The efficiency of the political system is key

Douglass C. North, Nobel Prize Winner in Economics in 1993 along with R. Fogel, passed away on November 23rd. His works are essential to understand the process of economic growth. In collaboration with RP Thomas, he also helped us to understand the keys to Spanish decadence from the 16th century, and his diagnosis of it is an invaluable help to understand our subsequent evolution, including the situation we experienced in the second decade of the XXI century.

These authors verified that investment and innovation are necessary for there to be growth, and then they wondered why in some societies there is neither one nor the other. They concluded that for them to exist, an efficient economic organization is necessary, that is, one that provides individuals with incentives to undertake socially desirable activities.

This requires an institutional framework and a structure of property rights -exclusion rights- that equate the private and social rates of benefit. An adequate organization of property rights is therefore necessary for economic growth. To understand the role that ownership plays in promoting efficiency, it is necessary to understand that it is not enough: there must also be competition.

For there to be such, it is required, in addition to private property, contractual freedom and an impartial third party that coercively enforces compliance with the rules. That third party is the State.

It is not clear, however, how the State can behave in an impartial way, since, as North affirms, if we start from the hypothesis that maximizes wealth, it is difficult to create the model, even in an abstract way.

In other words, according to this hypothesis, those who govern the State will use its coercive force in their own interest and at the expense of the rest of society. Hence the need to establish effective systems of checks and balances to political power.

But, no matter how many checks and balances are established, it is not easy to get rulers to promote efficient property rights, as evidenced by the survival of inefficient rules and rights throughout history.

According to North, inefficient property rules and rights are maintained either because rulers avoid antagonizing powerful sectors, or because the costs of establishing, measuring, and collecting taxes in an open economy may lead rulers to prefer a more closed economy. with inefficient property rights that, however, produce more substantial income, because their collection is less expensive. Thus, at the time studied, the monarchs preferred to grant the Mesta the privileges it wanted, in exchange for taxes and to the detriment of the appropriation rights of farmers – who, for example: could not fence their crops, or They were obliged to rent in times of transhumance under the conditions set by the Mesta itself,-, instead of strengthening such rights and evolving towards an open market, which ruined agriculture, especially the Castilian one.

Whether the structure of the exploitation rights that carry exclusion powers is more or less efficient is, therefore, a function of the degree of efficiency of the political system.

In this sense, the evolution of politics from absolute individual rulers to democratic governments is typically conceived as a step towards greater political efficiency if only because the existence of powerful representative bodies limits the predatory behavior of governments. North and Thomas point to Spain -along with France- during the 16th and 17th centuries as an example of inefficient property rights, against the opposite examples of Holland and England.

With regard to Spain, they highlight how all the details of the economy and politics were structured with the aim of promoting the interests of the Crown, not those of the nation, as was typical of an absolutist regime. With the Dutch rebellion and the decline in the flow of treasures from the New World, the fiscal demands – basically to fight wars that only interested the ruling dynasty – far exceeded the income and the result was bankruptcy, the increase of the internal taxes, confiscations and insecure property rights.

As a consequence of this, in a single century, the 17th century, Spain ceased to be the most powerful nation in the Western world since the Roman Empire to become a second order power. France followed a similar line: a centralized and bureaucratized monarchy that subordinated the interests of the economy to those of the monarch.

England and Holland followed a different line. Civil society, especially merchants, were able to create representative bodies that checked the power of their respective crowns, being able to maintain stronger property rights, lower taxes, and an independent judicial system.

Let’s substitute “Crown” for “rulers” and even for “political class” and we will see that these analyses, like all great analyses, are very useful for understanding the implacable rationality that underlies our contemporary reality.

For this reason, it would be convenient to take them into account if we want to understand the situation in which we find ourselves and why we have arrived at it, and then draw the pertinent consequences, both in relation to our individual behaviors and assessments and in relation to what we must demand of our rulers and, by extension, of our politicians. In a democracy, citizens must always monitor our rights as such, so that they are not circumvented by any rulers, which includes monitoring how much money they demand from us, for what, how they use it and what they really allocate it to. Developed countries are characterized by the fact that their citizens are especially intransigent in all these aspects.

If this is not the case, the citizens, on whose decisions, especially electoral ones, the behavior of the rulers depends to a large extent, and, therefore, the efficiency of the political system, we run the risk of using our electoral power to make the situation worse .

For this reason, it is imperative to agree on an educational system with a vocation for durability that makes individuals understand and assume that freedom is never guaranteed, that it must be accompanied by responsibility and that competition and cooperation are essential and complementary aspects of our moral design.

Simultaneously, a new electoral law must be promoted, aimed at making the future of each parliamentarian depend exclusively on their voters, that is, on their work, instead of making them depend on the political bosses of their respective parties, or what is himself, of his relations with power.