On the total benefits of parliamentarism

Parliament of Nauru

The total benefits of parliamentarism are much greater than the individual-country benefits. As I replied to Robin Hanson on Twitter, I would use the estimate from McManus and Ozkan of 0.6 to 1.2pp per year as a first approximation of the economic benefits of parliamentarism for the countries that adopt the system. As I said there, I believe this is a conservative estimate because of attenuation bias, which I discuss in the book. In short, attenuation bias is the underestimation of an effect because you are measuring your independent variable with error. There is also the issue of presidential and authoritarian countries tendency to exaggerate their growth statistics compared to parliamentary democracies. Lastly, the full range estimated in McManus and Ozkan is actually larger; it goes all the way to 2.1pp in Table 5, they just did not include it in their abstract. All of those issues, however, relate to the benefits for the country that makes the switch. Yet we have reason to believe that the total benefits should be substantially larger because of positive spillovers of good institutions.

In modern times, good institutions are good for their neighbors as well. In the past, conquering, pillaging and waging war were seen as valid actions which even the most enlightened states could take. Countries with better institutions were particularly harmful, not because they were more vicious than other countries, but because their good institutions allowed them to harm other peoples more efficiently. The expansion of trade, international investment and general exchange between countries has altered the relative benefits of such harmful approaches, and has also altered the perception of the relative benefits of such approaches. This means that the improvement of institutions in one country makes life better for the people in other countries, what economists call positive externalities. But the studies I have dealt with in the book limit themselves to estimating the benefits for the country. I will deal here with three key areas where parliamentary countries generate positive externalities, raising the total benefits for the entire world every time a country adopts the system.

1) Innovation

If we look at Historys Hockey Stick we'll verify that rapid progress is not restricted to parliamentary countries. But it is a phenomenon that happened to the world after parliamentarism appeared. 

This is no coincidence. As Matt Ridley argues in his book, innovation flourishes in freedom: "The main ingredient in the secret sauce that leads to innovation is freedom. Freedom to exchange, experiment, imagine, invest and fail; freedom from expropriation or restriction by chiefs, priests and thieves; freedom on the part of consumers to reward the innovations they like and reject the ones they do not." We see that Ridley's definition of freedom is wide enough that it is almost the same thing as good institutions. 

But once innovation happens, it can benefit all societies, the free and the unfree, those with good and those with poor institutions. A vaccine can be used in every country, as can electric light, internal combustion engines, pasteurization, nitrogen fixation, batteries, air-conditioning, etc, etc. While it is true that not all technologies are transferable from country to country, a large chunk of them are, as the examples above make clear. 

What has parliamentarism got to do with that? A lot. As I argue in the book, parliamentarism, particularly if understood in the broad sense of empowerment of assemblies versus individuals, is behind a large share of the progress in institutions and in freedoms.

When more countries empower their parliaments, they increase the pool of highly innovative societies, which can create inventions for all countries. But it goes further than that. While it may be true that the secret ingredient for innovation is freedom, the ferment is scale. Robinson Crusoe was completely free, but his innovations could not go much beyond the pottery he learns how to make. The amount of specialization in different activies, the exchange of ideas with larger and larger pools of fellow innovators makes it possible to innovation to increase. This means that when we make more societies innovation-friendly, the amount of innovation we get is more than proportionally greater.

2) Trade

Even if there were no further benefits of innovation, other countries can be favored by the existence of more parliamentary countries with better institutions through Ricardian gains from trade. Not only do parliamentary countries grow faster, countries with better institutions tend to be more open to trade, which means greater gains from potential partners.

3) Peace

Despite numerous attemps at refutation of the democratic peace theory, it still holds that the “absence of war between democratic states comes as close as anything we have to an empirical law in international relations.” While the debate over why democratic countries if fascinating, for our purposes it suffices to say that they are indeed more peaceful and, as I argue in the book, parliamentary countries are consistently more democratic, and the relationship is no mere coincidence. This means that a world with more parliamentary countries will become more peaceful and more countries can share the costs of maintaining security.

4) Addressing collective action problems

While the gains from more countries with better institutions would be huge, as seen above, it is wise to consider also the potential harms which would derive from that. The main one seems to be an increase in greenhouse gas emissions. It is morally objectionable not to hope for economic gains for the majority of the population who does not yet have standards of living of a developed economy because it would hurt the environment. Still, it remains true that a large increase in economic growth would represent, all things constant, a large increase in greenhouse gases. 

There is a silver lining, however. As I argue in the book, for their level of income, parliamentary countries do better in protecting the environment. There have been large advances in approaches to tackle climate change. Further, fighting climate change is a global good, and countries with better institutions are more capable of overcoming collective actions problems.

This advantage would not be limited to fighting climate change, of course. The promotion of global public goods can be much more efficient when more countries share a better institutional framework. 

Bottom line

I have seen some reactions to my book that assume I must be overestimating the benefits. Until now, these reactions have relied on a gut feeling that it just can't be true that parliamentary systems are that good. What I see, instead, are reasons to believe some of the estimates are actually more modest than they should be.