January 16, 2003

Chapter 4

Politicians and the Constitution

Democracy implies government by the people, as opposed to government by a particular person or by some subset of the population. However, if we define "the people" literally, democracy would mean government by everyone, including the children and mentally handicapped. Every real democracy limits participation to normal adults, although there are differences regarding what is normal and at what age one becomes an adult.

     In saying that democracy is government by normal adults, we imply that there is some way that "the people" can cause their individual, separate wills to take effect in the actions that we call governmental. If I say "I planted a tree," I mean that I performed the behavior that we call "tree planting" and I imply that I made a conscious decision to perform it. If I say that "the government planted a tree," I mean that some government official performed the behavior and that the official made a conscious decision. When I also say that the government is democratic, I mean that the official was acting "in conjunction with the people's collective decision." But the term "collective decision" is a metaphor. Decisions can only be made by individuals. When we use this metaphor, we mean that the people use some procedure for transforming their separate decisions into a single decision that is carried out by an agent. The term "collective decision" signals our minds to think about the procedure.

     The history of democracy contains a wide variety of collective decision-making procedures. The members of a small village might use a procedure consisting of the following three rules. First, any village member can introduce a proposed decision, or bill, only if he obtains the approval of five percent of the eligible voters. A bill describes an action that an elected agent is commanded to take. A member introduces a bill by announcing it to other members. Second, a specific meeting time is set and a vote is taken on whether to pass or reject the bill. If a majority who attend the meeting vote in favor, the bill will pass. Third, after the passage of the bill, the government agent is commanded to take the action specified in the bill.

     In a large national democracy, the procedure used to aggregate people's decisions is ordinarily specified in a written constitution. Almost every national democracy in the world today has one. An exception is England, whose constitution is based on tradition. A written constitution usually states the rules by which the most important government agents are elected, their duties, and the penalties for not carrying out their duties properly. It also tells how voters and/or elected representatives can introduce and pass bills.

     We can compare a written constitution with laws. Laws can also be used to specify rules, duties, etc. However, laws can be easily changed. Constitutional change, or amendment, is more difficult. For example, changes in laws may require a simple 50+% majority of a legislative assembly, while changes in the constitution may require a two-thirds or three-fourths majority.

     All of the democracies that exist today were originally established by a small elite who possessed a monopoly over force. The Japanese democracy was imposed by a foreign military force after a war. The U.S. democracy, as a union of otherwise separate states, is one of the few that were established democratically. Its written constitution was drafted by a small group of literate revolutionaries. But it did not ultimately become official until it was approved by elected officials in each of the thirteen colonies. In order to get this approval, the writers had to make ten amendments, which came to be known as the Bill of Rights. Although the U.S. democracy was established more democratically than others, it is still true that only a small percentage of the people gave their input. In most colonies only male property owners were permitted to vote.

     If we want to know why a specific country has a democracy, we must study its unique history, including its wars and civil strife. Although economists can certainly help in the interpretation of history, their specialty is exchange. They study voluntary agreements under the assumption of peaceful exchange. The economist is skilled at answering the following question about a democracy. "If individuals in a market economy wanted to set up a government to produce 'public goods' or to correct for some other market failure, what kinds of articles would they want their constitution to have?" In other words, what kind of contract would they want to submit themselves to? Answering this question will not allow us to understand everything about democracies and constitutions. But it can help us in three ways. First, in cases where the founders were genuinely interested in public goods, it can help us understand part of an actual democratic constitution. Second, in cases where an initial constitution was amended with the aim of promoting the supply of public goods, it can help us understand the amendments and the resulting institutions and interactions. Finally, it can help people in both the newer and older democracies understand whether and how peaceful constitutional change may contribute to the production of what ordinary people call wealth by means of public goods.

     Part 1 of this chapter explores the idea proposed by Public Choice theorists that a democratic constitution should be regarded as a means of accomplishing ends or, more specifically, as a contract. Part 2 describes the problem of choosing agents to help make and to carry out the collective decisions. It goes on to show how various constitutional provisions aid in this task. Part 3 introduces two kinds of costs that members of a collective would anticipate when making a constitutional contract: (a) costs associated with the possibility that collective decisions may go against their interest and (b) costs associated with the abuse of power by hired agents. How the people could constitutionally avoid or reduce such costs is the subject of Chapter Five.

1. THE CONSTITUTION AS A CONTRACT

     Public Choice regards a constitution as an agreement among the people in a democracy. Such an agreement helps people accomplish three types of ends. First, it helps them create and control a national defense system. Second, it helps them control the monopoly over coercion that is necessary to define and enforce the system of private property rights. Such rights are necessary for a market economy. Third, it helps the people cause public goods to be supplied and to deal with market failures. We have already discussed the third of these. Since most this book is about this type of end, let us turn briefly to the first two.

National Defense and Private Property Rights

     We begin with national defense. To deal with an alien threat, people may find it necessary to join together in a combined defense effort. They may believe that no kind of government, nor even life itself, would be possible without a combined defense. Once the threat to survival is over, the people might face a new threat from the very armed forces they created. Public Choice regards a democratic constitution partly as a means of selecting and controlling the agents who are initially employed to provide such collectively-controlled defense. The constitution specifies procedures that members of the collective must follow in order to cause the military to take action. It also specifies the actions that the military can take, thereby limiting the power of the armed forces to harm citizens.

