Democracy and international commerce are two pillars of the "Liberal Order" that contributed to global peace and prosperity after World War II. This connection only strengthened following the end of the Cold War, when U.S. President Bill Clinton observed that commerce and democracy are "a two-way street"—one reinforces the other. Countries hoping to engage the global economy should turn to democracy, while democracies benefit from opening to the global economy. On the basis of these assumptions, many scholars found a link between democratization and the mid-1980s "rush to free trade" across the developing world.
This is the frame through which Bumba Mukherjee opens his exploration of the relationship between trade policy and democratic transition in developing countries. Mukherjee is unimpressed by the optimistic picture painted here. He points out that for every example of a new democracy opening itself to the global economy, there lies a counterexample of a new democracy absconding from economic globalization. The picture is mixed. Why? What explains why trade barriers decrease in some states experiencing democratic transition but not in others? And what does this mean for the prospects of new democracies surviving during their perilous early years and eventually becoming established democracies?
Mukherjee approaches these questions by considering the interplay of party systems and labor market structure. His theory boils down nicely to two dimensions: the degree to which a democratic system is "candidate-focused" (voters can choose any candidate, including among those in the same party) versus "party-focused" (fixed party lists are presented to voters), and the extent to which labor is mobile across industries. The role of these dimensions depends on whether the country is an established democracy or an emerging democracy.
In emerging democracies, Mukherjee argues, the picture is straightforward. New leaders, regardless of party system, will need the support of the median voter, which in developing countries is always found in labor. Hence, the determination of tariff policy is driven largely, if not exclusively, by the intraindustry mobility of labor: When it is high, leaders are apt to lower trade protection because workers are better able to adjust to trade-induced changes in the domestic market.
In established democracies, the party system matters. Politicians in candidate-centered systems operate in a manner similar to politicians in democratizing states: They seek to appease the preferences of the median voter, which is labor. Thus, higher mobility of labor will induce such leaders to pursue more open trade policies (reducing tariffs and nontariff barriers alike). In contrast, politicians in a party-centered system—where it is important to be at the top of the party, rather than a rank-and-file party member—will pursue the policy preferences of the capital owners who provide the financial resources necessary to win intraparty campaigns. In developing countries, capitalist preferences are (almost always) protectionist.
The author then marshals a host of evidence to bolster this argument. The study exemplifies the (quite welcome) trend toward multimethod research. Indeed, when combined with the formal modeling used to evaluate the logic of his theoretical argument, the methodological breadth and rigor of the study is unquestioned. The heart of the empirical analysis lies in the two chapters (3 and 5) of large-n statistical analyses. These analyses are run on a sample of 91 developing countries from 1972 to 2008. The core models in both chapters use one of two dependent variables: the share of a country’s imports subject to a tariff, or the share of a country’s imports subject to a Non-Tariff Barrier (NTB).
In Chapter 3, Mukherjee regresses these variables on two key explanatory variables—an indicator variable for a country being in its first five years as a democracy, and a continuous measure capturing interindustry occupational mobility—as well as their interaction. Plotting the marginal effect of being a new democracy at different values of labor mobility, he finds that being a new democracy has a negative association with the level of import duties (or NTBs) at moderate to high levels of labor mobility. In Chapter 5, he regresses these dependent variables on his measure of interindustry mobility, an index of the extent that a democracy is candidate-centered, and their interaction. Plotting the marginal effect of being candidate-centered at different values of labor mobility, Mukherjee finds that being candidate-centered has a negative association on the level of import duties (or NTBs) at moderate to high levels of labor mobility.
This large-n statistical analysis is coupled with two chapters of qualitative analysis, one focusing on Brazil and another with two shorter cases centered on South Africa and India. The intent of these cases is to complement the quantitative analysis: While the quantitative analysis offers cross-country, national-level validation of the theory’s expectations, the qualitative analysis provides within-country evaluation of the causal mechanisms.
While there is much to like, we were struck by two tensions that arise in the book. Neither is a damning critique, but both raise questions about how one should think about the empirical findings and the broader applicability of the theory.
The first tension is more of a definitional and conceptual quibble: Mukherjee relies on the concept “consolidated democracy” and defines a “newly consolidated” democracy as a democracy that did not relapse back into autocratic rule within three years after the formal transition to a full-fledged democracy. But this seems like a misapplication of the word “consolidated.” Consolidation occurs when democratic processes become a given within society, for example, when free and competitive elections are the only game in town. As Milan Svolik (“Authoritarian reversals and democratic consolidation,” American Political Science Review, 102(2), 2008) convincingly explains, consolidation is a long process with an unobservable endpoint: We do not know exactly when a state becomes consolidated, but it takes a long time. How long is unclear, but it is definitively longer than three years. For instance, have more than 20 years been sufficiently long for Poland and Hungary to be consolidated democracies? One would answer “no,” given recent democratic backsliding in both countries. Or is the oldest democracy in the world, the United States, even a consolidated democracy given continued concerns over voter suppression? We raise these questions simply to highlight the possibility that the existence of a consolidated democracy in the developing world is questionable.
The second tension is potentially more troublesome. As a work of comparative political economy, the book focuses on the role of domestic political and economic institutions in determining economic policies. A tension arises from the fact that the policy of focus is a policy directly tied to the international: trade. Should there not be more consideration or even explicit theorizing of the international? International factors, be they international institutions, international lenders, or pressure from major powers, are completely absent in the theoretical chapters. Such factors are at least acknowledged in the empirical chapters. But their treatment appears inadequate, perhaps because their role is not theorized.
Most notably, what about the role of institutions such as the International Monetary Fund (IMF)? There is no doubt that Mukherjee is aware of arguments regarding the IMF’s influence, as he mentions the IMF, along with the World Bank and the GATT/World Trade Organization, as a control variable. But is that enough? On the one hand, the control variables are statistically insignificant in the regression models (see Chapter 4), thereby suggesting that he is right to treat them as nuisance parameters not fundamental to the theory. But this is not really surprising. The "Washington Consensus" conditions of economic liberalization tied to IMF loans—a phrase only mentioned in a single footnote—were not developed and implemented until the 1990s, and thereby not applicable to most of the empirical sample.
On the other hand, IMF programs were not the first or primary way in which external pressure for trade liberalization was applied to these countries. Take the case study of Brazil (Chapter 6). Mukherjee addresses the possible role of the IMF in Brazil’s trade liberalization near the end of the chapter. He correctly notes that the IMF program did not include requirements for trade liberalization. This is because the IMF loans, granted in the early stages of the 1980s Latin American debt crisis, were given solely because the crisis was viewed as one of liquidity (a short-term shortfall of monies to finance debt payments). By the mid-1980s, the IMF loans were proving insufficient, as it became clear that Brazil was facing an issue of solvency (structural problems permanently undermining the ability of the country to finance debt payments). In stepped the United States with the Baker Plan (named after U.S. Treasury Secretary James Baker), which explicitly required internal market and trade liberalization policies in exchange for new credit from the United States. This was when the Brazilian government, now a new democracy, enacted trade liberalization reforms. In short, the case of Brazil does show the influence of an international factor, but that factor was not the IMF.
What work, especially one of the scope of Mukherjee’s ambitious study, does not raise questions or quibbles? These two issues aside, Democracy and Trade Policy in Developing Countries is a model for theoretically sound, empirically rigorous, and policy-relevant work in comparative political economy. It convincingly demonstrates the links between two key pillars of the Liberal Order—democracy and open trade—by detailing the conditions under which the two reinforce each other and when they operate to opposing ends. Future work in international political economy should use this book as the baseline for delving into the international drivers of economic policy.
