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CIAO DATE: 4/00
Foreign Policy
Why Recessions Don't Start Revolutions
Minxin Pei and Ariel David Adesnik
This abstract is adapted from an article appearing in the Spring 2000 issue of FOREIGN POLICY magazine.
When Jamil Mahuad was unceremoniously ousted from the presidency of Ecuador last January over his mishandling of that country's economic difficulties, the event only reinforced a belief that seems entrenched among Western political leaders: Economic crises pose lethal threats to the survival of regimes and governments, particularly in developing countries. Indeed, when confronted with financial turmoil in developing nations, Western policy makers seem as likely to fret over the potential political damage as they are to worry about the immediate economic consequences.
A closer look at economic crises and their political effects suggests that these concerns may be largely misplaced. As our survey of economic crises in 22 developing countries in Asia and Latin America indicates, nearly half of the economic crises in these nations over the last 50 years did not lead to a regime collapse or even a change in government. Moreover, democracies appeared significantly more resilient than authoritarian regimes when hit by economic difficulties, and severe economic downturns did not necessarily produce more devastating political effects.
Although these conclusions may hearten policy makers concerned with democratization, they also call into question the underlying rationale-or political justifications - that shape Western emergency economic assistance to developing countries.
A Crisis by Any Other Name
We define an economic crisis as including at least one of the following elements: an annual inflation rate greater than 15 percent and stagnant or negative annual economic growth. Based on these factors, we identify 93 economic crises occurring between 1945 and 1998 in the 22 developing nations of Latin America and Asia that we surveyed in this study.
An economic crisis can affect a country's politics in primarily three ways. First, it can cause an immediate regime change; that is, it can prompt the sudden collapse of an entire system of government, such as democracy, authoritarianism, or military rule. Second, an economic crisis can contribute to an eventual regime change by gradually undermining support for both the ruling elite and existing constitutional arrangements. Finally, economic crisis can cause a turnover of the leaders or parties in political power while leaving the overall system of government intact.
Strong Democracies
Although economic turmoil has often led to mass protests, the dismissal of cabinet ministers, or other tumultuous events, approximately half of the economic crises examined failed to cause a change of government or regime either during or after the crisis. Three explanations accounted for this relative stability. First, the timing of an economic crisis played a key role in approximately one fifth of the cases in which no change of either regime or government took place. Economic crises often failed to cause a change of government or regime if the economic difficulties ended-either through effective economic policy or a natural recovery-prior to the next general election. In addition, a mild economic crisis alone may produce negligible political effects when it is overshadowed by a preceding or simultaneous, and usually far more dangerous, political crisis-the case in about 10 crises examined in this survey. On those occasions, the political crises were so destabilizing or polarizing that, in all likelihood, they would have provoked a change of government or regime regardless of the prevailing economic conditions.
Finally, economic crises in Asia and Latin America were less likely to produce a regime change over the 1980s and 1990s. This tendency appears all the more remarkable in light of the frequent high economic volatility in developing countries over the last two decades. The simplest explanation is that the potential for orderly changes of government within democracies has defused some of the political tensions resulting from even devastating economic downturns. Of the 17 economic crises that hit Latin American democracies between 1980 and 1998, for example, only one-Peru in 1988-90-inflicted lasting political damage. The political effects of economic crises in Asia after 1980 were even less pronounced. Declining ideological polarization in the developing world may be contributing to this new democratic resilience.
Weak Strongmen
Even if economic crises do not necessarily lead to changes in governments or in political systems, it seems reasonable to assume that especially severe economic turmoil will prompt more intense political aftershocks. But this assumption is, at best, half true. In the developing nations of East and Central Asia, the probability that an economic crisis will produce a change of either government or regime appears to rise and fall according to the severity of both inflation and economic contraction. In Latin America, however, the relationship breaks down completely, with both democracies and dictatorships surviving terrible economic troubles but falling in the midst of mild recessions and small rises in inflation. This evidence suggests that the primary drivers of political change are, in fact, political rather than economic.
It's the Politics, Stupid
Our claim that crisis-ridden authoritarian regimes collapse mainly because of internal political stress may run counter to one of the most widely held notions about such regimes, namely, that their legitimacy resides in their ability to deliver favorable economic performance, and that their prospects for survival diminish when the economy performs poorly. A closer look at the collapse of authoritarian regimes wrecked by economic crises reveals powerful political forces at work-popular resistance, intraregime division, and strategic mistakes made by top leaders. By contrast, the resilience of dominant-party regimes caught in similar economic turmoil implies that, all else being equal, political institutions drive regime survival.
These conclusions suggest that Western governments should rethink their traditional responses to economic crises in developing countries. Assistance to democracies can carry strict conditionalities to encourage needed reforms, despite pleas that such requirements threaten fledgling democracies. And overtures toward dominant-party governments should be tempered by the realization that such regimes are virtually invulnerable to crises. Instead of focusing excessively on political goals, economic assistance should be formulated to advance multifaceted long-term interests. As demonstrated by the U.S.-led $50 billion bailout of Mexico ( a country governed by a dominant-party regime) during the 1994-95 peso crisis, a pragmatic approach to the defense of vital U.S. interests can be effective and, ultimately, politically sustainable.