Economics

What’s so great about democracy anyway?

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Much has been said about the vices and virtues of democracy. Democracy said Benjamin Franklin is two wolves and a sheep voting on what to have for dinner. Lord Acton warned that democracy is susceptible to a ‘tyranny of the majority’. Winston Churchill told us that democracy is actually the worst form of government… except for every other form that has been tried. Then, not without irony, he also said that the best argument against democracy is a five-minute conversation with the average voter. H.L. Mencken described democracy as the theory that people know what they want, and deserve to get it good and hard.

These quotes speak to the majoritarian dimension of democracy and the reality that even in the best-of-functioning systems 49% of the people can remain unhappy. To be sure, in most modern democracies even a less-than-majority popular vote can carry an election, due to the peculiarities of electoral systems. Democracy, in other words, is a system to ensure that some people get what they want; it is not a system to allow everyone to do so.

So here is the essential problem of the 20th century system of governance as we know it, I believe.

From a purely economic perspective, the purpose of government is to administer collective goods that would otherwise fail to be provided and to help overcome coordination problems on population-wide, mutually-preferred economic outcomes. Obviously the ‘tyranny of the majority’ can at times work to undermine this economic imperative. Indeed, F.A. Hayek pointed out how ‘planning, or central direction of economic activity, presupposes the existence of common ideals and common values’ and was limited to the extent to which agreement can be obtained, in inverse proportion to the homogeneity of the population.

What might be called the ‘Tiebout-Ostrom-Tullock’ definition of democracy, after a trio of influential political economists, also treats governance as a sort of collective goods provision problem: a system we use to all choose the same set of public goods and institutions thatharms the least number of people. Inherent in this is the assumption that centralised provision is sometimes necessary for what are pure public goods, and moreover, that this provides efficiency gains from economies of scale and the internalisation of externalities and spillovers.

But is this the best we can do? Isn’t this definition of successful governance a little shallow? We are still struck with the reality that swaths of the population remain unhappy with a set of collective goods and government that they are forced to consume, with little to no recourse for satisfaction – notwithstanding that this is imagined to be the least possible number of people affected, at least in respect of ‘every other form’ of government that has yet been tried.

As it turns out, others have imagined other forms of government that might resolve the majoritarian limitations of democratic governance and centralised provision of collective goods and institutions. The common thread of this work is the challenge of finding a system we can use to all choose different sets of public goods and institutions that please the mostnumber of people. Contrast this to governance as we know it – the same set of public goods and institutions that harm the least number of people. It seems that we can, somewhat coarsely, characterise these two approaches as strategies of dissatisfaction minimisation (democracy) versus satisfaction maximisation (Tiebout-Ostrom-Tullock).

Both approaches recognise the heterogeneity of political preferences over collective goods and institutions and the diversity of the population with this respect; but where majoritarian democracy sees diversity as a meddlesome constraint to political consensus that must be overruled or in the very least compromised for the ‘greater good’, a more pluralistic approach might embrace this diversity, and view the satisfaction of heterogeneous preferences as anecessary condition to be fulfilled, fundamental to any considered system of governance. Shouldn’t this be the standard by which we judge our political economy?

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