A change in political orientation from communist centralization to democratic decentralization has great economic consequences. Bureaucrats are more insular under a one-party political monopoly than under a multi-party democracy. One-party regimes are less responsive to dissent; entrenched bureaucracies can avoid corrective mechanisms and ignore changing circumstances. Periodic elections force eventual responses to public interests. We develop a model that links politics to the economic model presented in Chapters 4 and 5: economics affects politics through polls taken by candidates and through decisions made by voters, and politics affects economics by establishing the legal rules of the economic regime. Before an election, politicians allocate their human and political capital between four activities: setting goals, designing strategies, winning supporters and debunking opponents. These activities are optimally chosen to maximize political success. One purpose of the model is to analyze similarities and differences among countries. Local historical distinctions imply different prospects in transformation. A history of well-being and liberalism gives some countries clear goals to attain through reform. Situations under the Soviets also inﬂuence longer-term prospects: the Estonians viewed the Soviets as foreign military occupiers, whereas the Bulgarians enjoyed unprecedented economic improvement under the Soviets. These historical circumstances have shaped consumer attitudes and thus how voters will assess reform proposals. WHY A POLITICAL MODEL IS IMPORTANT In Chapter 2 we argued that certain powerful political forces would resist the economic reforms needed to move a society away from central planning toward private markets. Such resistance is to be expected because of the...
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