GROWTH ECONOMICS and Fundraising in international cooperation SECSP

GROWTH ECONOMICS and Fund-raising in international cooperation SECS-P 01, CFU 9 Economics for Development academic year 2018 -19 12. MARKET, DEMOCRACY AND GOOD GOVERNANCE Roberto Pasca di Magliano Fondazione Roma Sapienza-Cooperazione Internazionale roberto. pasca@uniroma 1. it Roberto Pasca di Magliano Pagina 1

Democracy, Education, Governance 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 concerns the quality of government Ø The standard argument advanced in political science and in economics in favor of the democratic institutions suggests that democracy gives the right incentives to the elected officials because free elections provide to the voters from the corruption and excess power (Sen, 2000, and Rivera-Batiz, 2002) Ø Nevertheless, democratic elections do not foster the quality of government in countries with largely uneducated populations Roberto Pasca di Magliano Pagina 2

Freedom and Virtuous Rules Introduction Freedom • is the basic condition of the individual self-esteem as it increases responsibility and participation to social and economic choices • can be considered a natural right • has to be transformed in good and services whose access must be guaranteed to all individuals (positive freedom) • requires the definition of rights and duties with simple and trasparent rules Virtuous rules • • are those that ensure correct relationships among individuals are those that promote in individuals, firms and policy-makers behaviors coherent with specific development objectives Roberto Pasca di Magliano Pagina 3

Interaction Democracy-Education EMPIRICAL EVIDENCE AND QUESTIONS Ø There Is only a weak correlation between the extension of democratic freedom and good policy making Ø Countries with similar degree of democratic freedom exhibit large heterogeneity in the quality of governance Questions • How can ones 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 mechanism to insure best practices and good democratic governance? Roberto Pasca di Magliano Pagina 4

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 (A. Hirschman) • Democracy and education are rather complement each other (Glaeser et al. , 2006). Stable democratic institutions cannot flourish in the absence of an educated population Roberto Pasca di Magliano Pagina 5

Interaction Democracy-Education CHARACTERISTICS AND PRINCIPLES Virtuous rules can be considered those administrative rules inducing individuals, firms and policymakers to operate in coherence with selected development & behavioral objectives (such those declared in the constitutional declaration Ø making democratic institutions dependent from the cultural surrounding Ø Promote social capital accumulation Ø Prevent asymmetries between citizens and policymakers Ø Arranging education programs in order to increase: – – the citizen’s responsibility and participation to the institutions the capacity 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 Pagina 6

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 gives up to negative expectations on the future and, therefore leads 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: Ø to eliminate distorted behaviors depending from collusive rules, typical of top-down control systems widespread within the Civil Law system Ø to fight conservatism and corporatism Ø to promote the restoring of fair and sustainable ethical principles Ø to counter financial speculation Ø to reduce waste in public spending, contain and rebalance the tax pressure burden Roberto Pasca di Magliano Pagina 7

Virtuous Rules EFFECTS OF FISCAL POLICIES The tightening of fiscal policies has generated an inevitable vicious circle: à Loss of purchasing powers (Italy -1, 9% in 2015) and profits à Decrease of consumption and investment higher unemployment à Decrease of GDP lower revenues à Increase of public debt need for additional fiscal restrictions Roberto Pasca di Magliano Pagina 8

Virtuous Rules EFFECTS OF SPENDING REVIEW POLICIES Public spending review can promote a virtuous circle: à Debt and deficit reduction à Spread reduction and lower interest rates à Easing the tax burden on income and employment à Growth of consumption and investment à Growth of the GDP and higher employment à Higher tax revenues in the medium-long term Roberto Pasca di Magliano Pagina 9

Virtuous Rules STRATEGIES TO REINFORCE STATE CREDIBILITY AND INDIVIDUAL RESPONSABILITY There is a widespread consensus on the need to reinforce institutional credibility as a coordinated and unitarily governed system but there remain contrasts among the various political and economic wills 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 selfregulating measures which re-evaluate individual’s responsibility Roberto Pasca di Magliano Pagina 10

Virtuous Rules VALUES OF DEMOCRATIC GOVERNANCE Roberto Pasca di Magliano Pagina 11

Virtuous Rules CONCLUSIONS Virtuous rules are the best ways to implement radical reforms intended to modify socioeconomic distortions within society Main sectors of application: • Improving institutional accountability and public effectiveness • Reduction of public debt and budget expenditure • Fight fiscal evasion and informal economy • Increase individual’s confiance in the future in order to promote development Roberto Pasca di Magliano Pagina 12