     Given that the members of a collective are under threat from an outside force that aims to do bodily harm and to confiscate property, a combined, national defense is necessary. However, national defense does not have the technical characteristics of a pure public good. Although its benefits have the characteristic of jointness, it would not be very costly to exclude non-contributors from the benefits of a successful defense strategy. A citizen who did not contribute to the support of national defense could be fined, jailed, or exiled at a relatively low cost. The pure public goods nature of national defense arises not from the technical nature of the public defense service but from an implicit assumption. This assumption is that members of the collective have already agreed that no citizen shall be excluded from consumption of national defense.

     Now consider private property rights. To maintain a market economy, private property rights must be defined and enforced. This requires a government agency with a monopoly over coercion. A democratic constitution is both a means of setting up that monopoly and of controlling the agents who are hired to manage it.

     Defining and enforcing property rights is also a public good. One reason for this is that, as traders, all individuals expect benefits from the private property system (see Chapter Three). A second reason is that once the monopoly over force is created, the costs of employing it to protect property rights are lower in many cases than the costs of employing private police, guards, and other protective devices. Without government enforcement of property rights, people would have to pay high costs for private security. Robbery and raids at the local and regional levels would be commonplace.

     On the other hand, even with the monopoly over force as a last resort, protection of some property rights can be supplied at lower costs by the owners of the property. Thus, people would not want to waste resources by demanding that all the enforcement of property rights be supplied through a government.

     As in the case of national defense, the pure public goods nature of the enforcement of private property rights is not due to its technical nature. It would be easy to exclude someone from most enforcement services. The public goods nature is due to the implicit assumption that members of the collective have already specified that no one shall be excluded.

A Contract

     We have said that in Public Choice we define the constitution as a contract. Generally speaking, no constitution of today qualifies as a contract in the Public Choice sense. However, some are closer to being contracts than others. We can understand this idea better by comparing the constitutions of two contiguous political entities: Mainland China and Taiwan. The Peoples Republic of China (PRC = Mainland China) has a document that the PRC leaders call a constitution. It was imposed by the Communist party in 1954. It includes equality before the law; freedom of speech, press, assembly, association, procession, demonstration, and religion; the right to privacy of correspondence; and the right to vote. Between 1954 and 1982, the party wrote four new constitutions. The 1982 document contains virtually the same written freedoms as the earlier one.

     In addition to the articulated rights, the PRC "constitution" contains a provision that says that the "exercise by citizens...of their freedoms and rights may not infringe upon the interests of the State, of society, and the collective, or upon the lawful freedoms and rights of other citizens." What can this mean? We have already pointed out that a collective cannot make decisions. It also cannot have interests. The same applies to the "state" and "society." Only individuals can have interests. The idea of a collective decision is a metaphor. We must follow any statement about collective decisions with a description of how collective decisions are made. It follows that the operational meaning of the term "interests of the State, of society, and the collective" in this context depends critically on the collective decision-making procedures used to decide the conditions under which the above-mentioned freedoms and rights will be enforced.

     From the viewpoint of individuals who aim to hire agents to supply public goods, the most important characteristic of democratic collective decision making is that members of the collective retain some measure of control over the agents who make and enforce the laws. Accordingly, let us investigate this characteristic. Does the PRC have collective decision-making rules that enable citizens to somehow exercise control over the government officials who judge whether a particular action infringes "upon the interests of the State, of society, and the collective, or upon the lawful freedoms and rights of other citizens?" Consider the PRC's collective decision-making rules. We have pointed out that the constitution gives people the right to vote. Specifically, it gives all citizens the right to vote for the Deputies of the National People's Congress, who serve five-year terms. The National People's Congress is the law-making power of the state. Thus the constitution says that citizens can vote for PRC lawmakers. But now let us look at the rules that govern elections. The constitution authorizes the "Standing Committee of the National People's Congress" to conduct elections. The Standing Committee is the "permanent body" of the Congress. According to the constitution, members of the Standing Committee are elected by the members of the Congress. Thus, the Standing Committee is supposed to conduct elections in which citizens vote for the members of Congress; and the members of the Congress are supposed to elect the Standing Committee. However, the Standing Committee may decide, by a two-thirds vote, not to hold elections in the Congress under "exceptional circumstances."

     From the standpoint of someone who wants to assure that the people are represented, there appear to be two problems with these rules. First, the constitution does not define “exceptional circumstances” and it does not specify a way to determine when they exist. As a result, the Standing Committee, in effect, has the power to decide when exceptional circumstances exist. It could conceivably decide that they always exist. In this event, it could assure that existing Deputies stay in power indefinitely. Second, the constitution does not specify how the Deputies are to be elected. The constitution says that the number and the manner of their election "are prescribed by law." Thus, the way in which citizens can exercise their right to vote for the Deputies depends upon the law. But the law is made by the Deputies. Obviously, the Deputies may make election laws that more or less guarantee that they themselves will ultimately decide whether new Deputies will be elected and who they will be. For example, it could declare that only Communist Party members are permitted to vote or that some percentage of seats must be reserved for Communist Party members.

     It is reasonable to conclude that the PRC "constitution" is not a constitution in the Public Choice sense since it cannot be considered a contract. It is virtually inconceivably that a free people would make a contract that would give leaders of the government (i.e., their hired agents) the right to decide whether the people have or will continue to have the right to express their opinions and to decide who the future leaders will be.

