A Short History of Political Institutions

Full Transcript:

Hello, and welcome to the Rules of the Game podcast, where it is my job to discuss democratic institutions.

First of all, I want to say a few things about the invasion of Ukraine. As it is much related to what I am talking about in my podcast constantly. 

First of all, as everyone else I was shocked by the ruthlessness Putin sent in his army, attacking a democratic country in full bloom, trying to topple or even kill the Ukrainian government, trying constantly to cause confusion, to mislead everyone, make countless false claims, countless lies, and in last but not least threatening the whole world with nuclear attacks if anyone dares to interfere. It’s simply insane. 

I am shocked but not surprised by the brutality of Putin, taking Ukrainian civilian lives clearly into account. I am saddened by the thousands of stories of people fleeing, having to leave their beloved home, to find safety. In many cases families are being torn apart. And of course deeply saddened about the many casualties, not only on the Ukrainian side, but also the Russian soldiers that are often so young and dying in vain. Most of all, I am impressed inspired by the bravery of Ukrainian people and president Selensky, who altogether fight heroically for freedom and democracy.

Of course any conflict around the world is futile, caused by political elites trying to gain more power. But this one is different since it’s a ruthless attack against a peaceful, prosperous democratic country by one of the most powerful armies in the world. It is a cold-blooded decision that in my view can only end in disaster for Putin, and for Russia. His country will be isolated and the economy will collapse. Unfortunately, we know that dictatorships can survive quite long even in great poverty. My only hope is that the Russian people, in particular also its oligarch, to use this window of opportunity to stand up against Putin and stop the madness.

So this really devastating situation is related to my work, my podcast, my platform of defending democracy and constructing democracy. In Russia, it’s really about what I call an elite concentrating all power, while the people remain poor and powerless. The people being helpless against the coercion of government power. It is about the fight between elites and the broad population that suffers from a scrupulous regime. In Ukraine, it’s about an emerging, prosperous democratic nation only to be attacked by a reckless imperialist.

There are many pundits local reporters that can cover and comment on what is happening way better than me. And hopefully I will someone on my podcast soon that can discuss and assess all these crushing developments. 

In this episode I want to talk more fundamentally about this struggle for political power between elites and the people. I call this a short history of political institutions that summarizes and explains the process from small, local societies that were based on kin, that were integrated into monarchies, and then finally made the transition to democracy. This is a highly simplified account of course, and there are many alternative theories, but I think it helps to think about the emergence of democracy from a political economy perspective.

Cities and countries have had different degrees of inclusion of the society in government. Periods of exclusion and repression were followed by periods of inclusion and participation. Wholly democratic societies are the exception rather than the rule. The struggle for power between aristocratic elites, clerical elites and economic elites was ongoing throughout history. And there is really no guarantee the democratic countries are backsliding into authoritarian regimes. There are plenty of examples.

First of all though, explain what I understand by democratic institutions, because maybe you have also been wondering why I call my podcast the Rules of the Game?

I am your host, Stephan Kyburz, and this is the 17th episode of the Rules of the Game podcast.

What are institutions?

On my website, I quote Douglass North, a Nobel laureate, on my website: 

“Institutions are the rules of the game in a society; more formally, they are the humanly devised constraints that shape human interaction. Thus, they structure incentives in exchange, whether political, social, or economic. Institutional change shapes the way societies evolve through time and, hence, is the key to understanding historical change.” (Douglass North, 1992)

In this episode I focus on the understanding of historical change, that also, hopefully, helps us to understand today’s problems and struggles for power and democracy.

Institutions can be both formal and informal and both play hugely important roles. Formal institutions are the constitutions and laws that regulate how a society is organized and functions. Informal institutions are unwritten agreements in society on behavior and manners. For example to shake hands when we meet another person. Nowhere it is written that we shake hands when meeting someone. Formal and informal rules differ, of course, tremendously across countries and cultures. If you look at sports, like football match, you see formal and informal institutions in action at the same time on the pitch. A foul is a formal institution, while helping your opponent back onto his or her feet is an informal fair play institution. 

Institutions guide our behavior. They give us incentives and provide a basis for building trust. When we buy an apple, we can be sure that the money in our pocket has a certain value for the exchange. The person selling the apple will agree to the trade. The value of the coin I give is guaranteed by the institution of the central bank. Institutions are making sure we can expect others to behave according to commonly agreed rules. Government institutions are like an insurance mechanism. They provide security about the legal situation they “enforce property rights, create a level playing field, and encouraging investments in new technologies and skills” (Acemoglu & Robinson, 2006).

