The year we reflected on institutions and their role in political economy

The United States (US) may be about to receive a lesson in overconfidence.

 

It has been argued since 2016, when Donald Trump was first elected President, that there are limited ways in which he could permanently alter the trajectory of a country with strong and stable institutions. It has been stated at various points that his own party would hold him in check; that the President needs the approval of Congress to operate; that blatantly illegal actions would not stand up in court; that the federal government was too large and vast to do one man’s bidding.

 

To be fair, the experience of his first term did not disprove all those claims. Yes, the Republican Party did not put up much of a defence, and voted en bloc in his defence during both impeachments, for example. But some of his most controversial actions — for example, the restriction on those from certain Muslim-majority countries entering the US — were in fact held up by judicial scrutiny. Various members of his Cabinet just got on with their job, and at least one resigned rather than help him out politically.

 

All of this did lead us to assume, when Mr Trump was voted out in 2020, that American institutions had survived their greatest test. But, clearly, we were wrong. The greatest test for institutions is not when an elected leader first attempts to undermine them. They come under real strain when that leader is re-elected. That is when the individuals who make up those institutions, and on whose energy and actions their independence depends, begin to give up.

 

We in India have had some experience of this. We often talk about the hollowing out of our institutions during Indira Gandhi’s long, if interrupted, stint in power. But it was after she received a resounding mandate on re-election that this institutional decay really began to take hold. Even in more recent times, there was unquestionably a qualitative difference, in the atmosphere in the corridors of power, between the first term of the current dispensation in New Delhi and after they were resoundingly re-elected in 2019.

 

We were reminded this week that institutional political economy has enjoyed something of a renaissance this year. Daron Acemoglu, Simon Johnson, and James A Robinson formally received their economics prize during Nobel Week in Stockholm. They delivered their Nobel lecture at Stockholm University on Sunday; Prof Acemoglu reminded us that poorly designed institutions can impose greater limits on growth than expected.

 

Institutions appear to be, if we take such work seriously, both extremely fragile and unusually persistent. Their effect and influence can last for centuries — for example, colonial institutions survive in many ways, including in India. But, somehow, they are simultaneously not too strong; they can be distorted or broken by the pressure imposed by powerful leaders.

 

Are we speaking of different things here? Is an “institution” like the US Department of Justice or its Supreme Court different from an “institution” such as the legal and constitutional ethos of Enlightenment-era individualism that is supposed to motivate their actions? Perhaps the former can bend, buckle, or break, while the latter survives.

 

And perhaps not. Definitely, to an outsider, the broad independence that has usually been the remit of an attorney general in the US is remarkable, almost incomprehensible. A politician or lawyer from the President’s own party is appointed by the President to head the Department of Justice and is a member of his Cabinet — but from that moment on is supposed to make decisions without the interference of the President. Such an inversion of basic incentives can persist only when some sort of institutional strength has been built up, both in terms of departmental processes or their underlying ethos. Attorneys general in the past have refused to fire special prosecutors investigating the President — for example, during the Watergate scandal — and been fired themselves for this defiance. Much more recently, the current attorney general very conspicuously took his time about prosecuting Mr Trump. His party might be paying the price of his punctiliousness. It is hard to see how such care would be taken to preserve institutional independence and objectivity in the next four years — and, if not, why it should ever return.

 

If there is a lesson to takeaway from the institutional turn in political economy, combined with the political currents of populism, it is this: Institutional strength is both vital and fragile. Defending it must be the primary task of politics. But this defence will not prevail if the voters are not persuaded of its importance.