     The Republic of China's (ROC = Taiwan) constitution was also imposed, although in a somewhat different way. It was approved by a tiny minority of representatives of provinces and local governments of Mainland China in 1947. Nominally, they had been elected. The elections took place not in Taiwan but in Mainland China. At that time (1946), Mainland China was in the midst of a civil war, the opposition Communists did not participate in the elections, and only a small minority of voters went to the polls. A single party, the Kuomingtang, claimed almost all of the seats and said that about four per cent of the total population had voted. One writer observed, however, that this was probably an exaggeration and that later evidence suggested "widespread electoral anomalies and malpractice." The actual implementation of the constitution lasted only four months at which time the representatives declared martial law and named one man to head the government. A year or so later, the Kuomingtang was defeated by the Communists in a civil war. They retreated with their government, martial law, and constitution to Taiwan. Over 40 years after it had been adopted, in 1987, that same constitution was finally put into effect in Taiwan unilaterally by the ruling Kuomingtang.

     Like the Mainland constitution, the Taiwan constitution also gives people the freedom of speech, teaching, writing, publication, religious belief, assembly, and association; the right to privacy of correspondence; and the right to vote. Also like the Mainland constitution, it contains a vague statement regarding the "collective interest." It says that "[a]ll the freedoms and rights enumerated in the preceding articles shall not be restricted by law except by such as may be necessary to prevent infringement upon the freedoms of other persons, to avert an imminent crises, to maintain social order, or to advance public welfare."(italics added) But what is the meaning of "social order" and "public welfare?" Each of us knows what "order" means in our personal lives and each of us has some idea of our personal welfare. However, we are not in full agreement regarding "social order" and "public welfare." As in the case of Mainland China, these terms can only mean that the leaders will decide when to permit the various rights and when to deny them. However, unlike Mainland China, the executive branch of the Taiwan government has increasingly acted to guarantee the above-mentioned freedoms. After fifteen years of elections it is evident that, with minor exceptions, all important officials are elected in general elections according to a one-person-one-vote formula. Moreover, there have been relatively free elections, although there have been numerous instances of criminal gang intimidation and payment of money or other favors in exchange for citizen votes. The constitution also contains an elaborate set of election rules and procedures for making amendments. The election rules were amended in 1991 and 2000 to reflect the fact that the government was located on Taiwan and not on Mainland China. And the free elections seem to insure that if the ruling party goes too far against the peoples' wishes, the majority will switch allegiance and elect a challenger. Thus, although the Taiwan constitution was mostly imposed, it is closer to the Public Choice idea of a contract. The reason is that ordinary citizens can vote leaders out of office who try to take away rights that they believe they should have.

     In sum, although both the Mainland Chinese and Taiwan have similar written constitutions, the Taiwan constitution is more like a contract because, in practice, the Taiwanese have the power to vote out of office a politician that they believe is performing poorly. We know, by putting ourselves in the shoes of people who want to construct such a contract, that they would want to retain this power.

Early Writers on the Constitution as a Social Contract

     Public Choice theorists were not the first or only people to conceive of a contract in relation to the powers of a government. One early theorist, Thomas Hobbes (1651) maintained that if there was no government -- anarchy -- each person would be in continual misery and fear of brutal death at the hands of other people. As Hobbes saw it, the function of government, which in his day was a monarchy, was to stop the brutality and killing. To determine the duties of the monarch and the rights and duties of citizens, we should imagine an implicit social contract. This is a contract that people would make if they were fully aware of their situations and if they acted on the basis of their awareness. The enormous fear of a brutal death would lead an informed people to want a contract that grants the monarch almost supreme authority to make decisions. No one would have the right to rebel unless the monarch threatened her survival. With this exception, rebels should be dealt with harshly in order to protect the monarchy and, thereby, the ordinary people.

     Hobbes's idea of a social contract is quite different from the idea of a contract used in Public Choice. Hobbes was interested judging the practices of existing monarchs and rebels. He wanted a way to determine whether a monarch is good or bad. He was not concerned with understanding why, in a democracy (and with a market economy in the backs of their minds), people would demand a written constitution that contains certain provisions.

     John Locke (1690) later argued that ordinary people have the natural rights to life, liberty, and property. The moral duty of a government is to protect these rights. If a monarch or other government agent violates these rights, it is like violating a social contract. The people then have another natural right -- to rise up in rebellion against the government. Locke was also not interested in an agreement that was made by independent individuals seeking to improve their situations as they see them. Like Hobbes, his idea of a social contract was a means of judging governments and rebels.

     Jean Jacques Rousseau

(1762) regarded the government as an expression of the "general will." He associated the general will with a moral imperative that the government should secure freedom, equality, and justice. If the government acted against this imperative, individuals would have no moral obligation to obey government directives. It is clear from the use of terms like "freedom," "equality," and "justice" that Rousseau's idea of a general will would be difficult to put into practice. In any case he, like Hobbes and Locke, used the idea of a social contract as a device for expressing his own views about the proper conduct of governments and rebels.

     Public Choice uses the idea of a contract in a different way. It does not assume that there are natural rights or a general will. It focuses on the ends of ordinary people. It assumes that these ends include (1) security, as manifest in their demand for national defense, (2) wealth, as manifest in their demand for private property rights and a market economy, and (3) public goods, including the correction of market failures. It regards democracy and a constitution as a possible means for achieving these ends. It then studies the various characteristics of constitutions and democracies in order to determine whether the means are suitable.