Of course, informal rules are much more changeable, and people can try to enforce informal rules according to their liking, related to civility, manners, or courtesy.

One of the most important institutions with regard to state building is the monopoly of coercion or the use of force. A fundamental feature of a state is that only the state may use force to ensure the safety of people or to arrest someone who breaks laws. Even though people may carry a gun for hunting or sports shooting, they are not allowed to use it to enforce public security. The US with its second constitutional amendment, that allows people to “stand their ground”, to protect themselves and their property, is probably the constitutional law that comes closest to questioning the monopoly of force in a state – and it is highly controversial as you probably know.

The fact that only the state may use force to coerce people to follow the laws is fundamental. Yet it is also highly problematic if a government is not democratically legitimate. The police in many countries is not seen favorably exactly because they physically embody the monopoly of power. Especially groups that question the legitimacy of a government also question the legitimacy of the police or the military – for good reasons in many cases.

The problem is often that many institutions that govern our lives, have not all been agreed by everybody. It is impossible to find commonly agreed rules by anonymity, that is all people agree to the rule. Yet, in a functioning democracy, rules should be agreed by a majority of people. 

What is even worse in many countries is that a rather small group of people, an elite in government and parliament influenced by donors, are the people who write the laws, the rules, often changing institutions in their favor for rent seeking or accumulating more power. 

Often people have no actual say in the rules of the game, people have no veto power in the rules that are applied and enforced by raw state coercion. 

But what is political power? Where does it come from? At this point I want to introduce a few concepts that I think are helpful in thinking about society and government. 

First, I’d like to introduce the difference between de facto and de jure political power. A concept used by Daron Acemoglu and James Robinson in the book Economic Origins of Dictatorship and Democracy. I use some of their concepts and reasoning that I think is helpful. 

De jure political power is given by the political institutions in place, the written rules that are provided in the constitution and the basic laws. How is the parliament elected for instance, or who decides who is the head of a state. De facto political power is given by how much economic resources and physical raw power any political group has, also depending on the distribution of resources in a society. A political group will have considerable de facto political power when it has militias and guns to kill other groups, or it has great political influence through economic wealth. De facto political power can also be seen as the power of opposition groups or the general public to form demonstrations, to put pressure on the government. Simply put, the distribution of economic resources today affects who in society has how much de facto political power.

Political institutions determine de jure political power today and tomorrow and in the future. The balance of de facto and de jure political power today, affects whether institutions are rewritten and hence affect how de jure political power is allocated in the future.

Let me give you two recent examples. First, in Chile in 2019-2020 huge protests erupted – you find a previous episode on Chile. More than a million people went onto the streets of Santiago de Chile and other cities to protest the government and parliament who held the de jure political power. These protests were a demonstration of the de facto political power of the people and brought the country to a standstill. A state of emergency was declared by the government, because it was afraid that the country would fall into chaos. The protests built up enough pressure for the Chilean National Congress to proceed with legislating two popular national referendums on the constitution and electing a constitutional convention. In case the new constitution will be approved, it will change de jure political power in the future. So the temporary de facto political power in 2019/2020 on the streets of Chile is leading to the change of de jure political power in the future.

The second example is Hong Kong and the protests that erupted in the city from the Umbrella movement in 2014 and leading to the Hong Kong protests of 2019-2020. The huge protest movement had 5 demands that included universal suffrage for the Legislative Council Elections and the Chief executive. We all remember how the protests were brutally repressed by security forces. Instructed by the Chinese Communist Party in Beijing, a stricter security law was put in place, giving the Hong Kong government even more de jure political power to suppress opposition and arrest people demanding more democratic rights. So the massive de facto political power on the streets was not sufficient to change de jure political power. On the contrary, de jure political power by the government elite was even strengthened after the protests and consolidated power by the regime.

Both examples show the interplay between de facto and de jure political power both of the people and the political elite in power. 

Now let’s go back to the very beginnings of what we can call institutions. 

How did institutions emerge? How did the early societies based on kin organize themselves?

So how and when did the first political institutions emerge? The following thoughts and descriptions are based mainly on the book “Prosperity and Violence” by Robert Bates, I’ll link to it in the show notes. It provides an excellent account of how institutions and in particular state structures emerged and evolved. 

