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Economic Globalization and the Change of Electoral Rules

Christian W. Martin1 /Nils D. Steiner2

Abstract This paper investigates the link between economic globalization and the change of electoral rules. It is argued that the likelihood of electoral rule changes increases with levels of integration in the world economy. At the same time, this change should tilt the electoral system towards more proportionality. The paper draws on a micro model of the distributive effects of increased economic integration. Because more proportional systems are more credibly able to commit to compensate the losers of globalization processes, there will be increased demand to change the electoral system towards more proportionality under economic circumstances that increase the costs of maintaining a closed economy. We empirically test the implications of our model using a data set on electoral rules changes in developed democracies. We draw on an empirical model of electoral rules change to assess our hypotheses and find a positive association between a) proportionality of the voting system and trade integration, b) proportionality and social spending, and c) global integration levels and the probability of electoral rules changes that render voting rules more proportional.

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University of Kiel, Germany. Contact: martin@politik.uni-kiel.de University of Mainz, Germany. Contact: steiner@politik.uni-mainz.de

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Introduction

In 1973 New Zealand was hit by the worst economic crisis the country has experienced since independence. The country reacted by heavily regulating domestic and foreign economic relations. By 1984 New Zealand had become the most regulated country in the OECD (OECD 1987: 7). Fast forward 10 years: New Zealand has embarked on an ambitious program of deregulation and liberalization, rendering the country "one of the most open and market-oriented of the OECD area" (OECD 1999: 67). Interestingly, this major policy change was accompanied and followed by a major change in New Zealand’s polity, namely the country’s decision to abandon its Westminster style electoral system for a system of proportional representation modeled after the German example. How are these two decisions related? Is there a systematic (and causal) connection between the policy decision to liberalize and integrate into the world economy and the decision to change the institutional provisions that define the rules of the electoral game with consequences for, e.g., a country’s party system (e.g. Cox 1997; Duverger 1954; Rae 1971; Taagepera/Shugart 1989), the degree and type of access for special interest groups (e.g. Grossman/Helpman 2002; Naoi/Krauss 2009), the varying incentives for pork barrel politics that benefit narrow constituencies (e.g. Stein/Bickers 1994; Stratmann/Baur 2002) and the amount of redistribution and welfare spending (Iversen/Soskice 2006; Milesi-Ferretti et al. 2002; Persson/Tabellini 2005)? Most political scientist would probably answer in the affirmative when it comes to the question of whether institutions influence foreign economic policy decision. There exists a vast literature from both political science and economics that finds a link between a country’s institutional structure and the probability that a country will integrate into the world economy (e.g. Ehrlich 2007; Mansfield et al. 2000; Milner/Kubota 2005). Yet, the possibility of foreign economic policy influencing institutions, namely electoral institutions, has received scant attention in the literature. A notable exception is Ronald Rogowski (1987) who provides compelling theoretical arguments and some empirical evidence on the causal paths that bring about a “natural affinity between trade and PR” (Rogowski 1987: 206). That the possible influence of trade on electoral system has not been taken up since is all the more surprising because of three developments since Rogowski first published his insightful piece. First, a number of countries have changed their electoral provisions, rendering them more proportional in most cases (Martin 2009). At the same time, integration levels around the world have generally risen, albeit with notable exceptions and a growing variance in the degrees of foreign economic openness (Martin 2005). Second, a number of theoretical political economy
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to substantiate our claim of a causal relation between trade integration and electoral rules becoming more proportional we provide empirical evidence for the connection between social expenditures. we maintain that integration into the world economy is associated with the use of PR. these political economy models (e. “Politics” (Grossman/Helpman 1994: 833).models have been developed that attempt to explain why actors might resist reforms even though these reforms are welfare enhancing. Hellwig/Samuels 2007. Against this backdrop. thus creating political conditions under which economic openness can be more easily achieved. Third. and proportional representation. Alesina/Drazen 1991. indeed. In doing so. first. Fernandez/Rodrik 1991) provide us with the tools necessary to model the micro level incentives and constraints actors face when deciding over whether or not to change electoral provisions. For example. as in Gene Grossman’s and Elhanan Helpman’s famous adage. We hypothesize.g. Steiner 2010). In the next section. If. the answer to the question “why free trade is so often preached and so rarely practiced” is. we substantially extend the scope of the underlying sample and specify models that look for effects on changes in electoral rules rather than cross-sectional associations to better disentangle the causal direction of the proposed association. We will then sketch a theoretical model and derive hypotheses from the comparative static properties of the model which we will put to an empirical test in a subsequent section. then it might also be true that actors face an incentive to create political conditions conducive to world market integration. In terms of the empirical test of the resulting hypothesis. we go beyond Rogowksi’s previous contribution in that we specify a novel and distinct theoretical mechanism linking trade and electoral system choice. over the last few years a political science literature has been developing that investigates the consequences of increased levels of economic globalization for the operation of politics on the domestic level (e. More generally. trade. that relevant actors face increased pressure and incentives to change electoral rules under conditions that increase the opportunity costs of maintaining a closed economy. we will review the literature relevant to our arguments. 3 . we ask how economic globalization influences the incentives to change electoral rules. A final section concludes. in this paper.g. Third. in Steiner/Martin (2012) we show how integration into the world economy renders the policy positions of political parties more alike which in turn reduces electoral participation. Second.