Definition of a Constitution

     In the case of a small community whose members wanted to supply only a single public good, we can imagine some of the members calling a meeting, agreeing to contribute a sum of money toward the purchase of the good, collectively making a deal with a supplier, collectively monitoring the supply, and then collectively suing the supplier in the event of a breach of contract. Alternatively, the demanders may hire a trustworthy agent to perform these tasks for them. Suppose, however, that members of a collective expect that there will be many public goods or that the public good they want supplied will require a substantial portion of the nation's manpower over a very long period of time. Then they would want to hire many agents on a permanent basis. We can define a constitution as an agreement among the members of a large community on procedures (1) to collectively hire agents to perform a particular set of services over a long period and (2) to control the agents once they are hired. The chart below contains a list of the services that citizens are likely to want performed. These tasks are largely self-explanatory.

2. ELECTING POLITICIANS

     To understand the problem of hiring agents of supply these services, we put ourselves in the shoes of all the members at once and try to imagine the provisions they would want in order to achieve these aims. A good way to begin is to distinguish between politicians and bureaucrats.

Politicians and Bureaucrats

     Assume that members of the collective want to hire many agents. If they hired each agent separately, they would have to call periodic meetings, gather information about each candidate for each job, reach a collective agreement on which agents to hire, and enforce the agreement by monitoring the agents and authorizing delinquent agents to be punished. The sum of the costs to members of participating in all these activities is high. It is reasonable to presume that members would want to turn the job of hiring of some agents over to a special group of other agents. In other words, members would want to divide agents into two classes: (1) agents who they hire directly and (2) other agents who are hired by those who they hire directly. In this book we use the term politicians to refer to members of the first class and bureaucrats to refer to members of the second class. Thus members of the collective would want to hire the politicians to hire the bureaucrats.

     It is possible that members of the collective would want to make a constitutional provision to govern the hiring of bureaucrats. Taiwan's constitution, for example, creates a special branch of government to administer civil service examinations. It specifies that every citizen has a right to take examinations and that, with some exceptions, exam-takers in a given class who score the highest must be hired. Other democratic governments have a civil service department of the government that performs the hiring task.

Appointees and Long Term Bureaucrats

     We can divide bureaucrats into two types: appointees and long-term employees. Appointees are hired by the politicians currently in office. If a new set of politicians is elected, they have the right to find replacements for the appointees. Long-term employees have long-term employment rights. The cannot be replaced unless the bureaucrats have been guilty of improper conduct or unless law-makers have abolished the job for which they were hired.

A Conservative Bias

     Hiring long-term bureaucrats introduces two kinds of biases into collective decision-making: conservatism and large government. In this subsection, we discuss conservatism. The bias toward large government is discussed in the next.

     Long-term bureaucrats bring a measure of independence to government administration which is likely to contain a conservative bias. The bureaucrats have a stake in keeping the system more or less as it is (except for increasing their pay and other job benefits -- see the next subsection). Thus, they present a counter-force to politicians who may advocate radical change. Consider the most extreme example. Suppose that a group of elected politicians wants to overthrow the democratic government and install a dictatorship. In order to gain the cooperation of the long-term bureaucrats, the politicians would have to woo them with an offer of greater benefits. If the bureaucrats expected the politicians to replace them after they gained power, they would oppose the revolutionaries. Thus, the existence of long-term bureaucrats raises the costs to prospective revolutionaries of overthrowing the government. In the absence of the long-term bureaucrats, the resistance to change would be lower.

     On the other hand, suppose that some change in policy is beneficial. Ordinarily, the existence of long-term bureaucrats would make it more difficult for politicians to put it into effect. This is perhaps the reason why democracies were slow to respond to the Nazi and Japanese threats in the 1930s.

     An example that is often disputed is the case of scaling back the military after a war. Long-term bureaucrats in the armed forces want to maintain a large military force while draftees and taxpayers often want to scale back the force. A conservative bias in this case leads to a military force that is larger than it would be without the bias. Citizens who have a high demand for national defense services are pleased with this bias. However, citizens who have a low demand are displeased.

Bias Toward a Larger Government

     Long-term bureaucrats have the incentive and power to sway legislators to vote for laws that benefit them as bureaucrats. This introduces a bias toward a larger government. The bureaucrats’ power stems from their status (a) as voters and (b) from their specialized knowledge and work. Consider first their status as voters. All voters tend to vote for legislators who favor bills that they expect to yield net benefits to them. Other things equal, if a majority of voters expects to receive net benefits from the government provision of a public good, legisators aiming to please the electorate will tend to vote for a bill that provides the good. However, a long-term bureaucrat who works in a bureau that causes the public good to be supplied may not benefit at all as a consumer of the services provided by a bureau. Yet he would favor a legislator who votes for a bill to expand the bureau's services because expansion is likely to raise the scope of his influence and may raise his pay or benefits. The legislator's response to the voting pressure of bureaucrats who want to expand their bureaus is the first source of bias.

     The second source of bias is due to the specialized knowledge that bureaucrats have and the work that they do. Bureaucrats can often help or harm a candidate for election. For example, they may cooperate with or resist candidates who want to prepare for a political debate regarding their agency. Or they may speed up or delay special services to campaign contributors. In exchange for their cooperation, politicians often offer larger budgets.

     In short, the bias toward a larger government is due to (1) the ordinary biased voting of bureaucrats as suppliers of government services and (2) the concessions in the form of larger bureaus they receive from legislators because of their ability to help candidates influence voters and to provide benefits to people who the legislators want to help.

Specialized Departments

     It seems reasonable that members of the collective would want to create specialized departments. For example, they would want a law-making department to decide which public goods projects are worthwhile, a purchasing department to negotiate with suppliers over price, a monitoring department to judge whether suppliers are complying with their contracts, and a tax collection department. They would also want judicial and punishment departments to deal with delinquent taxpayers, people who violate property rights, people who do not keep their contractual promises, and agents who abuse their power. In addition, depending upon the public goods that are demanded, they may want specialized departments to oversee their supply. Examples are a transportation department, a communications department, and a national defense department.