In the beginning there was a state of nature that was described by Thomas Hobbes in his very famous book Leviathan. There was “no law and man was indistinguishable from beast”. This state of anarchy was undesirable because it provided little protection. It was survival of the fittest and stronger human being or group. If there is something to eat, like an apple on a tree, whoever is more powerful will eat it. 

Then, in the early stages of human settlements, societies were based on kinship. Small communities of families were the main societal structures, based on informal institutions. Communities living at the subsistence level, had to protect themselves against invaders and looters. The family and the kin provided a social insurance mechanism and safety.

The better a kin was in defending itself, the more likely it was to survive and prosper. Yet, this meant that a lot of their available resources were spent on defense technologies. Since there was no state, no government, no police, no army that would have provided protection for the communities, they had to provide security themselves. Kins invested in their warriors and a substantial part of the community was busy with providing security. Again in the words of Thomas Hobbes you end up in a war of everyone against everyone, This state of nature can only be overcome with some type of government. 

It was a political economy of redistribution between groups. The total production possibilities were capped due to its limited economies of scale and scope, and so one way for communities to become more wealthy was through looting – that is a type of redistribution. Coercion was used for redistribution and to protect the limited production of kins or tribes. This is again a very rough account and exaggerated.

At some point successful kinships conquered or joined other clans, other kins and enlarged their territories. These territories grew larger and larger and security could be used at scale, and as larger kins joined forces, more resources were freed for production. When farming technologies improved, and security was provided to the communities at scale, farmers were able to spend more resources on production and could increase the yield. This specialization allowed communities to build towns. The new wealth in the towns also led to more wealth in the rural areas, and again to a militarization for protection. The militarization of the rural areas again made dwellers demand more security.

In the course of this prosperity and violence some kin groups did better than others. Those kins that prevailed formed ruling lineages and at some point provided kings. 

Only when the monarchs were able to impose order and organize security, the territories became less violent. But monarch’s could not just proclaim peace, they had to organize it. Monarchies were able to provide security to their communities, in exchange for some sort of tax, often in the form of natural produce. Once monarchs were wealthy enough to assemble armies to demilitarize kin groups and communities, the ruler had the monopoly on coercion. This new political order can be called an “institution of peace” and everyone living under the institution was strictly bound to keep peace… agreements of this kind were gradually established, point by point, across the country by the king.” (Duby 1991, p. 141)

The demilitarization of monarchs’ territories was an important step in the construction of more sophisticated state structures and the legal system. The demilitarization prevented groups within the kingdom from fighting each other, reduced looting, and of course, threats against the king himself. The increased safety for all citizens allowed them to employ all resources in the production process, not having themselves to care for security.

The monopoly on coercion and the securing of property rights are a fundamental part also of today’s nation states. Security – if sufficiently provided – allows the economy to focus on production and consumption of goods, while the people have to spend very little on security – this obviously depends on how effective a government is in providing security.

Monarchs thus altered the purpose for which force was used, to enhance production, to terminate feuds, and secure property rights, to promote the creation of wealth, rather than to plunder it. Yet, with having established peace at home, the monarch was better able to fight wars abroad, trying to make citizens invest in his ventures, and thereby enhance the capacity and size of the kingdom.

Repression

The demilitarization and the monopoly on coercion of course also opened the door for monarchs and the ruling aristocracy to repress society, to extract more taxes from the citizens, to build new extractive institutions. Once the territories were demilitarized, the means of citizens to oppose new tax laws was limited. 

For the monarch it was a balancing act to provide security to its citizens and to build institutions to foster economic development, while extracting some of the productive resources to secure the monarchy. Often of course, monarchs would find it too tempting to extract more taxes than necessary and lead opulent, lavish lifestyles. More extraction limited the ability of production and the majority of people, mainly farmers, were stuck with subsistence farming.

Minimally inclusive co-governing

Yet, monarchs realized that if they allowed merchants and tradesmen to co-govern, they could tremendously increase economic production. The reason why kings desperately needed to increase production was that they were challenged by other regimes, other monarchs or invaders, and of course they were also rent seeking to accumulate wealth. 

In cities, monarchs permitted urban centers to purchase their “liberties”. Wealthy citizens, that is burghers and merchants, could make payments to the treasury and purchase charters from the king that granted them the authority to make and enforce laws, construct public works, and even to set and collect taxes. To be a citizen of a town, a person had to be a member of a guild or association of merchants, or he had to be specialized in a certain trade. Interestingly, these guilds still play a minor role in today’s European societies.

