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Is more competition good in politics as it is in economics?

The theory and evidence about competition in politics are mixed

Vivek Dehejia  |  Mumbai 

The upcoming general elections promise to be the most fiercely contested and competitive in the past decade, if not in a generation. With the trio of an incumbent Congress Party battling a chequered legacy and a stalling economy, a resurgent Bharatiya Janata Party, with Narendra Modi now unambiguously its leader, running a vigorous campaign, and various regional parties growing from strength to strength, the 16th Lok Sabha may end up the most fragmented in our political history.

Data compiled by the Election Commission of India show that the number of parties competing in national elections has been steadily rising since the landmark 1989 elections that saw the end of the single-party majority rule. In 2009, a record 370 parties competed, of which 37 elected members to the Lok Sabha.

Even if the number of parties is weighted by their actual representation - something that political scientists call the "effective number of parties" - India has a larger number of competitive parties than comparable parliamentary democracies. As analyst Milan Vaishnav of the Carnegie Endowment for International Peace has recently pointed out, in 2009, India had 6.5 "effective" parties, while Canada, with an identical Westminster system, had 3.4 "effective" parties as of their 2011 elections.

And, as Vaishnav further argues, the evidence that Indian elections are becoming more competitive is attested to by the narrowing victory margin averaged across constituencies. From a high point of 26 per cent in the 1977 elections, the average victory margin plunged to 9.7 per cent in 2009 - again, very low when compared to other parliamentary or congressional democracies that are characterised by "first past the post" voting rules.

The fact that Indian politics continues to become more competitive is beyond dispute. But will more competitive politics lead to better economic policy choices?

It is an article of faith amongst economists that competition is good and monopoly is bad, or, put differently, more competition is better than less competition, other things equal. In the market, monopolies raise prices, reduce output, and harm consumers. By contrast, in competitive markets, profits are dissipated through the entry of new firms, prices and output are at their efficient levels, and consumer welfare is maximised.

Yet, the logic that more competition leads to better outcomes, which is difficult to dispute in the economic sphere, doesn't so readily translate into the political. While economists of the "Chicago School", most notably the late George Stigler, argued forcefully the case that the virtues of competition apply to the political "market" as much as they do to the economic, the evidence speaks much less clearly than acolytes of competition would like to believe.

Indeed, even the predictions of theory are not clear-cut. It is true that more intense political competition might induce political parties to offer a better menu of policies to the electorate and force incumbents to carry through on them for fear of being punished by voters.

But it's equally true, as argued by economist Daron Acemoglu and political scientist James Robinson, that increased competition could lead to political instability and thereby create perverse incentives for politicians to maximise short-term "rents" over long-term growth-oriented policies. After all, if you know you're only going to be in office a short time, there's little incentive to invest in the future and much to be gained by milking the system now for your own gain.

The best evidence that political competition is good for economic outcomes comes from looking at sub-national jurisdictions within large federal states, such as the US. Economists Timothy Besley, Torsten Persson, and Daniel Sturm, studying the US states, showed that low levels of political competition were associated with anti-growth economic policies, such as higher taxes, lower spending on capital-intensive infrastructure projects, and a lower likelihood of invoking "right to work" laws that challenge the entrenched power of organised labour. Further, low levels of competition were also associated with lower rates of economic growth.

Of course, as the authors note, such findings don't readily translate across borders and political systems. No scientific study of comparable rigour exists for India, so far as I know. Yet, common sense suggests little obvious correlation between more intense political competition and better economic policy (and outcomes) in Indian national elections.

While political competition has steadily intensified over the past 20 years, sound economic policy - at least as measured by a staunch commitment to growth-enhancing and poverty-reducing economic reform - has proceeded in fits and starts, at best, and at present appears to be all but moribund.

Time will tell if the next elections tell a different story.

The writer is an economics professor at Carleton University in Ottawa, Canada, and is co-author of Indianomix: Making Sense of Modern India (Random House India, 2012)
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First Published: Tue, October 01 2013. 10:00 IST