     It is likely that the collective would want to decide at the very beginning to have some of these departments. The law-making, purchasing, monitoring, tax collection, law enforcement, and judicial departments are necessary no matter which public goods are demanded. Whether others are necessary depends upon the situation. Thus the constitution is likely, on the one hand, to command that some departments be created. On the other hand, it is likely to state that other departments may be created by the hired politicians.

The Problem of Choosing Politicians

     Consider the problem of choosing politicians. A collective decision to hire politicians has two parts: (1) choosing candidates and (2) deciding which candidate will be hired. In this chapter we shall merely introduce these topics. They are discussed more thoroughly in Chapter Six on types of elections.

Choosing Candidates

     Politicians could be chosen by examination. However, it is difficult to test for the skills that are demanded. Consider the skills demanded of agents who are hired to arrange for the supply of public goods. Members of the collective would want such people to be skilled at their jobs and also trustworthy. But what kind of test could determine whether someone is superior at deciding whether collective benefits are greater than the cost of a public good, at driving a hard bargain with public goods suppliers, at hiring bureaucrats, and at monitoring bureaucrats and suppliers? And what kind of test could be used to determine trustworthiness? It seems like an examination is unlikely to be useful as the ultimate tool for choosing candidates. A more reasonable method is to make a set of election rules. The first part of the rules could specify how candidates will be chosen. It might state that each member has the right to pick someone to be a candidate. In order to limit the number of candidates, the rule may go on to say that a proposed candidate must receive the endorsement (signatures) of some minimum percent of members of the collective.

     Although an examination cannot test very well for the skills desired of public goods agents, members of the collective may want a basic examination on such things as language and history. Such an examination may help to filter out candidates who are generally felt to be unsympathetic to the wants of society members. Similarly, personal characteristics such as age, education, and length of residence in the society, may be part of a package of minimum qualifications.

     Rules regarding examinations and qualifications for becoming a candidate would have to be administered by an election commission, which would also have the task of applying the election rules and informing members of the collective when the rules have been violated. Since the election commission can influence the outcome of an election, pressure groups, political parties, and others have incentives to influence such a commission's decisions. To avoid bias and waste, members of the collective would want the election commission to be as independent of such influences as possible.

Deciding Which Candidate Wins

     Let us suppose that the number of candidates suggested by members of the collective is five. A method is needed to determine which of the five candidates will be elected. One method, called a plurality rule, is that the candidate who wins the most votes in a popular election wins the election. A variation of this rule involves a series of elections carried out through a sequence of time. In each one the worst candidate is eliminated until one candidate receives a 50+% majority. There are a number of further variations but they all amount to trying to find a way to (a) minimize the costs of selecting a winner and (b) assuring that the winner is liked by voters. We discuss some of them in Chapter Six.

Costs of Competition Among Candidates

     Suppose that you are the manager of the personnel department in a large corporation. Your task is to make rules for hiring new employees. You would recognize that some selection methods impose high costs on the candidates. If you choose such a method, some prospective candidates would decide not to apply. They would apply elsewhere, perhaps with a competing company. In order to reduce the job search costs of the candidates, you might recommend a policy of reimbursing candidates for some of their expenses. An example is reimbursement for travel expenses. Reasoning by analogy, we might expect that members of a collective would also want a system that reimburses candidates for some of the expenses they incur in competing for a politician's job.

     As we know from experience, not only will many candidates compete for political office without being reimbursed, the pay that a politician expects to receive for doing the job is often less than the money she (and/or her supporters) spend on their election campaign. How can we explain this? If we assume that individuals who seek political office are no more interested in helping the collective than individuals who do not seek political office, there can only be one answer for the typical case. It is that the candidates and their financial backers expect to gain more (or lose less) from the decisions that the candidates help make if they are elected than from the decisions of a likely alternative candidate. We discuss this issue further in Chapter Eleven.

Voting Districts

     A common practice in large democracies is to divide the nation into voting districts. The citizens in each district are then given the responsibility for electing a representative from that district. There are variations on this. In some cases, more than one candidate may be chosen from a given district. But the basic principle is that the grand task of selecting agents is parceled out, so to speak, to the districts.

     Why do democracies divide the nation into voting districts? It is possible that voting districts are the result of historical circumstance. The United States, for example, began as thirteen separate colonies. The citizens of some of the colonies may have been reluctant to take a chance that the body of elected officials would not include some minimum number of people from their colony.

     In this section, we want to see whether there is any reason associated with efficiency why members of a collective might wish to create separate voting districts in their constitution. We can try to find out by doing a mental experiment. Suppose that there is a collective of 1 million people. They want to elect a 100-person legislature. One way would be to divide the electorate into 100 electoral districts with 10,000 people in each one. The members of each district would then be responsible for electing one legislator. For example, the voters in each district might nominate five candidates and then elect one from the five. A second way would be to have a national election in which, say, 500 candidates would stand for election. Each voter could then vote for his favorite 100.

     Now pretend to be a voter who lives in one of the hypothetical electoral districts. If the first method is used, you will only need to choose one from five candidates. If the second method is used, you will need to choose 100 out of 500. The cost to you of obtaining the necessary information to make an informed decision is higher in the second case because you must evaluate 100 times as many candidates.