I quote from the book: 

By delegating to the citizens of the towns the power to govern their affairs, the monarchs empowered them to form economic organizations capable of promoting the growth of the urban economy, and thus the government’s revenue base. By investing their power in the hands of urban citizens, the monarchs enhanced their productive capacities to organize economic productivity. 

The conferred power again could become a threat to the monarch’s power. It was difficult for monarchs to keep the balance between inclusion of citizens in the governing process and preserving the monarch’s sovereignty. Yet, the pressure and desire and necessity to prevail in combat shaped the economic role of government in the development of Europe.

In the words of Montesqieu, the monarchs had “to govern with greater wisdom than they themselves had intended.”

Financing wars with treasury bills

Kings and Queens were often compelled to go to war to defend themselves or to enlarge their territory or empire. In such cases the monarchies were inclined or even required to cooperate with the wealthy elites to finance the wars. Private borrowing played a crucial role. Kings borrowed from the wealthy elites to finance wars and allowed them to make a good return. Merchants and wealthy individuals were also made to contribute to the wars through lucrative deals. Kings thus surrendered a portion of their sovereign powers to the people’s representatives, kings were able to increase their military might. 

Interestingly, the monarchs and emperors themselves became looters at a grand scale across borders, but that is the story of another episode.

Non-elected parliaments

The need to secure finances from citizens in order to pay for wars therefore produced the characteristic structure of political institutions in early modern times: parliamentary government. 

Two of the most fundamental government institutions thus played an important part in those early modern state structures: parliaments where the economic elites were united, and the treasury bills, or government bonds, for the monarch to raise money by borrowing from these wealthy elites. 

Of course these first parliaments were very limited in representation, only reflecting a wealthy elite of aristocrats, the clergy, landlords, and merchants. Historically, the creation of parliaments long predated the holding of popular elections. Nonetheless, the roots of modern democracy lie in the creation of such parliaments. The first parliaments still in medieval times were institutions that shared power between the elites and the monarch to some extent. And it kept political and economic power in the hands of that same wealthy elite – the monarchs, the aristocrats and later the bourgeoisie.

This link between public finance and representation was later broadened: Taxation and the demand for representation went hand in hand, as we all know the slogan “No taxation without representation” that originated in the American Revolution, of course representation was very limited in the beginning. Though that was already a much broader concept of representation.

The struggle between the elites and the people for power

But how did societies evolve from having narrowly representative parliaments to fully enfranchised parliaments that not only represented the elite but also the peasants, the working class and finally the population at large?

The book by Acemoglu & Robinson titled The economic origins of dictatorship and democracy provides a simplified yet interesting and to me quite convincing conceptual account of the struggle between the elites and the people for political power. This can be summarized as a struggle between the rich and the poor. The main question is why monarchs and the elites allowed more and more people to participate in the governing process? Why did they extend the franchise? How could the people build up enough pressure to change the institutions and hence the permanent allocation of power?

Let’s get back to the point when monarchs achieved sovereignty of their own territories, when they demilitarized the kins. The demilitarization and monopoly on coercion also allowed the monarchs to repress the society and tax the people. The monarchs often tried to extract as much resources from their subjects as possible, as a way of rent seeking and to finance wars or simply accumulate wealth for their lavish lifestyle – you know how monarchs and emperors lived back in the days. Acemoglu and Robinson call these extractive institutions in the book “Why Nations Fail” (2012). The rules that monarchs, together with the elites created, extracted resources from the people.

Hence before democratization, political power was concentrated in the hands of the monarch and the elite. The rest of the population had little or no political power. Coming back to the terms introduced earlier, the people had no de jure political power, and since demilitarization also limited de facto political power, because they were not armed anymore, they had limited means to oppose a repressive dictatorial regime.

Again simplified, the main struggle between the elite and the people was over tax policies. The rich elite was afraid, that when the people took over power, they would be taxed too much and lose their wealth. While the poor were heavily taxed and repressed, and had no political rights, as long as the elites were in power.

