12. DEMOCRACY AND POLICIES FOR GOOD GOVERNANCE GROWTH ECONOMICS and Fund-raising in international cooperation SECS-P01, CFU 9 Economics for Development academic year 2017-18 12. DEMOCRACY AND POLICIES FOR GOOD GOVERNANCE Roberto Pasca di Magliano Fondazione Roma Sapienza-Cooperazione Internazionale roberto.pasca@uniroma1.it Roberto Pasca di Magliano

Interaction Democracy-Education INTRODUCTION: DEMOCRACY Definition of democracy Formulated by Abraham Lincoln in his Gettysburg address in 1863: government of the people, by the people, and for the people Interaction between democracy and education affects the quality of government Democratic elections do not foster the quality of government in countries with largely uneducated populations The standard argument advanced in political science and economics in favor of democratic institutions suggests that democracy gives the right incentives to elected officials because free elections provide to the voters from the corruption and excess power (Sen, 2000, and Rivera-Batiz, 2002) Roberto Pasca di Magliano

Virtuous Rules INTRODUCTION: FREEDOM & VIRTUOUS RULES it is the basic condition of the individual self-esteem responsibility and participation to social and economic choices it can be considered a natural right It has to be transformed in good and services whose access must be guaranteed to all individuals (positive freedom) Virtuous rules need to: ensure the correct relation between individuals induce in individuals, firms and policy-makers behaviors coherent with the selected development objectives Roberto Pasca di Magliano

Interaction Democracy-Education EMPIRICAL EVIDENCE AND QUESTIONS Only a weak correlation between the extension of democratic liberties and good policy making Countries with similar degree of democratic liberties exhibit large heterogeneity in the quality of governance Questions How can we make sense of these discordant experiences? Why only some democratic governments deliver good policies and others do not? Or, to put it as Robert D. Putnam did in his famous book on democracy in Italy, how can we make democracy work? Finally, are there any rules’ mechanism to insure best practices and good democratic governance? Roberto Pasca di Magliano

Interaction Democracy-Education ISSUES The following issues try to reconcile discordant literature on the influence of both democracy and education in promoting good governance and economic development the interaction between democracy and education is positively correlated with the quality of government the correlation between democracy and the quality of government is not statistically significant in countries with low levels of education and is positive and statistically significant in countries with high levels of education nevertheless we assume that there is a significant effect of education on governance only in democratic governance (Hirschman) Democracy and education rather complement each other and put into perspective the predictions of Glaeser et al. (2006) who suggests that stable democratic institutions cannot flourish in the absence of educated population Roberto Pasca di Magliano

Interaction Democracy-Education CHARACTERISTICS AND PRINCIPLES making democratic institutions dependent from the cultural surrounding providing civil culture through virtuous rule (i.e. inducing in individuals, firms and policy-makers behaviours coherent with the selected development objectives) creating social capital accumulation avoiding asymmetries between citizens and policymakers organizing education programs in order to increase: the citizen’s responsibility and participation to the institutions the ability to select leaders and representatives the knowledge of the issues upon which they vote the capacity to recognize corrupted public officials Roberto Pasca di Magliano

Virtuous Rules IMPACT OF THE FINANCIAL CRISIS Economic arrangements, value system and social equilibrium are especially threatened by the financial crisis and by economic policy distortions: use of conventional economic policies based on budget control and fiscal pressure both give up to negative expectations on the future and, therefore lead to recession, social difficulties, poverty increase. Furthermore, austerity measures jeopardize the recovery. To combine rigor with growth, new wealth should be created by raising consumption and investment.In order to fight socio-economic deterioration, radical reforms are needed Aims of radical reforms: to eliminate distorted behaviors that originate in collusive rules, typical of top-down control systems widespread within the Civil Law system to fight conservatism and corporatism to favour the restoring of fair and sustainable ethical principles to counter financial speculation to reduce waste in public spending; contain and rebalance the tax burden Roberto Pasca di Magliano

Virtuous Rules EFFECTS OF FISCAL POLICIES The tightening of fiscal policies has generated an inevitable vicious circle: Loss of purchasing powers (Italy -1,9% in 2011) and profits Decrease of consumption and investment  higher unemployment Decrease of GDP  lower revenues Increase of public debt  need for additional fiscal restrictions Roberto Pasca di Magliano

Virtuous Rules EFFECTS OF SPENDING REVIEW POLICIES Leading a policy of reduction of the public spending could have triggered a virtuous circle: Debt and deficit reduction Spread reduction and lower interest rates Easing the tax burden on income and employment Growth of consumption and investment Growth of the GDP and higher employment Higher tax revenues in the medium-long term Roberto Pasca di Magliano

Virtuous Rules STRATEGIES TO REINFORCE STATE CREDIBILITY AND INDIVIDUAL RESPONSABILITY There is a widespread consensus on the need to reinforce institutional credibility and to develop our country as a coordinated and unitarily governed system but there remain some contrasts among the various political and economic stances Different opinions concerning the modalities to realize reforms to reach selected objectives: top-down rules, generally following the application of laws, implying controls and administrative sanctions bottom-up rules, generally based on administrative procedures only, implying the use of self-regulating measures which re-evaluate individual’s responsibility Roberto Pasca di Magliano

Virtuous Rules CONCLUSIONS Virtuous rules are the best ways to implement radical reforms intended to modify socio-economic distortions within society Main sectors of application: Improving institutional accountability and public effectiveness Reduction of public debt and budget expenditure Fight fiscal evasion and the informal economy Best way to increase individual’s confidence in the future and thus to promote development Roberto Pasca di Magliano

Virtuous Rules VALUES OF DEMOCRATIC GOVERNANCE Roberto Pasca di Magliano