     The voters who live in a given district are more likely than the voters in other districts to already have information about the candidates from their district who are standing for election. Thus, their votes relating to those candidates are likely to be more informed. It seems, then, that placing the collective in separate voting districts enables voters to make the best use of existing information about candidates.

     In addition, it gives voters a greater incentive to produce more information. The probability that a single voter's vote will be the determining vote in an election is greater if the number of voters is small. As a result, the vote is more valuable, other things equal. The more valuable the vote, the greater the gain to improving one's information about candidates.(see Chapter Seven)

     The production and sharing of information about candidates is especially important because such information is largely a public good. This means that information is likely to be undersupplied because of the free rider problem.(see Chapter Three)

     Some information about candidates is likely to be made available by the news media. Owners of newspapers, TV stations, etc. are able to finance the printing of stories about politicians by selling advertising. However, advertising-sponsored media only partly overcomes the free-rider problem.

     It would be possible for a special government agency to be created to produce information about candidates. But there are two problems with this. First, there is no obvious way to select producers who will not be biased in favor of one or another candidate. Second, even if non-partisan producers could be found, how can they know which information voters regard as most valuable? In the market, producers of information about products have an incentive to find out the kind of information consumers want. If they fail to do so, they will sell less than otherwise. Their profits will be lower. But government agents cannot earn profit. Although it is possible that some individuals hired for such an agency would have an incentive to discover the kind of information that voters want, it is not realistic to assume that most would. Voting districts are discussed further in Chapter Six. We shall see that a disadvantage of electing politicians by means of voting districts is that politicians elected in this way tend to favor laws that benefit the voters in their districts even though they harm voters in other districts.

Putting Election Rules in the Constitution

Whatever method of selecting candidates and electing politicians is decided upon, society members will ordinarily want to require that it be followed by making it part of the constitution. There are two reasons. First, by doing so, members can avoid costly changes. It is always in someone's interest to change the election rules since doing so can alter the likelihood that a preferred candidate will win. Unless the rules are relatively durable, we can expect that many resources will be wasted in an effort to secure a temporary advantage for someone's preferred candidate. Second, we shall see below that society members would want to turn over non-constitutional decision-making (legislation) to the politicians themselves. If they did not specify election rules, the elected legislators could themselves easily change the rules. To allow this would give too much power to the agents and may jeopardize the success of the democracy. Recall that one difference between the Mainland China and Taiwan constitution is that although the election rules in Mainland China are left for the legislature to establish, the rules in Taiwan are specified in the constitution.

Frequency of Election, Term Limits, and Recall (Impeachment)

     Voters never have complete information about candidates. Thus, they cannot be certain that their voting choices are correct. After an election, they may discover new candidates or they may come to prefer a previously rejected candidate. Besides, once in office, a candidate may change in ways that are difficult or impossible for anyone to predict. Finally, the demands of voters may change, making a previously-elected politician less suitable than an alternative. For each of these reasons, voters may regret a previous voting choice. To avoid the costs associated with such regret, members would want to limit the length of an elected politician's term in office. They could do this by holding periodic elections in which challengers could compete with previously elected politicians for their posts.

     How frequently would members of the collective want to hold elections? We can get some idea by comparing elections with the hiring of agents in the market economy. Suppose that you wanted to hire an agent in the market economy. You want him to provide services that are not easy to specify or measure. You expect to want such services for an indefinite length of time. Examples are advertising services, health care services from a private doctor, and investment services. For these, you cannot precisely describe the services you want or precisely determine whether the agent is providing them. As a result, you would want to retain the right to switch to a different agent if you later became dissatisfied with the service. Anticipating this possibility, you would not want to make a contract of indefinite length. You would not want a contract that is too short either, since too short a contract would not give the agent enough time to prove her worth. Thus, you would want to make a contract for a moderate length of time, after which you would decide whether to renew.

     In business, the length of the contract is determined separately for each service and by each employer and service provider. It is the outcome of negotiation. As a result, we might say that private traders customize the contract length to fit their specific wants. In a collective, negotiation is much more costly. Moreover, the collective wants are costly to determine in the first place. Accordingly, rather than negotiate a special contract length with each politician, it seems sensible to specify a given length in the constitution for politicians in the same class.

     We cannot tell the exact length that members of the collective would want. Democratic systems exist in which elections are held as frequently as every two years and as seldom as six years. In the same country, some elected posts have shorter terms than others. It is generally true, however, that politicians must win reelection after a few years if they wish to continue in office.

     A question is sometimes raised about whether there should be a limit on the number of times, or terms, that a politician can be reelected. Those who advocate limits on the number of terms usually believe that incumbents have a strong advantage in being reelected. They want to reduce this advantage. This belief is correct. It is virtually impossible to create a system in which incumbents cannot use some of the resources under their control to aid in their election campaigns.

To avoid giving incumbents an advantage over their rivals, advocates of term limits say that a politician should be limited to one or two terms in office. The presidency of the U.S. is subject to a two-term limit. A president can only be reelected once. The constitution does not limit the terms of U.S. legislators, however, although some of the states impose such limits.

     Another way to deal with politicians who perform badly in the eyes of their electors is to include a recall rule in the constitution. Such a rule specifies that under certain conditions, a politician must quit. A constitution may make it possible to recall by means of referendum. If a sufficient number of people sign a petition, a general referendum can be called. If, say, two-thirds of the voters in a referendum vote to recall or impeach a politician, he must step down. Later, new elections can be held to find a replacement.

