Democracy and the Economics of Politics

“Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men . . .”

The truth of Lord Acton’s observation gets confirmed with sickening regularity. Here I explore that point in the context of democracy. Why do democracies, particularly those with powerful governments, tend to elect bad people? What’s the analytical relationship between power, politics, money and corruption?

Politics and power are intimately linked, the link being money. That observation is trite but still worth noting because the triad of politics, power and money inevitably gives rise to corruption. Corruption is toxic because it destroys wealth and leads to significant avoidable human misery.

It was the English historian, author and politician, Lord Acton (1834 – 1902) who in 1887 noted the relationship between power and corruption. Power has a tendency to corrupt but only “absolute power corrupts absolutely.” The fuller quote reveals even greater insight — the relationship between the powerful and their moral standing. He wrote this in 1887:

“Power tends to corrupt and absolute power corrupts absolutely. Great men are almost always bad men, even when they exercise influence and not authority: still more when you superadd the tendency or the certainty of corruption by authority.”

His phrase “great men” was a reference to popes and kings, but in our modern and more politically correct times, it has to be understood to include women as well, and in democracies it must refer to powerful politicians and bureaucrats. Lord Acton’s claim that great men are almost always bad men appears to be empirically accurate.

Which raises the question: why do democracies, particularly those in which the government is powerful, tend to elect bad people? What’s the analytical relationship between power, politics, money and corruption?

An economics analysis may be instructive. The short version of the argument starts with the observation that political power affords one opportunities to enrich oneself (and one’s cronies and family members) through the ability to tilt the economic game to one’s advantage. Generally speaking, the greater the political control of the economy, the greater the opportunity for financial rewards of being in politics. Consequently, those rewards attract the least principled and the most avaricious to politics, and to power.

Here’s the logic of the argument. Suppose having a certain political position gives one the opportunity to make an enormous amount of money. Then it is clear that a person who intends to actually make use of that money-making opportunity will spend a large amount to win elections that no honest opponent can hope to match. The corrupt can outspend the honest in any elections because only the corrupt will recover the expenses (and more) upon assuming office.  It would be pointless to fight for political power if that did not translate into economic power.

Since India is a socialist country, government control of the economy is by intent and design. Being in government gives one immense discretionary powers — to grant or deny licences, to block and prevent legitimate economic activity, to extract rents wherever possible. Therefore political power translates into economic power. This politicizes the economy, meaning economic policies are dictated by what is politically expedient or what is most financially rewarding to the policymaker. That leads to poor economic outcomes.

Politicization of the economy then leads to the corruption and criminalization of politics because ultimately money determines who wins elections. The lesson here is that corruption is not just an unintended side effect but actually the designed objective of a command and control economy.

Politicians routinely proclaim that they are motivated by the public interest and benevolence but that rarely translates into policies that are actually socially beneficial. The reason this is so lies at the heart of the mechanism of democracy. There are two assumptions inherent in the idea of democracy: first, that the general public knows what kind of policies are good for its welfare, and second, that the political leaders are motivated to make policies in accordance with the public will.

Both assumptions are questionable. The public often systematically errs in judging policy, and even when they don’t, policymakers have other interests than public welfare in their policy decisions. That is not to say that good policies are never made but that in those rare instances of good policies, doing good is not the primary or the only objective.

The US is the richest (and therefore the most powerful) democracy, and India is the largest democracy. In both places, elections are high stakes games because those elected to political power wield enormous economic control. So it is predictable that the intensity of the competition to be in government will increase in tandem with the increase in the size and scope of government.

Elections are the most visible aspect of democracy that lends itself to popular diversion and entertainment. In that regard, the US presidential elections in November this year promises to be the most expensive show on earth. Billions of dollars will be spent over the next few months because trillions of dollars are at stake.

The “Founding Fathers” of the United States (the only country that had “founding fathers”) were very wary of big government because they understood the corrupting influence of power. The constitution they wrote was primarily aimed to limit government. Despite that, over time the government has grown to gargantuan proportions and threatens the freedom of the people. But that’s the natural tendency of democracy.

Let Ludwig von Mises have the last word. He wrote this in his magnum opus Human Action way back in 1949:

“Democracy guarantees a system of government in accordance with the wishes and plans of the majority. But it cannot prevent majorities from falling victim to erroneous ideas and from adopting inappropriate policies which not only fail to realize the ends aimed at but result in disaster.”

The US is deviating from the constitutional ideal of a limited government.  It’s a worrisome development that does not bode well either for the US or the world in general.

{A version of this piece appeared in the New Indian Express print edition of July 26th.}

Bonus material:

More wisdom from Lord Acton.

• Advice to persons about to write history: Don’t.
• The danger is not that a particular class is unfit to govern. Every class is unfit to govern.
• Limitation is essential to authority. A government is legitimate only if it is effectively limited.
• It is easier to find people fit to govern themselves than people fit to govern others.
• Democracy generally monopolizes and concentrates power.
• Liberty is not a means to a higher political end. It is itself the highest political end.