Opinion: Bringing economic reforms
It’s impossible to enact economic reforms without political reforms
By R Meghna
Moments of dramatic change have always piqued the interest of historians; revolutions and violent regime changes are easy to identify as moments of radical economic change. History is full of periods where radical structural change was necessary to facilitate trade or economic growth. Over the last 400 years, the machinery of modern states has grown to accommodate a complicated economic system, starting with the protection of private property to building massive financial and legal institutions that protect the capitalist order of things.
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However, it’s not easy to make predictions about the impact political changes will have on economic reform, nor can we always explain the enactment of economic reforms by looking at the domestic political situation of a country, which would wrongly assume that nation-states are categorically free entities. Moreover, radical economic reforms have also come in times of crisis rather than political reform, making it all the more difficult to name anything as a necessary condition for economic reforms.
Past Revolutions
Having said this, it’s still intuitive to conclude that the most radical economic reforms cannot come without, at the least, a change in the party in power and at the most, a revolution. The most famous example of this is perhaps the French Revolution which manifested in the abolition of the feudal system, the simplification of the legal system, and the removal of traditional controls over fiscal policy that were hindering industrial growth.
Many left-leaning thinkers, from Karl Marx to Eric Hobsbawm, have interpreted the French Revolution as a bourgeois revolution that signified the triumph of the up-and-coming commercial classes over the landed aristocracy. Recent studies have shown that redistributing Church land led to higher agricultural productivity and investment by the mid-19th century, although it meant greater inequality (Michalopoulos et al, 2017). For many such periods of crises, such as the Russian or Chinese revolution, an overhaul of the political apparatus was vital to implement any economic changes.
Complicated Relationship
But to complicate this view a bit more, the question itself needs to be refined; what kind of political reforms and for which economic changes? In a paper published in 1996, Henry Bienen and Jeffrey Herbst argue that the relationship between political structures and economic growth is more complicated than it’s often presumed to be. The paper discusses the existing economic wisdom at the time that liberal democracies naturally move towards liberalisation policies in relation to Africa.
The authors observe that, in the case of many nascent African nations, there isn’t a strong correlation between liberal democracy and liberalisation, and even if there is, these countries don’t necessarily have the institutional machinery to implement reforms. Sometimes, political reforms fall short of making any change at all because of inadequate bureaucracies, which make it difficult to conclude that radical political reform is enough to bring about a substantial material transformation of a polity. On the other hand, many countries under authoritarian regimes, such as South Korea and Singapore, witnessed high rates of growth in the 1980s while maintaining free-market policies.
As demonstrated by the periodic return of Keynesian economics to popular vocabulary, reform in capitalist economies is also guided by a constant need to fix a flawed system. If Keynesian policy can be considered “far-reaching economic reform”, then clearly it doesn’t necessitate any violent revolution or political upheaval. In 1933, President Franklin Roosevelt announced the New Deal, which included a series of financial reforms, public works projects and programmes which were meant to revive an American economy that had been decimated by the 1929 stock market crash. Granted, Roosevelt did have to erect new political institutions like the Civilian Conservation Corps, Works Progress Administration and the Civil Works Administration, but none of this fundamentally changed the existing political system.
Arbitrary Concept
Nevertheless, it is still intuitively true that something in the political sphere ultimately determines economic policy. Right-wing governments are more likely to cut expenditures or introduce austerity measures, while left-wing governments are more likely to increase government spending and welfare measures if we’re talking about liberal democracies. However, as Cambridge economist Ha Joon Chang argues, any boundary between the “rational” market and the “irrational” political forces is completely arbitrary.
In fact, free markets are, in themselves, an arbitrary concept. To demonstrate this, Chang points to the absurdity of the American conservative slogan, “Keep your government hands off my Medicare”, even though Medicare is a heavily subsidised government scheme. This makes the very act of drawing up the arbitrary boundary around the market and deciding what’s under the purview of state control a political act.
In conclusion, I’d argue that it’s not revolutions or independence struggles that reveal anything fundamental about how a government is likely to legislate on economic issues. But rather, it’s this specific political decision of where the apparent boundary of the market lies that probably determines the extent of any political reform. If we take this to be the lynchpin of what determines economic reforms, then it’s certainly impossible to enact economic reforms without political reforms.