The only way to request change in the tax policies or any other repressive laws, was by the people, mainly farmers, to use their limited de facto political power to put pressure on the monarch and the elites. These early uprisings usually were peasants rebellions like for instance in England in the 14th century, the famous peasants revolt in 1381, that was a violent popular uprising across large parts of England. Interestingly that revolt included not only farmers, but also rather well-off rural landlords that also wanted to put an end to excruciating tax policies that were put in place during and after the 100 years war with France to refill state coffers. Peasants also demanded an end to serfdom and the removal of King Richard’s senior officials and the courts of law. De facto political power was impressive. The rebels destroyed buildings like the Savoy Palace, and killed anyone associated with the Royal Court. In the end though the rebel leaders were killed and order restored in the whole country. The royal charters signed under duress were formally revoked soon after. Serfs were forced to return to their previous conditions of serfdom. 

While the famous Peasants’ Revolt in England didn’t succeed in bringing massive change for the people, throughout history the threat of violence by the people pressured the elites to make concessions and change policies that were demanded by the people. 

Instead of granting concessions, the elite can decide to repress any uprising or insurgency. Repression can be very costly though in the long run. There is the likelihood that the people keep rebelling and achieve a revolution and overthrow the government in order to form a completely new regime and write a new constitution that allocates de jure political power to the new leaders. A revolution thus is the worst possible outcome for those in power, because it usually leads to their demise or even execution.

Often, when a revolution succeeded and monarchies were completely overthrown, the result was chaos because a new stable regime was incredibly difficult to build. You can think of the English Civil War or the French Revolution, that were followed by turmoil and a move back to authoritarian rule. 

Revolutions are the exception, not the rule

Hence revolutions were the exception rather than the rule. When faced with a threatening rebellion, the first option for the elites would be to make concessions regarding a certain policy, often lowering the tax rate. One problem though, is that the elite cannot credibly commit to keep the more favorable policies in the future. The only way of credibly committing to change the policies permanently is by giving the people decision making power also in the future, hence by changing the allocation of de jure political power now and in the future.

The only way for the uprisings to make sure that the tax rate would be permanently lowered is by shifting de jure political power – meaning a change in the constitution or power-sharing agreements. 

So when de facto political power was culminating because of frustration over the regime, the rebellion had to attempt to change how de jure political power is allocated in the society. Simply put, that meant giving more people a seat at the table of government. It meant extending the franchise to more people. First, as explained above, these rights were granted to landlords and wealthy people, then merchants and tradesmen; then also to the working class, then came universal male suffrage, and finally universal suffrage for all citizens, in particular the women, that had been excluded from power for so long – except for the Queens. Now, that was fast forward, but you get the idea. Extending power to more and more people was a change in the de jure political power, ensuring that the people have political power today and tomorrow. The extension of political power was a process of gradually changing the basic institutions, the rules of the game. 

Obviously, this account was a rather European centered view, but many aspects of it apply to other struggles between dictatorship and democracy, and even apply in modern times, as my first two examples tried to convey.

What are the factors that favored the change from extractive institutions to more inclusive institutions?

Ok, so I have explained how the people could build up pressure against elites in times when they had relevant de facto political power. But why did we really see a move to more inclusive democracies? What were the main factors in the extension of political power and the franchise?

The economic resources of the various political groups in a society are a good indicator for their de facto political power. In the early days, the first to be included in parliaments were usually the clergy and the aristocracy. As landlords and merchants became more wealthy, they also demanded more political decision making power. With more wealthy merchants and artisans, parliaments were expanded to include those that were able to finance the monarch’s security needs via treasury bills.

In Europe in the Age of Discovery, a new class of merchants arose that became very wealthy. Finally, the age of industrialization not only brought wealthy industrialists, but also a well organized, urban working class that was able to accumulate a lot of de facto political power. 

Especially in the 19th century in Europe, the growing middle class and the working class were able to build pressure to extend the franchise. Many countries around the world had achieved universal suffrage in the first few decades of the 20th century. Because governments heavily depended on the working class and society as a whole for the production and as soldiers in the World War I, this period was a window of opportunity for the general population to build up pressure to extend the franchise, sometimes even to completely rebuilt the government institutions, like the Weimar Republic for instance. Old regimes were collapsing in the war, and institutions had to be rebuilt. 

Institutions thus became more inclusive over time in many countries, which was rather a gradual process with step-by-step extension of political rights, with certain windows of opportunities for the people to build up de facto political power. Often when countries were in turmoil or after wars, to change the allocation of de jure political power through electoral reform. 

But of course, any country had a different story to tell. And as I mentioned several times, this is a simplification. Nonetheless, I think it helps to think about when political change in institutions is possible. These are usually short periods of time, when the excluded groups can use their de facto political power to call and force political institutions to change, to reallocate de jure political power today and in the future.