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What good is a fake legislature?

Joshua Tucker: As part of our continuing collaboration with political science journals, the following is a guest post from political scientists Nathan Jensen of Washington University, St Louis, Edmund J. Malesky of Duke University and  Stephen Weymouth of Georgetown University based on their recent publication at the British Journal of Political Science, “Unbundling the Relationship between Authoritarian Legislatures and Political Risk“. The article will be made available for free (ungated) for the next 12 months here.
Few questions are bigger in the study of economic development than how institutions, such as legislatures, courts, and bureaucracies help or hinder economic growth. Enormous progress has been made by examining institutional variation in stable democracies, with fruitful lessons learned about the economic implications of electoral systems, executive-legislative relations, and federalism.
Now, an exciting new research program in political science has begun to disentangle the differences in institutional configurations across non-democratic regimes and the impact of these differences on economic performance. We now understand that non-democratic countries demonstrate big differences in the constellations of power, formal rules, and informal norms that shape governance.  For instance, many authoritarian countries even have legislatures with elected members. Our recent article in the British Journal of Political Science asks whether these institutions matter, and if so, how?
Research on authoritarian institutions faces a fundamental question: Why would a leader or ruling party create or allow an elected legislature to operate in an otherwise non-democratic regime?  The most cynical, and perhaps most obvious, explanation is that authoritarian parliaments are not actually functional legislatures — nothing more than proverbial “window dressing”.  Legislative bodies in authoritarian regimes allow leaders to claim strides towards democratization without ceding real power. Being able to call yourself a democracy may generate some credit domestically, and can literally get you a line a credit from foreign aid donors.
Another view is that non-democratic leaders can use these institutions to facilitate their own survival in office.  For example, legislatures are a great way to literally buy off opposition groups.  Giving an opposition figure a seat at the table and a nice salary as an MP is a way to coopt potential troublemakers.  Parliamentary elections can also provide information to the ruling party on the popularity of local politicians or of the regime itself.
A somewhat less cynical take is that these institutions actually do cede some real power to opposition groups, which could potentially destabilize or even threaten the existence of the regimes.  But rather than risk a coup or civil war, an elected legislature can appease the opposition and offer a formal means of power-sharing where policy-making authority is shared within a contained forum. Far from powerless, authoritarian legislatures may partially constrain, or “tie the hands” of, the authoritarian regime.
If they do constrain, the economic benefits of checks on executive authority found in more democratic settings may carry over to non-democracies. That is, legislatures may promote economic performance if they strengthen property rights and the rule of law.  Similar to the logic of creating an independent central bank or independent courts, a party or leader cedes some power to legislatures to protect assets from the grabbing hand of the government.
Recent research suggests that there are indeed economic benefits to legislative bodies in non-democracies.  Influential works such as Jennifer Gandhi’s book and Joseph Wright’s article show that authoritarian countries with legislatures have higher rates of growth and domestic investment than authoritarian states without such edifices.  Is this evidence for co-optation and hand-tying?
Our paper addresses this question by looking at how investors respond to elected legislatures in non-democratic regimes. Do legislatures constrain government expropriation or is something else at work?
We first examine how these institutions shape the ability of leaders to expropriate foreign investors.  We present survey data showing that few investors actually believe that these institutions lowered risk (page 9).  In fact, investors were more likely to think these legislatures increased policy risk for their projects.
We also used data from the political risk insurance agency, an industry dedicated to pricing the possibility of expropriation.  In the figure below we present partial regressions plots on the impact of legislatures with multiple parties (a measure of the level of shared power and hand tying) and the political risk insurance ratings (see paper for details).  The flat line suggests that there is no relationship between these legislatures and expropriation risk.
Credit: Nathan M. Jensen, Edmund Malesky and Stephen Weymouth. Unbundling the Relationship between Authoritarian Legislatures and Political Risk. British Journal of Political Science
Investors and political risk insurers say these legislatures don’t matter.  So then why are legislatures so robustly correlated with higher levels of economic growth?
We theorize that authoritarian legislatures can operate in a way that both protects investors and the power of political leaders.  Authoritarian legislatures represent a forum to bargain and craft rules that help promote investment, such as corporate governance legislation that offers protection for and promotes investment by minority shareholders.  By reducing the ability of corporate insiders to take advantage of other shareholders, legislatures can protect property rights and promote investment (and growth). The ruler maintains power while providing a forum for crafting more secure private contracts.
In the next figure we show the relationship between investor protections and multiple parties in the legislature.  Since this is an added variable plot, it shows the relationship between legislatures and shareholder protections after removing the confounding effects of other variables (such as economic development, country size, and trade openness).

Credit: Nathan M. Jensen, Edmund Malesky and Stephen Weymouth. Unbundling the Relationship between Authoritarian Legislatures and Political Risk. British Journal of Political Science

Credit: Nathan M. Jensen, Edmund Malesky and Stephen Weymouth. Unbundling the Relationship between Authoritarian Legislatures and Political Risk. British Journal of Political Science

Our results indicate that this protection of investors is an important part of the story linking authoritarian regimes to higher levels of economic growth.  Equally important is that our story provides a logic to understand the creation of institutions that seem to have real power in shaping economic policy.  Critically, however, these institutions strengthen authoritarian resilience by generating growth while maintaining the authority of the ruling elite.  Authoritarian legislatures are therefore not necessarily an incremental step down the road to democracy, even if they do improve the economy.

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