there is an increasing amount of scholarly work that follows a more theory-guided and deductive approach by deriving hypotheses from formal or informal models in order to test them empirically on a number of cases (e. At the same time. we can gain general knowledge on structural forces that drive electoral reforms by following a more deductive and theory-guided approach. Calvo 2009).g. 4 .g. The exploratory work of the first two strands can be very roughly summarized as pointing to a long list of factors. Martin 2009). While neglected for a long time. 2007.g. This general verdict seems to be clearly confirmed by a number of recent contributions that successfully follow such an approach. which can be of relevance in explaining individual instances of electoral reform. we maintain that despite the idiosyncrasies of individual reform cases. Japan and Italy scholars have turned their attention to the determinants of electoral rule changes. For example: While some of the work clearly points to the self-interest of politicians and parties (e. much of this research is concerned with the historical choice of electoral systems in the Western democracies at the beginning of the 20th century (Boix 1999. Within this strand of literature. The present contribution adds to this theoretically informed research on electoral system changes and is most closely linked to Rogowski (1987) which is the only existent contribution that systematically investigates into international economic factors as a driving force behind structural pressures for electoral reform. Most of the earlier literature consists of case studies dealing with individual reforms in an explorative fashion (e. partly of country-specific nature. Finally. Building on Rokkan (1970). Sakamoto 1999). Another strand of literature adds a comparative perspective by analyzing reform cases in order to draw descriptive conclusions about similarities as well as idiosyncratic factors driving changes of electoral systems (Renwick 2010. scholars have also pointed to the significance of economic interests in explaining electoral reforms (Cusack et al. Colomer 2005. We certainly do not deny the view emerging from the more explanatory work that a full explanation of individual reforms needs to take the complexity and heterogeneity of individual cases into account. Bawn 1993).g.2 Explaining electoral rule changes – towards theoretically informed explanations This section briefly reviews previous attempts to explain changes of electoral rules. 2010). the individual contributions in the special issue of the International Political Science Review 1995). We agree that much can be learned especially in terms of theory development by closely tracing processes of electoral reform (and also nonreform). and most interesting from our perspective. other contributions emphasize that electoral reforms are at times brought about despite conflicting interests of politicians and parties in power (e. following the reforms of the 1990s in New Zealand. Renwick 2010).

In order to do so. did legislatures or constitutional conventions adopt PR in one set of countries while majoritarian voting was maintained in the other?” (Cusack et al. 2010) offers a different explanation for the historical choice of electoral systems during the earlier phase of the 20th century3 which seems to build on their work on the redistributive consequences of electoral systems (Iversen/Soskice 2006) and the varieties of capitalism literature (Hall/Soskice 2001). CIS argue that the choice of the electoral system was already endogenous to whether countries had “protocorporatist” structures or not. In particular. The key trigger of electoral change in this era was a fundamental change in the electoral market brought about by the introduction of universal franchise. centralized industry unions and a “large skill-based export sector”. Drawing on earlier work of Stein Rokkan (1970). 5 . CIS (2007: 385) refer to the presence of a “guild tradition and strong local economies”. Torben Iversen and David Soskice (CIS) (2007). that would protect investment in co-specific assets” which called for “legislative institutions that permitted coordination in regulatory policy” . Key to their explanation is the political-economic structure of a country.A path breaking article in this regard is Boix (1999). Boix is concerned with explaining which Western democracies adopted proportional representation (PR) at the turn of the 19th century and which ones kept some form of majority voting (MV). Boix tests this prediction with data on the choice of electoral rules in the interwar period for 22 Western democracies. the established right parties switched to PR if (a) there was a strong socialist party and (b) none of the ruling non-socialist parties enjoyed a dominant position. Rather than viewing corporatism and liberalism as mere consequences of the electoral systems. According to Boix. This work has been subsequently criticized by Thomas Cusack. 3 In a later contribution to the debate. CIS (2007. Cusack et al. 2010: 393). Under these circumstances PR was a safeguard position against the threat of socialist dominance under MV. economic interest groups had a common interest in a “regulatory system. While their argument is detailed and complex. once the complex power struggles over democratization […] had been resolved by the start of the 1920s. explicitly distinguish between the choice of electoral systems in the “democratization” period 1900-14 and the choice of electoral systems after World War I emphasizing that their explanation intents to target the question “why. Given the protocorporatist traditions. “widespread rural cooperatives”. as well as in a system of social insurance. “Protocorporatist” countries were characterized by a general higher degree of economic coordination. His results show the predicted negative interaction effect of strength of socialism and the fragmentation among the ruling parties on the effective electoral threshold as a measure of the proportionality of the electoral system. Boix formulates a semi-formal model that focuses on the incentives of the ruling parties. it’s general idea can be most easily understood by recognizing that PR allows the representation of and coordination among different economic interest groups in the parliamentary arena much easier than MV. “high employer coordination”.

