How the Rational Voter Assumption Derails Promising Research
By Bryan Caplan
Here’s the beginning of the abstract from Di Tella and MacCulloch’s “Why Doesn’t Capitalism Flow to Poor Countries?” (non-gated version here):
We find anecdotal evidence suggesting that governments in poor countries have a more left wing rhetoric than those in OECD countries. Thus, it appears that capitalist rhetoric doesn’t flow to poor countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces more the electoral appeal of capitalism than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in their country are also more likely to lean left ideologically (and to declare support for a more intrusive government in economic matters).
So far, Di Tella and MacCulloch seems eerily similar to a passage in Nobel-prize-worthy Anne Krueger’s “The Political Economy of the Rent-Seeking Society,” published over three decades ago:
If the market mechanism is suspect, the inevitable temptation is to resort to greater and greater intervention, thereby increasing the amount of economic activity devoted to rent seeking. As such, a political “vicious circle” may develop. People perceive that the market mechanism does not function in a way compatible with socially approved goals because of competitive rent seeking. A political consensus therefore emerges to intervene further in the market, rent seeking increases, and further intervention results.
There is, however, a key difference: Anne Krueger sees no need to reconcile her story with the rational voter assumption. Di Tella and MacCulloch do, as the remainder of their abstract explains:
Finally, we present a model explaining the corruption-left connection. It exploits the fact that an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat. After observing corruption, voters who care about fairness react by increasing taxes and moving left. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the electoral appeal of capitalism.
Di Tella and MacCulloch present some fascinating evidence. My suspicion, however, is that, like most modern political economists, they would be embarassed to give the kind of explanation that someone like me favors:
To a large degree, poor countries remain poor because their citizens suffer from unusually severe anti-market bias. Not only do they deeply underestimate the social benefits of the market mechanism; they perversely use corruption, a side effect of anti-market policies, as an argument against markets.
To avoid this embarassment, Di Tella and MacCulloch have to construct a model where the anti-market orientation of the Third World makes sense, beginning with a premise – “an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat” – that you need graduate training in economics to understand.
Don’t get me wrong – I’m glad that Di Tella and MacCulloch wrote this paper. It’s well-written, has a lot of neat material, and addresses important questions. But as long as political economists live in the shadow of the rational voter assumption, they’ll have to keep ignoring theories that are simple and plausible, and pushing theories that are convoluted and forced.