     A constitution may also specify reasons for recall. It may state conditions under which a legislative assembly can force a president and/or other elected politicians to leave office before the end of the term. An effort to recall a president on the grounds that he has violated the constitution is called impeachment.

Presidents and Prime Ministers

     The United States, Taiwan, and the Philippines have a system in which the president is elected. In the latter two countries, there is a popular vote and the candidate who receives the most votes wins. There is also a popular vote in the U. S. However, voters do not directly elect the president. The president is elected directly by representatives from each state. But states differ in how they select these representatives. As the system has worked in practice, the representatives ordinarily vote according to which candidate receives the majority of votes in the state. Consider a two-party election in Texas. If the Republican candidate receives fifty-one percent of the popular vote, all of the Texas representatives will vote for the Republican candidate. In this system, even if a candidate wins the most votes in the country, he (she) may not be elected by the representatives. The reason is that the more popular candidate in the nation may win overwhelmingly in a minority of the states while the less popular candidate barely wins in a majority of the states. Presidential candidates with less than a national majority have been elected three times in U.S. history, the most recent being the 2000 election.

     Holding a special election for the chief of the administrative branch of government (president) is a means of separating, or diffusing, the powers of the elected agents. A system in which law-making power rests with an elected legislature and executive power rests with a popularly elected president is called a presidential system.

     We can conceive of three general types of voting procedures for electing a president. In the first, voters vote directly for presidential candidates. The candidate who receives a plurality or simple majority of votes wins. In the second, the electorate is divided into voting districts. An election is held in each. For each district, the candidate who receives the plurality or majority in each is designated the winner of the district. The candidate who wins a plurality or majority of the districts is declared the president. In the third, the electorate is also divided into voting districts. However, the voters in each vote not for a presidential candidate but for representatives who will participate in a later election during which a candidate is elected. The representatives have the power to vote for any presidential candidate they choose. The U.S. procedure is a hybrid of the latter two types.

     A second kind of democratic system is the parliamentary system. England, Japan, Canada, and India have parliamentary systems. In a parliamentary system, voters elect legislators (called the parliament). Legislators have two duties: (1) to make laws and (2) to choose the executives, or enforcers, of laws. They carry out their second duty by choosing one of the legislators to be the chief executive, or Prime Minister. A candidate must usually receive a majority (50+%) of the legislators' votes to be elected. The Prime Minister then chooses other legislators to be his chief ministers, or cabinet. Most ministers of the cabinet oversee the various ministries, or bureaus, in which bureaucrats supply the various services.

     In some cases, the legislature contains a majority from a single party. If so, the majority usually chooses the party chief as Prime Minister. The Prime Minister then chooses members of his own party as cabinet ministers. In other cases, where there are more than two parties represented in the legislature, none may have a majority. If so, parties must work out a deal. The leaders of each party meet in order to try to reach a majority decision. The final result is a coalition government -- a Prime Minister and perhaps cabinet ministers also -- who are chosen by a coalition of parties. A coalition government is likely to contain ministers from different parties.

     Coalition governments can be changed virtually at any time. If one or more of the coalition parties decides to switch allegiances, a new coalition may force the resignation of the Prime Minister and the cabinet. Thus, it is more difficult to predict the future identities of political leaders in a parliamentary system with a coalition government than it is in a presidential system. The more important difference, however, is this. Whereas the legislative and executive branches are separate in a presidential system, they are combined in a parliamentary system. This appears to make it more likely that a single party will dominate the government in a parliamentary system.

     The framers of the U.S. constitution seem to have deliberately tried to separate the president from the legislature. In The Federalist, they argued that they wanted "to prevent members of Congress or of the Federal executive from dominating the line of succession to the presidency."(Vincent Ostrom 1986: 165-6) But the framers envisioned a weak presidency. During the twentieth century, presidential power has grown enormously relative to legislative power. Thus, there may be some grounds for concern over whether the powers can remain as balanced as the founding fathers apparently envisioned.(ibid., 197-201)

Political Parties

     Most of the newer democracies emerged from a one-party dictatorial system. As a result, some require that a candidate be nominated by a government-sanctioned political party. In the typical democracy, however, one need not be a member of a political party to become a candidate. Consider members of a collective who are making a constitution for the purpose of hiring agents to supply public goods. It is difficult to think of any reason why they would make special provisions that favor political parties. In fact, they might not even expect political parties to form. This seems to have been true of the framers of the U. S. constitution, although they were aware of the possibility of coalitions, or factions.

     Suppose that some members of the constitution-making collective are already in political parties. Or, what is the same thing, suppose that they are members of coalitions. Then members of the collective who are not members of parties or coalitions would be especially wary of entering a constitutional agreement with them for fear that they would be at a disadvantage in collective decision-making. When coalitions are involved, the public goods approach to the constitution becomes a very complex subject. Political parties are discussed further in Chapter Eleven.

3. THE COSTS OF PROVIDING PUBLIC GOODS

THROUGH A COLLECTIVE DECISION-MAKING PROCESS

     In the introduction of this chapter we mentioned two special problems that would be faced by members of a collective who aim to join together to provide public goods. The first concerns the prospect that the tax costs to any given member may exceed his benefits. We call this problem the prospect for external costs of collective decision-making. The second is the potential abuse of power by hired agents. We call this the prospect for costs due to power abuse. We discuss these problems in detail in Chapter Five. Our goal here is to introduce them.

