion, the less likely
are the potential antidemocratic forces to comply.
 -To evoke compliance and participation, democracy must generate
substantive outcomes: It must offer all the relevant political
forces real opportunities to improve their material welfare.

 -Democratic institutions must be effective: They must make even

losing under democracy more attractive than a future under
nondemocratic alternatives.

 -Thus, to evoke compliance , to be consolidated , democratic

intuitions must to some extent be fair and to a complementary
degree effective.

 -Yet under certain conditions these requirements may be
contradictory, particularly with regard to economic issues.

 -To be effective economically , governments may have to violate

some property rights.
 INSTUTIONAL DESIGN

 - A stable democracy requires that governments be

strong enough to govern effectively but weak not to
be able to govern against important interests.

 - If these observations are valid , democratic

institutions must remain within narrow limits to be
successful. And under some historical conditions
there may be no space between the limits,
consolidation of democracy is not always possible.
 TRANSACTION TO DEMOCRACY

 - Self-enforcing democracy is not the only

possible outcome of transitions : strategic
situations that arise when dictatorship
collapses.
 A breakdown of an authorian regime may
be reversed, or it may lead to a new
dictatorship.
 WHY DO OUTCOMES APPEAR UNCERTAIN?

- One characteristic feature of democracy is that , outcomes appear

in a particular way uncertain to all participants.

- It is as if all do what they think is best fort hem , and then some
random device chooses the outcome, as if the results were
decided by a throw of dice.

- In reality there is no room for uncertainty , given the resources of

partipicants and institutional framework , the outcome is
determined.

-Each actor can examine the resources and look up the the rules
and determine who will lose or win, If they follow their best
strategies. And yet the actors appear to behave as if they were
not certain of outcome.

-Is the source of uncertainty inherent in democracy?

 LEN. – Whoever makes the highest bid gets his Money
back, collects the Money on the table and a dolar from
everyone who did not play.- so one player is richer than
others and welath uniquely determines the outcome, this
means there is no uncertainty here

 JON .- The player who has the ace of spades wins . In this
game wealthiest player will buy the most cards and will
have the best chance of getting ace.

 LOTTO- Actors decide to buy a ticket and wait for the

winning numbers to appear on the screen . The outcome is
fair , but it is only justification .

 NOR- A game which actors do not know which strategies

will produce the best outcomes. Throwing a coin

 - Each actor decides interdependently what to do , and

each actor know what is best to do at every moment . Yet
outcomes are distributed probabilistically.
 - If we look from the view of authoritarian regimes, or
dictatorship, there is no distinction between law and policy.
In this sense dictatorships are arbitrary.

 - Under dictatorship the possible outcomes are not entailed

by any set of rules.

 - Under dictatorship , there is some one who is certain

about outcomes. Under democracy there is no such an
actor.

 - Democracy is a system that generates the appearance of

uncertainty because it is a system of decentralized
strategic action in which knowledge is inescapably local.
 Thank you.

Merve Karabulut