December 2, 2008
HOW CHILE GOT IT RIGHT: THE INSTITUTIONS IN POLITICAL ECONOMIES OF TRANSITIONING DEMOCRACIES
States play a large role in the domestic and international economy. Economies, like politics, are made up of many different institutions that strongly influence how the economic system is constructed. Economic institutions directly influence politics, and vice versa.
The study of political economies derives from the branch of the social sciences that takes as its principal subject of study the interrelationships between political and economic institutions and processes. That is, political economists are interested in analyzing and explaining the ways in which various sorts of government affect the allocation of scarce resources in society through their laws and policies as well as the ways in which the nature of the economic system and the behavior of people acting on their economic interests affects the form of government and the kinds of laws and policies that get made.
To best articulate the importance of these institutions in a political economy, this paper will take a closer look into two neighboring countries in the 1990s that had both unveiled their new attempt at democracy after an authoritarian regime. Both economies survived; however, one came out more successful than the other. The next point, that authoritarian governments are better able to manage democratic transitions under good economic times than bad economic times, has also been proven by the comparison of the 1990 Latin American countries, Chile and Argentina.
The authors Bulmer-Thomas wrote that for authoritarian regimes “to survive, they must accommodate the interests of some constituency”; “the ability of both authoritarian and democratic leaders to maintain power is partly a function of economic performance”; “democratic transitions can be considered to have occurred when authoritarian...