《国际政治经济学》文献资料（Institutions and International Political Economy）The Democratic Advantage. Institutional Foundations of Financial Power in International Competition.pdf

The Democratic Advantage: Institutional Foundations of Financial Power in International Competition Kenneth A.Schultz and Barry R.Weingast Skepticism about the quality of democratic foreign policy has a long lineage in international relations scholarship.It goes at least as far back as Thucydides's concerns about the"inconstant commons."2 It reappears in Alexis de Tocqueville's famous assertion that democratic governments are "decidedly inferior"when it comes to foreign affairs.3 It is evident in A.J.P.Taylor's indictment of the West's response to Nazi Germany in the 1930s,as well as more recent analyses of this period.And it was particularly influential during the Cold War,when many ana- lysts saw the United States'political institutions as a source of weakness in its rivalry with the Soviet Union.Democracies were thought to be indecisive,slow to act,weak of purpose,squeamish about using force,and subject to the changing whims of public opinion.Democracies risked the politicization of the "national interest"by ill-informed publics and short-sighted legislatures.>Because these writ- ers took as given that leaders of democratic states lack the freedom of action en- joyed by their nondemocratic counterparts,they anticipated that democracy would face an uphill battle in its struggle against authoritarianism. The outcome of the Cold War has led to a reassessment of this conventional wisdom.Despite the supposed defects of democracy,the historical record sug- gests that democratic states have,in fact,done quite well in international compe- We gratefully acknowledge thoughtful comments from Bruce Bueno de Mesquita,James Conklin, Shinju Fujihira,Peter Gourevtich,David Lake,Jean-Laurent Rosenthal,Francois Velde,and the anony- mous referees. 1.Nincic 1992,chap.1. 2.Thucydides 1950,70. 3.de Tocqueville 1969,226-27. 4.Taylor 1962;see also Groth 1999. 5.See,for example,Kennan 1977;Morgenthau 1973,146-48;Lowi 1967;Lippmann 1955,chap.2; Friedrich 1938.One notable exception to this view among realist scholars is Waltz 1979.In his study of American and British foreign policy,Waltz concludes,"Coherent policy,executed with a nice com- bination of caution and verve,is difficult to achieve in any political system,but no more so for dem- ocratic states than for others"(311). International Organization 57,Winter 2003,pp.3-42 2003 by The IO Foundation. D0L:10.1017/S0020818303571065

The Democratic Advantage: Institutional Foundations of Financial Power in International Competition Kenneth A. Schultz and Barry R. Weingast Skepticism about the quality of democratic foreign policy has a long lineage in international relations scholarship.' It goes at least as far back as Thucydides's concerns about the "inconstant comrnon~."~ It reappears in Alexis de Tocqueville's famous assertion that democratic governments are "decidedly inferior" when it comes to foreign affair^.^ It is evident in A. J. P. Taylor's indictment of the West's response to Nazi Germany in the 1930s, as well as more recent analyses of this period? And it was particularly influential during the Cold War, when many analysts saw the United States' political institutions as a source of weakness in its rivalry with the Soviet Union. Democracies were thought to be indecisive, slow to act, weak of purpose, squeamish about using force, and subject to the changing whims of public opinion. Democracies risked the politicization of the "national interest" by ill-informed publics and short-sighted legislature^.^ Because these writers took as given that leaders of democratic states lack the freedom of action enjoyed by their nondemocratic counterparts, they anticipated that democracy would face an uphill battle in its struggle against authoritarianism. The outcome of the Cold War has led to a reassessment of this conventional wisdom. Despite the supposed defects of democracy, the historical record suggests that democratic states have, in fact, done quite well in international compeWe gratefully acknowledge thoughtful comments from Bruce Bueno de Mesquita, James Conklin, Shinju Fujihira, Peter Gourevtich, David Lake, Jean-Laurent Rosenthal, Fran~ois Velde, and the anonymous referees. 1. Nincic 1992, chap. 1. 2. Thucydides 1950, 70. 3. de Tocqueville 1969, 226-27. 4. Taylor 1962; see also Groth 1999. 5. See, for example, Kennan 1977; Morgenthau 1973, 146-48; Lowi 1967; Lippmann 1955, chap. 2; Friedrich 1938. One notable exception to this view among realist scholars is Waltz 1979. In his study of American and British foreign policy, Waltz concludes, "Coherent policy, executed with a nice combination of caution and verve, is difficult to achieve in any political system, but no more so for democratic states than for others" (31 1). Inter~zarional Organization 57, Winter 2003, pp. 342 O 2003 by The I0 Foundation. DOI: 10.1017/S0020818303571065