External Costs of Collective Decision-Making

     In one of the earliest books on the economic theory of democracy, Buchanan and Tullock (1962) discussed the prospect of participating in a collective decision-making process. To understand their discussion, put yourself in the shoes of the typical member of the collective. On the one hand, like all members, you would want to elect the most knowledgeable and trustworthy politicians, since you want them to make decisions in your behalf. On the other hand, you also want politicians who will make judgments that you agree with, even if they harm others. Suppose that you own a business in a particular location. You might like a road built nearby in order to make your business more convenient to potential customers. If so, you will favor a candidate who believes that a road near your business qualifies as a public good worthy of financing. Ordinarily, you would not care that others must pay part of the cost even though they do not benefit. Or suppose that it is possible to pay a smaller share of a total tax bill than someone else. Then you would favor a candidate who promises to charge you lower taxes even though others must pay a higher share. We could go even further. You may favor a candidate who promises to take money or property away from some other member of the collective (e. g., some wealthy member) and give it to you.

     Each of these actions would benefit you, but only at the expense of others. They are good examples of the kind of damage, or "external cost," that can exist unless certain rules are written into the constitution. Buchanan and Tullock referred to such damage as the external costs of collective decision-making. It consists of harm that is felt by individuals due to collective decisions that are against their interests. The authors pointed out that when we think about all of the members of the collective at once, it is possible that, without rules, the sum of these costs will outweigh the public goods benefits.

     Buchanan and Tullock focused on the size of the majority needed to make a collective decision. To reduce "external costs," they suggested that members could make a constitution that requires laws to be approved by a larger majority than fifty per cent, say 67 per cent. In the extreme case of a requirement of unanimous consent (a 100% majority), the external costs of collective decision-making would be zero. If you thought that a proposed law would harm you, you could vote against it. Your one vote would be enough to defeat the proposal. Of course, it would be very difficult in a large collective to reach unanimous consent on issues.

     Buchanan and Tullock were the first modern writers to describe the problem associated with community members' beliefs that collective decisions may be made against their interests. They did not associate this problem with the use of agents. Instead, they focussed on the more fundamental fact that in collective decision-making, each person must give up some of her independence. Unless there is unanimous consent, each one must bear some uncertainty that the collective decision will go against her interest.

Costs Due to Abuse of Power

     Politicians must have the power to coerce in order to provide national defense, enforce property rights, and collect taxes. In the best-case scenario, politicians would use this power entirely for the benefit of members of the collective. But power may be used for other purposes. It may be used to enhance a politician's wealth directly. For example, an elected president may seize someone's property for his own use. Or power may be used to enhance wealth indirectly, as it would be if the politician was bribed by special interest group or wealthy individual. We call such actions abuse of power because (1) they involve using power in ways that are against the desires of their electorates and (2) they would be disapproved by members of the initial collective. Using this term, we can say that members of a collective face potential costs of power abuse. Means of controlling these costs are discussed more fully in the next chapter.

Questions for Chapter 4

1.  The term "collective decision" is a metaphor, since only individuals can make decisions. What, then, is the real meaning of the term?

2.  What is meant by the term "collective decision making procedure?"

3.  Tell the difference between a constitution and laws.

4.  Can economic theory, by itself, explain why a country has a constitution? Explain.

5.  What questions can economics help to answer about a constitution?

6.  According to Public Choice, individuals might agree to make a constitution in order to achieve various ends. What ends are these?

7.  Does national defense possess the public good characteristic of nonexclusion? Explain

8.  Does the enforcement of private property rights possess the public good characteristic of nonexclusion? Explain.

9.  Can the Constitution of the Peoples Republic of China (Mainland China) be considered a contract in the Public Choice sense of the term? Explain.

10.   Can the Taiwan Constitution be considered a contract in the Public Choice sense of the term? Explain.

11.   Although the constitutions of Mainland China and Taiwan are similar, the latter is closer to a democracy than the former. Explain why.

12.   How does the Public Choice idea of a contract differ from that of the earlier writers on the social contract.

13.   According to the text, what is the difference between politicians and bureaucrats?

14.   According to the text, what is the difference between appointees and long-term bureaucrats?

15.   According to the text, hiring long-term bureaucrats introduces a conservative bias in government. Explain.

16.   According to the text, hiring long-term bureaucrats introduce a bias toward large government. Explain how this occurs.

17.   What is a plurality rule for determining which among the candidates in an election is the winner. What is the alternative to a plurality rule and why might the members of a community prefer the alternative?

18.   Give a reason based on economic efficiency why members of a community who wanted to hire a legislature would divide the community into voting districts.

19.   One problem with a democracy is that, because of the free rider problem, voters tend to produce an inefficiently small amount of information about candidates. Some observers have suggested that this problem can be solved by creating a special government agency to supply this information. According to the text, is this likely to solve the problem? Explain.

20.   Should election rules be part of the constitution or should they be left for the legislature to decide? Explain by considering the likely effects in each case.

21.   Why not elect a president and legislators for lifetime terms? Why not for six-month terms?

22.   Why do some people advocate limits on the number of terms a politician can serve in office?

23.   By referring to the separation of powers, tell how a presidential system differs from a parliamentary system.

24.   Define a coalition government and explain how it comes into existence.

25.   Define external costs of collective decision-making.

26.   Give three examples of how others could impose external costs of collective decision-making on you.

27.   Define the costs of power abuse. In your answer be sure to tell who incurs these costs, who causes them, and how they are caused.

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J. Patrick Gunning
Professor of Economics/ College of Business
Feng Chia University
100 Wenhwa Rd, Taichung
Taiwan, R.O.C.
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