CIS (2010) offer a model of the politics involved in a later contribution. While CIS in the end – as Boix (1999) – ultimately concerned with a “historically and geographically bounded debate” (Cusack et al. this seems not a farfetched idea. and centralized industrial unions to social democratic parties. In Lijphart’s seminal analysis on patterns of democratic government the distinction between corporatism and pluralism is highly correlated with the proportionality of the electoral system. conservative parties often also incorporated the artisan sector. the number of parties and the number of parties represented in governments together constituting the specific type of “consensus democracy” (on the “executive-party” dimension). (b) merge with other parties or (c) advocate for a switch to PR. Peter Katzenstein (1985) links the corporate “Industry associations were typically linked to liberal parties. which were organizationally based on Catholic organizations covering different economic groups (with peasant and handwork associations of more importance and Catholic unions of less. a fact which in their view is not consistent with predictions from Boix (1999). For Katzenstein the democratic corporatism of the small European states was a successful response to their economic vulnerability stemming from their economic openness and dependence on international trade. and so on. is the classical work by Katzenstein (1985) on how corporatism emerged in the small European states. peasant organizations and cooperative movements were variously located in agrarian parties or conservative parties. Lijphart 1999). CIS test their model quantitatively and obtain a strong negative effect of their “coordination” index on the effective electoral threshold capturing the proportionality of the electoral system in place in the 1920s in 18 Western democracies. A variant of the interest party linkage. the parties faced a trilemma: They could (a) broaden their appeal to compete for votes outside the interest. was provided by Christian Democratic parties. More closely relevant to our present work. 2010). In a similar vein.Whereas this argumentation sounds functionalistic. equally in the PR adopters. their model implicitly argues convincingly for a potential role of political economic factors in explaining electoral reform more generally. and business relatively unimportant)” (Cusack et al. Given that we know that electoral systems are consequential for a number of political-economic outcomes. In line with CIS.4 When the nationalization of politics and democratization increased the electoral competition in the single member districts of the existing MV systems. CIS argue that from the viewpoint of party leaders a switch to PR was the least risky and most attractive option. This pattern is very much in line with the ideas of CIS. The authors also emphasize that in countries that adopted PR party preferences were uniform in advocating PR. In countries with a high degree of coordination parties and their leaders were strongly identified with particular economic interests. in that it explicitly considers the role of economic openness. 4 6 . 2010: 397). CIS arguments build on some wellrespected other contributions that emphasize the corporatist traditions especially in the smaller European states and their linkages to political institutions in the more narrow sense (Katzenstein 1985.