4 International Organization TABLE 1.World leaders and challengers as identified by long-cycle theorists Years Leader Challenger 1609-1713 Netherlands France 1714-1815 Great Britain France 1816-1945 Great Britain Germany 1946-(1990) United States Soviet Union Sources:Thompson 1983a;Modelski 1983. tition.Systematic evidence to this effect can be found in recent studies of war outcomes.Lake reports that democracies tend to prevail in wars against authori- tarian states.6 Reiter and Stam confirm this finding using more sophisticated mod- els.?Siverson,and Reiter and Stam show that democracies are more likely to win wars that they initiate and to suffer lower costs in the process.8 A similar pattern emerges when we expand the empirical domain from individ- ual wars to prolonged hegemonic struggles,such as those identified by "long cy- cle"theorists.Table 1 shows one classification of world leaders and challengers identified in this literature.It is striking that all of the leading states in this table had,if not democratic governments,at least limited or liberal governments.Al- though the franchise in seventeenth-century Holland and eighteenth-century Great Britain was too restricted for these states to qualify as democracies by current standards,both had representative institutions and a sense of appropriate limits on state action-the basic characteristics of a liberal polity.In every prolonged con- flict in modern history,such states have prevailed over their illiberal rivals. The effort to explain such observations is ongoing.Lake argues that democratic institutions constrain rent seeking by the state,therefore leading to a more effi- cient allocation of resources and enhanced economic growth.10 Reiter and Stam suggest that democracies enjoy greater legitimacy and thus have an easier time mobilizing popular support for war and motivating soldiers to fight efficiently. Bueno de Mesquita et al.argue that democratic leaders have stronger incentives to spend their resources on delivering successful public policies-such as victory in war-while nondemocratic leaders devote their resources toward paying off a small 6.Lake1992. 7.Reiter and Stam 2002:see also Stam 1996. 8.Siverson 1995;see also Reiter and Stam 2002. 9.Thompson 1983a;see also Thompson 1983b;and Modelski 1983. 10.Lake1992 11.Reiter and Stam 2002;see also Stam 1996

4 International Organization TABLE 1. World leaders and challengers as identijied by long-cycle theorists Years Leader Challenger 1609-1713 Netherlands France 1714-1815 Great Britain France 1816-1945 Great Britain Germany 1946-(1990) United States Soviet Union Sources: Thompson 1983a; Modelski 1983. tition. Systematic evidence to this effect can be found in recent studies of war outcomes. Lake reports that democracies tend to prevail in wars against authoritarian state^.^ Reiter and Stam confirm this finding using more sophisticated models.' Siverson, and Reiter and Stam show that democracies are more likely to win wars that they initiate and to suffer lower costs in the proce~s.~ A similar pattern emerges when we expand the empirical domain from individual wars to prolonged hegemonic struggles, such as those identified by "long cycle" theorist^.^ Table 1 shows one classification of world leaders and challengers identified in this literature. It is striking that all of the leading states in this table had, if not democratic governments, at least limited or liberal governments. Although the franchise in seventeenth-century Holland and eighteenth-century Great Britain was too restricted for these states to qualify as democracies by current standards, both had representative institutions and a sense of appropriate limits on state action-the basic characteristics of a liberal polity. In every prolonged conflict in modern history, such states have prevailed over their illiberal rivals. The effort to explain such observations is ongoing. Lake argues that democratic institutions constrain rent seeking by the state, therefore leading to a more efficient allocation of resources and enhanced economic growth.'' Reiter and Stam suggest that democracies enjoy greater legitimacy and thus have an easier time mobilizing popular support for war and motivating soldiers to fight efficiently." Bueno de Mesquita et al. argue that democratic leaders have stronger incentives to spend their resources on delivering successful public policies-such as victory in war-while nondemocratic leaders devote their resources toward paying off a small 6. Lake 1992. 7. Reiter and Stam 2002; see also Stam 1996. 8. Siverson 1995; see also Reiter and Stam 2002. 9. Thompson 1983a; see also Thompson 1983b; and Modelski 1983. 10. Lake 1992. 11. Reiter and Stam 2002; see also Stain 1996

