Wednesday, March 3, 2010

Why do bad governments persist?

The military junta of Burma, Robert Mugabe of Zimbabwe, Mahmoud Ahmadinejad of Iran, Kim Jong Il of North Korea and (the former King of Nepal) and so on. Why do these regimes persist even when there are severe crises in their country? Why do they not include more talented individuals in the ruling bodies, which is comprised of old, conservative leaders who are completely oblivious of the changing world and changes brought about by globalization? Even in democratic societies why do incompetent politicians once appointed remain in power for long periods of time?
Acemoglu et al. argue that it has to do with a “degree of incumbency veto-power”, i.e. the extent of retention of current members of government in the next government.

We emphasise that many regimes, ranging from shades of imperfect democracy to various forms of autocracy, afford a degree of incumbency veto power to current key members of the government. Once they are in power, they can be removed, but they are also in a position to be part of a new government that replaces some of the other members of the government.

The degree of incumbency veto-power loosely corresponds to how many of the current members of government need to be part of the next government. In an ideal democracy, there needs to be no overlap between today's government and tomorrow's. An imperfect democracy would, on the other hand, give some degree of incumbency veto power. For example, out of several key members of a cabinet, one would need to remain in power to create continuity ("somebody who knows how to turn off the lights"), or to prevent the entire cabinet from seizing power.

Our argument is that even this type of minimal incumbency veto power can lead to the persistence of highly inefficient governments, consisting of several incompetent members. Moreover, such governments would be unwilling to include more competent members, even if this would greatly increase the efficiency of the government and the incomes of both the citizens and the members of the cabinet.

The reason is that the inclusion of a more talented new member might open the door for several more rounds of changes in the composition of government, ultimately displacing those currently in power. For example, applying such ideas to the Iranian context, the supreme leader Ali Khamenei and Mahmoud Ahmadinejad would be afraid of including more talented technocrats in the regime, because then they could be part of a move to form another, better government that might exclude Ali Khamenei or Mahmoud Ahmadinejad.

Even though this mechanism looks at first as if it can only have a small impact on the competence level of the government, we show that even a minimal amount of incumbency veto power can make the worst possible government emerge and persist forever. The logic is again the same. The worst government would remain in power when all of its members prefer to be part of the ruling government rather than live under a more competent government, and anticipate that the inclusion of even a slightly more talented politician would destabilise the system.


It appears that authoritarian regimes such as the rule of General Park in South Korea or Lee Kuan Yew in Singapore may be beneficial or less damaging during the early stages of development, while a different style of government, with greater participation, may be necessary as the economy develops and becomes more complex.