Governance Crisis and the Andean Region:

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Governance Crisisand theAndean Region

• A Political Economy Analysis.
• Andres Solimano.

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• Governance and development outcomes.
• Analytical framework

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• Governance and development outcomes.
• Analytical framework for Governance
• 2.1 Basic Concepts.
• Hierarchy of institutions.
• Formal rules.
• Actual patterns of social behavior.
• 2.2 Three main variables
• a) Nature and stability of the political
  regime and the constitution.
  
• b) Quality of institutions.
• c) Patterns of social cooperation/conflict
  related to inequality and ethnic diversity.
  
  

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Diagram
Constitution and Political System
Social Cooperation/ Conflict
Quality Of Institutions
Actual Governance
Development Outcomes (economic growth, macro stab
ility,
Poverty, social equity)
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• Constitutions and political systems.
• Analytical traditions Contractarian approach
  (Rosseau, Locke, Rawls, Nozick), Public Choice
  Theory (Buchanan, Tullock, Dixit, North),
  Collective Choice (Arrow, Sen).
• The social contract and the setting-up of the
  rules of the game.
  
• Playing the game.
• Rights and the political system presidential and
  parliamentary systems.
  
• How well each system handles political crises?
• Probabilities of regime breakdown under
  presidential and parliamentary systems.
  

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• Presidential system
• Fixed term.
• Legislative initiative of the president.
• Presidents appoints cabinet.
• Parliamentary system
• Prime-minister chosen and removed by parliament.
• Parliament intervenes in the designation of the
  cabinet
  

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• Constitutions and political system.
• Setting-up the rules of the game.
• Playing the game.
• Presidential and parliamentary systems.
• How well each system handle political crises?
• Probability of regime breakdown under each
  system.
  

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• Constitutions and political system.
• Quality of institutions.
• Administrative branch, judiciary, parliament,
  central banks, budgetary process.
  
• Transaction costs approach (Dixit, North)
• (institutions are created to reduced
  transaction costs).
  
• Power and institutions (Olsen)
• (Institutions play a redistributive role and
  support power structures).
  
• Principal-agents problems (enforceability
  monitoring, flows of information).
  
• Dysfunctional aspects of institutions.
• Rent-seeking.
• Corruption.
• Violence.

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• Constitutions and political system.
• Quality of institutions.
• Social cooperation and conflict.
• Related to inequality of income and wealth and
  ethnic diversity.
  
• Conflict around shares of national income,
  conflict around taxation and public expenditure,
  conflict around political participation and
  power-sharing.
• Inequality, conflict, investment and growth.

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Empirical Analysis

• For the Andean Countries (Bolivia,
  Colombia, Ecuador, Peru and Venezuela)
  
• Frequency of mayor constitutional reforms,
  presidential crises and political regimes (The
  whole 20th century and the 1950-2002 period, see
  table G1).
• Number of constitutions (1900-2000)
• Venezuela (8)
• Ecuador (7)
• Bolivia (5)
• Peru (4)
• Colombia (1)
• Average (5)
• Comparison to Chile, Uruguay, Costa Rica and OECD
  countries (se table G2).
  
• Frequency of presidential crisis (1950-2002)
• Bolivia (16 crisis), with 11
  taking place between 1969-82.
  
• Ecuador (10 crisis), mostly in the 1970s and
  1990s.
  
• Colombia (2 crisis both in the 1950s).

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Empirical Analysis (cont.)

• Presidential crisis and political regime high
  frequency of presidential crisis in both
  authoritarian regimes and in democracy. e.g.
  Bolivia in the 1970s had a high frequency of
  political crisis under authoritarian regimes. In
  the 1990s Ecuador had a high frequency of
  presidential crisis under democratic regimes.
• High frequency of regime breakdown in Peru,
  Ecuador and Bolivia in the last decades. In
  contrast, we find a low frequency of regime
  breakdown (high continuity of democracy) in
  Colombia and Venezuela since the 1960s.
• Comparison of frequency of crisis in
  parliamentary regimes (e.g. Italy, Germany, UK)
  with frequency of crisis in presidential regimes
  (Andean Countries, most of Latin America, the US,
  others).

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Quality of governance

• World-Bank (qualitative, survey-based,
  1998-2001)
  
• Kaufman, Kraay and Zaido-Lobatón index computed
  for over 150 countries.
  
• Six categories of the index
• Voice and accountability.
• Political instability and violence.
• Government effectiveness.
• Quality of regulation.
• Rule of law.
• Control of corruption.

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• Andean countries rank lower in most of the 6
  dimensions than Chile/ Uruguay/ Costa Rica, lower
  than the average of Latin America and lower than
  OECD.

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Quality of governance

• World-Economic Forum-Harvard University (based on
  surveys)
  
• Growth Competitiveness Report, 75 countries
  including developed, developing countries and
  transition economies.
  
• Growth Potential F technology index, quality
  of public institutions index, macroeconomic
  environment index.
  
• Index of Quality of Public Institutions
• Contract and law sub-index
• Corruption sub-index

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• Table G-4 shows a positive correlation of the
  rankings of growth potential and the ranking of
  quality of public institutions. The place of the
  Andean countries is similar in both rankings.

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Social Inequality, Ethnic Diversity and Conflict

• Inequality, as measured by Gini coefficients is
  high in all Andean countries.
  
• Share of indigenous population in total
  population is high in Peru, Bolivia and Ecuador
  but low in Colombia and Venezuela.
  
• Social conflict seems correlated with high
  inequality, the relationship between conflict and
  ethnic diversity is an open question. It is
  mediated by political participation of indigenous
  groups.

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Social Inequality and Ethnic Diversity

• Inequality, as measured by Gini coefficients is
  high in all Andean countries.
  
• Share of indigenous population in total
  population is high in Peru, Bolivia and Ecuador
  but low in Colombia and Venezuela.

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The Growth Record

• The annual growth record of the Andean country
  in the 1950-2000 period was, on average, 1.2
  percent lower than the (average) rest for Latin
  America. This is correlated with the governance
  problems documented in the paper

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Conclusions

• Several measures of frequency of constitutional
  change, presidential crisis, quality of
  institutions and income inequality shows
  important government problems in the Andean
  region. This is correlated with a just moderate
  growth performance and various indicators of
  political and economic instability.
• In presidential regimes a political crisis can
  lead to a regime breakdown . In the Andean
  region this was the case in Peru, Bolivia,
  Ecuador in recent decades. In Colombia and
  Venezuela this was not the case since the 1960s.
  However, there are some destabilizing trends
  currently in Venezuela.
• Parliamentary regimes, in principle, seem to
  de-link political crisis from turning into regime
  breakdown and constitutional crises.
  
• Both democratic and authoritarian regimes had
  their fair share of presidential crisis.
  Authoritarian regimes are not more stable than
  democracies in the Andean region.

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Conclusions (cont.)

• There is a close correlation between various
  indicators of quality of institutions and growth
  potential.
  
• High social inequality seems correlated with
  slower growth. This feature holds in the Andean
  group. The impact of ethnic diversity on growth
  performance is still an open question.

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Governance Crisisand theAndean Region

• A Political Economy Analysis.
• Andres Solimano.