Institutional Foundations of Financial Power 5 set of"selectors."2 Bueno de Mesquita and Siverson take a different approach, suggesting that democratic leaders have an incentive to select wars in which they have a high expected probability of winning;in this view,the correlation between democracy and victory reflects the selection process and not necessarily an inher- ent war-fighting superiority.13 We contribute to this literature by showing that institutional features generally associated with liberal democratic states provide a significant advantage in pro- longed international competition.The argument builds on previous research high- lighting the crucial role of financial power in determining the outcomes of conflicts such as those listed in Table 1.14 It has long been appreciated that money forms the "sinews of power."The victorious state in protracted competition is generally the one that can sustain a superior military effort-in war and peace-over a pe- riod of many decades,without succumbing to political and economic exhaustion. We argue that it is no coincidence that,over the past four centuries,states with representative,limited governments have been particularly successful in this respect. Although such governments may at times suffer from the constraints placed on their leaders,these constraints also provide the political foundations for financial power.Building on literature on sovereign debt,we show that representative insti- tutions enhance a state's borrowing power by making it easier for those with a stake in the repayment of debt to punish the sovereign in the event of default.15 The commitment technology provided by these institutions means that states pos- sessing them have superior access to credit than states that are not similarly con- strained.6 As a result,liberal states are better able to finance large wars and long arms races that require expenditures well in excess of normal receipts.Moreover, easy access to credit facilitates a policy of "tax smoothing,"whereby sharp in- creases in spending are financed through debt rather than through onerous tax in- creases.As economists emphasize,tax smoothing provides considerable advantages over the long run,lowering distortions in the economy and promoting invest- ment.17 These advantages are particularly useful for lowering the social and eco- nomic burden of sudden rises in expenditures associated with large wars.Thus institutions of limited government underpin a financial system that is capable of sustaining large expenditures on military competition in a manner that is consis- tent with long-term economic growth. We illustrate the effects of these institutions by looking at two cases of compe- tition between a liberal and an illiberal state:the rivalry between Britain and France from 1689 to 1815 and the Cold War between the United States and the Soviet 12.Bueno de Mesquita et al.1999. 13.Bueno de Mesquita and Siverson 1995.See Reed and Clark 2000 for a comparison of explana- tions building on war-fighting prowess and explanations building on strategic selection. 14.Rasler and Thompson 1983;see also Kennedy 1987;Brewer 1988;and Gilpin 1981. 15.Eaton,Gersovitch,and Stiglitz 1986;see also Bulow and Rogoff 1989;Conklin 1998. 16.North and Weingast 1989. 17.Barro 1979;see also Lucas and Stokey 1983

Institutional Foundations of Financial Power 5 set of selector^."'^ Bueno de Mesquita and Siverson take a different approach, suggesting that democratic leaders have an incentive to select wars in which they have a high expected probability of winning; in this view, the correlation between democracy and victory reflects the selection process and not necessarily an inherent war-fighting superiority.I3 We contribute to this literature by showing that institutional features generally associated with liberal democratic states provide a significant advantage in prolonged international competition. The argument builds on previous research highlighting the crucial role of financial power in determining the outcomes of conflicts such as those listed in Table l.14 It has long been appreciated that money forms the "sinews of power." The victorious state in protracted competition is generally the one that can sustain a superior military effort-in war and peace-over a period of many decades, without succumbing to political and economic exhaustion. We argue that it is no coincidence that, over the past four centuries, states with representative, limited governments have been particularly successful in this respect. Although such governments may at times suffer from the constraints placed on their leaders, these constraints also provide the political foundations for financial power. Building on literature on sovereign debt, we show that representative institutions enhance a state's borrowing power by making it easier for those with a stake in the repayment of debt to punish the sovereign in the event of default.15 The commitment technology provided by these institutions means that states possessing them have superior access to credit than states that are not similarly constrained.I6 As a result, liberal states are better able to finance large wars and long arms races that require expenditures well in excess of normal receipts. Moreover, easy access to credit facilitates a policy of "tax smoothing," whereby sharp increases in spending are financed through debt rather than through onerous tax increases. As economists emphasize, tax smoothing provides considerable advantages over the long run, lowering distortions in the economy and promoting investment.'' These advantages are particularly useful for lowering the social and economic burden of sudden rises in expenditures associated with large wars. Thus institutions of limited government underpin a financial system that is capable of sustaining large expenditures on military competition in a manner that is consistent with long-term economic growth. We illustrate the effects of these institutions by looking at two cases of competition between a liberal and an illiberal state: the rivalry between Britain and France from 1689 to 1815 and the Cold War between the United States and the Soviet 12. Bueno de Mesquita et al. 1999. 13. Bueno de Mesquita and Siverson 1995. See Reed and Clark 2000 for a comparison of explanations building on war-fighting prowess and explanations building on strategic selection. 14. Rasler and Thompson 1983; see also Kennedy 1987; Brewer 1988; and Gilpin 1981. 15. Eaton, Gersovitch, and Stiglitz 1986; see also Bulow and Rogoff 1989; Conklin 1998. 16. North and Weingast 1989. 17. Barro 1979; see also Lucas and Stokey 1983

