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How democracies are (re) born

Mar 07,2018 - Last updated at Mar 07,2018

CAMBRIDGE — Much in life looks obvious after the fact. The challenge is to understand events and trends earlier, which is especially important when the issue is the demise of democracy.

In their excellent new book “How Democracies Die”, Harvard professors Steven Levitsky and Daniel Ziblatt use international experience to examine the question. In recent cases, such as Hungary, Poland, Turkey and Venezuela, or in older ones such as Italy, Germany, Argentina, or Peru, the cause was not the overthrow of an elected government, but the actions of elected leaders.

The modus operandi is surprisingly similar. An elected populist demagogue eliminates or weakens the checks and balances on his authority by undermining the independence of the courts and other bodies, severely restricting the freedom of the press, tilting the playing field to make elections easier to win, and delegitimising and imprisoning political opponents.

Venezuela provided many of the lessons that Levitsky and Ziblatt cite: its democracy is already a corpse. The question there is how to resurrect it, a challenge complicated by the country’s ongoing hyperinflation and humanitarian catastrophe. Should Venezuela postpone the reestablishment of democracy and focus on ousting President Nicolás Maduro and reviving the economy, or should it reestablish democracy before tackling economic matters?

This question reveals the fundamental contradictions of liberal democracy, recently discussed by Dani Rodrik. After all, classical liberalism is based on the equal protection of inalienable rights such as life, liberty and property, whereas democracy is premised on majority rule, which may run roughshod over the rights of minorities, including capitalists, entrepreneurs and the highly skilled. That is what Maduro — like his predecessor, Hugo Chávez — has done.

Historically, liberalism preceded democracy in Europe. As Princeton University’s Jan-Werner Mueller argues in his book “Contesting Democracy”, combining the two principles, by extending the franchise at the end of the nineteenth century, made for an unstable compound. On one hand, there is the danger of what Fareed Zakaria called “illiberal democracy”: elected governments that do not respect civil rights. On the other, there is what Harvard’s Yascha Mounk calls, in his newly published book, “undemocratic liberalism”: regimes that protect individual rights and legal equality, but delegate public policymaking to unelected technocratic bodies, like central banks and the European Commission.

In most countries, the wellbeing of the majority depends on the willingness of capitalists, entrepreneurs, managers and professionals to organise production and create jobs. But these elites are unlikely to do so if their property and civil rights are not protected. Communism can be understood as an attempt to eliminate dependence on these elites by organising production through the state. But excluding these elites causes a shortage of financial capital and know-how. So, a basic bargain at the core of liberal democracy is the recognition of rights that key minorities value and that are fundamental to generating broader benefits.

What happened in Venezuela can be understood as a two-step process in which liberalism was destroyed first, to disempower the productive elites. This was accomplished through the near-elimination of property rights, which caused a massive exodus of those who could organise production. Not coincidentally, this process coincided with an oil boom and massive external borrowing.

Dollar abundance convinced the ruling clique that the state could substitute for the productive elite, through nationalisation and other forms of collective property. It could not, but a torrent of cheap imports masked the spectacular ineffectiveness of state-led production. While the mirage lasted, the system could tolerate moderately competitive elections: it had become an illiberal democracy.

But when the price of oil plummeted in 2014, the mask slipped, and the economy imploded. By December 2015, voters elected a national assembly with a two-thirds opposition majority, signalling to Maduro and his cronies that even a highly illiberal democracy would not suffice to maintain them in power. At this point, Venezuela descended into outright dictatorship.

So how can democracy be revived? Given the humanitarian crisis, Venezuela needs a rapid economic recovery, which is unlikely unless property rights are credibly reestablished. But how is this possible in the context of majority rule? What will prevent a future electoral majority from grabbing assets again after the economy recovers, as happened in Zimbabwe during and after the 2008-2013 cohabitation agreement? And how can the system create relatively permanent property rights without entrenching the narco-bourgeoisie’s claims to the booty it has amassed under Chávez and Maduro?
Levitsky and Ziblatt warn that democracy requires political competitors to refrain from acting too uncooperatively. Such a system, based on mutual recognition and forbearance, was formalized in Venezuela in 1958, through what was known as the Punto Fijo Pact, which stabilised democracy for 40 years before Chávez denounced and destroyed it. Such pacts cannot extend recognition to organisations that oppose democracy.

Spanish democracy died in the 1930s because a system of mutual recognition among fascists, conservatives, liberals, and communists was impossible. Democracy in West Germany after World War II required a denazification process that banished the world view that had led to disaster. As Frederick Taylor discusses in his book “Exorcising Hitler”, society-wide rejection of Nazi ideology did not happen overnight. It required concerted political action. After all, in 1952 a total of 25 per cent of West Germans still had a positive view of Hitler, and 37 per cent thought that their country was better off without the Jews.

Likewise, in Venezuela today, it will be impossible to reestablish liberal democracy if the current regime is allowed to return and expropriate again. Venezuela’s recovery depends on its capacity to translate the current catastrophe into a set of new social norms of the form: “never again shall we…”

It wouldn’t be the first time in Latin America that new taboos rose from economic ruins. In Peru, the lessons of hyperinflation during Alan García’s first presidency have underpinned 25 years of macroeconomic stability, despite a weak party structure.

In Venezuela, such social learning will be more difficult than it was in Germany. Unlike Hitler, Chávez died before the economic mask came off, making it easier to denounce Maduro without coming to terms with Chavismo, the ideology underpinning the current disaster.

In the end, there can be no stable democracy in Venezuela if it must coexist with a large, totalitarian political party that can rely on funding from a corrupt, money-laundering elite. And such coexistence would rule out a robust or long-lasting economic recovery, because it would limit the credibility of individual rights. To secure liberal democracy, Venezuela must exorcise not only the regime and its henchmen, but also the world view that put them in power.


Ricardo Hausmann, a former minister of planning of Venezuela and former chief economist of the Inter-American Development Bank, is director of the Centre for International Development at Harvard University and a professor of economics at the Harvard Kennedy School. Copyright: Project Syndicate, 2018.

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