6 International Organization Union.18 Both cases involve prolonged,militarized competition pitting the two most powerful states in the international system against each other.Although the outcomes of such rivalries depend on no single factor,we show that the ability of the liberal states to finance the competition through voluntary debt bestowed an important advantage.Britain was able to greatly outspend France in several cru- cial wars,despite its smaller population and economy.The United States was able to finance the Cold War without large tax increases and to use its impressive ac- cess to debt to outspend the Soviet Union militarily without undermining invest- ment and consumption.The Soviet Union,by contrast,financed its deficits with distortionary mechanisms that contributed to the decline of economic growth and played a major role in undermining economic reform. Our argument implies,then,that there is a trade-off associated with representa- tive government.Earlier writers emphasized the liabilities of democracy,failing to see its compensatory advantages.Although democratic institutions may hamper state decision making,their constraints bestow previously unrecognized advan- tages.This explanation may have limited relevance in accounting for the out- comes of short wars,but it does explain the success of liberal states in the prolonged military conflicts that have determined the outcomes of hegemonic struggles.The historical record suggests that this trade-off yields a net advantage. This article proceeds as follows.We first develop our theoretical arguments, showing how the constraints of limited government also serve as a source of state power.We next turn to the historical record to examine the success of liberal states in extended conflicts with illiberal rivals.The third section studies the 125-year rivalry between England and France throughout the eighteenth century,ending with the defeat of Napoleon.The fourth section focuses on the rivalry between the United States and the Soviet Union during the Cold War.Our conclusions follow. Institutional Sources of the Democratic Advantage Why have states with representative political institutions been particularly success- ful in prolonged international competition?Our strategy in addressing this ques- tion is to build on previous work identifying the economic and financial bases of state power.We seek to show that these factors are themselves a function of po- litical institutions.The argument presented here provides a theoretical link be- tween two observations:(1)states that can bring to bear superior financial resources over the long run have an advantage in prolonged rivalries,and(2)the states that have historically done so have had representative,limited governments. There are in general three different ways that states can pay for the extraordi- nary expenses associated with international competition:raising taxes,borrowing, 18.A related paper reveals a similar pattern in the Dutch revolt against Spain.See Schultz and Weingast 1998.Likewise,Kugler and Domke show similar effects in the British and American victory over Germany in World War II.See Kugler and Domke 1986

6 International Organization Union.'' Both cases involve prolonged, militarized competition pitting the two most powerful states in the international system against each other. Although the outcomes of such rivalries depend on no single factor, we show that the ability of the liberal states to finance the competition through voluntary debt bestowed an important advantage. Britain was able to greatly outspend France in several crucial wars, despite its smaller population and economy. The United States was able to finance the Cold War without large tax increases and to use its impressive access to debt to outspend the Soviet Union militarily without undermining investment and consumption. The Soviet Union, by contrast, financed its deficits with distortionary mechanisms that contributed to the decline of economic growth and played a major role in undermining economic reform. Our argument implies, then, that there is a trade-off associated with representative government. Earlier writers emphasized the liabilities of democracy, failing to see its compensatory advantages. Although democratic institutions may hamper state decision making, their constraints bestow previously unrecognized advantages. This explanation may have limited relevance in accounting for the outcomes of short wars, but it does explain the success of liberal states in the prolonged military conflicts that have determined the outcomes of hegemonic struggles. The historical record suggests that this trade-off yields a net advantage. This article proceeds as follows. We first develop our theoretical arguments, showing how the constraints of limited government also serve as a source of state power. We next turn to the historical record to examine the success of liberal states in extended conflicts with illiberal rivals. The third section studies the 125-year rivalry between England and France throughout the eighteenth century, ending with the defeat of Napoleon. The fourth section focuses on the rivalry between the United States and the Soviet Union during the Cold War. Our conclusions follow. Institutional Sources of the Democratic Advantage Why have states with representative political institutions been particularly successful in prolonged international competition? Our strategy in addressing this question is to build on previous work identifying the economic and financial bases of state power. We seek to show that these factors are themselves a function of political institutions. The argument presented here provides a theoretical link between two observations: (1) states that can bring to bear superior financial resources over the long run have an advantage in prolonged rivalries, and (2) the states that have historically done so have had representative, limited governments. There are in general three different ways that states can pay for the extraordinary expenses associated with international competition: raising taxes, borrowing, 18. A related paper reveals a similar pattern in the Dutch revolt against Spain. See Schultz and Weingast 1998. Likewise, Kugler and Domke show similar effects in the British and American victory over Germany in World War 11. See Kugler and Domke 1986