for a different interpretation of Katzenstein. By simply reversing the argument. the political system should guarantee stability. Rogowski gives three answers to this question: Firstly. and thirdly. It was the coincidence of these political opportunities and social convergences. Katzenstein (1985: 157) seems indeed to causally relate not only the corporatist arrangements. a dummy for PR and the number of electoral districts. Export among industrialized regions put a premium on the capacity of firms to differentiate their products and tended to rely on specialized skills. reinforced constantly by economic openness and the perception of vulnerability. On the theoretical level. The predicted association between trade (measured as usual by the sum over exports and imports as a share GDP) and PR is then tested on cross-sectional data from 24 OECD members and clearly confirmed for two different measures of the electoral systems. see Rogowski 1987: 206). but this link is therefore implicit in the analyzed association between protocorporatism and the adoption of PR. that inhibited the emergence of a winner-take-all mentality and thus made possibly the corporatist bargain” (Katzenstein 1985: 157). secondly and relatedly. the main problem with Rogowski (1987) is that the direction of causality between trade and PR remains somewhat unclear on both theoretical and empirical grounds. but at the same time the adoption of PR to the economic openness of the small European states (for similar interpretations.arrangements of the small European economies explicitly to their adoption of PR.” CIS stop short of explicitly linking electoral reform to trade openness.6 Building on the work of Katzenstein. For Katzenstein (1985: 157). one could point to exactly the arguments mentioned by Rogowski in order to 5 “Why was electoral compromise possible? […] the strong incentives that economic openness provided for export specialization reinforced economic and social links between sectors that in larger countries were more sharply opposed. the country should be able to resist domestic political pressures for protectionist measures. Rogowski infers that trade-dependent countries are pushed towards the adoption of PR. the political system should be resistant to rent-seeking behavior. Rogowski’s theoretical considerations start from a functionalistic perspective: He asks “what kind of state would be optimal in an advanced and trade-dependent economy – that is. In Rogowski’s view all three goals are best realized under PR (and the resulting strong and disciplined national parties). most likely to increase national income and wealth” (Rogowski 1987: 208). 7 . 6 Note that also for CIS (2007: 379) export specialization is one of the central features of the protocorporatist package that characterized the states that adopted PR: “Industrialization based on export specialization […]. PR was an “enabling condition” for corporatism. In this context. the most explicit consideration of a causal association between international trade and PR is Rogowski (1987).5 From Katzenstein’s perspective the adoption of PR thus reflected economic incentives for cooperation which ultimately resulted from the trade-dependence of the small European states – though the explicit mechanisms leading to PR remain arguably a bit underspecified. but also itself an “outcome of a historical evolution that distinguishes the small European states from the large industrial countries”. In our view. see also Lijphart 1999: 260 and Ehrlich 2007: 573.

rather than trade affecting the choice of institutions. rather than the other way around.infer that it is the electoral system which influences openness to trade and actual trade levels. one should also specify models that look for effects on changes in electoral rules rather than just cross-sectional associations to better disentangle the causal direction of the proposed association. in turn. The only two contributions we know of are Colomer (2005) and Martin (2009). Ideally. On the empirical side. We build upon this pioneering work in our empirical efforts by bringing the idea that economic factors. Further. These two contributions already establish that electoral rule changes can be studied fruitfully with quantitative tools also for the modern era. Martin (2009) shows that electoral rule changes are less likely with more political veto players and more likely with increasing ideological fractionalization within the government. then. affect actual trade levels). In terms of empirical testing. Ehrlich (2007) even builds on the specific channels proposed by Rogowski in that he argues (and empirically demonstrates) that tariff rates are higher with more electoral districts and low levels of party discipline.7 Similarly.e. The empirical part of the paper will present such an analysis. there is little prior theory-guided quantitative work on electoral rule changes for the era after World War II. Colomer turns Duverger’s law on its head by showing that whether PR or MV is chosen in the first place depends on the pre-reform number of parties. they argue that institutions affect openness to trade (which should. We draw two main conclusions from this discussion: The theoretical conclusion is that we need a model that goes beyond arguing for a natural affinity between trade and PR which can be interpreted in both causal directions. PR countries would trade more exactly because they are better able to resist pressures for protection and private rent-seeking and are advantageous in guaranteeing political stability. a theoretical model should elaborate closer on the incentives for electoral reform to achieve this. Beyond the historically oriented work. Evans (2009) demonstrates that MV systems tend to have higher average tariffs. though should further investigate how trade policy may influence institutional design. i. it is unclear how to theoretically interpret a cross-sectional association between PR and trade openness (either measured as regulative openness or actual trade levels). Grossman and Helpman (2005) do turn the argument on its head by formally showing that MV systems tend to have more protectionist systems. On this account. and especially the Ehrlich (2007: 573) points to the endogeneity problem involved and concludes: “Future work. Colomer thus points to a potential endogeneity problem for analyses that try to establish an effect of the electoral system on the number of parties. Indeed.” 7 8 . electoral rule changes are generally more likely under MV.

we draw on a micro model that centers on the problem of credible commitment. F/R is about uncertainty of one’s individual future position in the economy: 9 . Hence. Credible commitment problems have their roots in problems of time inconsistency. i. 3 The model The causal chain leading from globalization to the change of electoral rules is a long one.international economy. We will use the Fernandez/Rodrik (F/R) model to inform our subsequent argument.g. we would not have an incentive to actually have students write finals because our announcement will have achieved what we intended in the first place – making students studying hard because they expected that there will be finals. Assume. However. we cannot credibly commit to administering finals which is the reason why the decision of whether or not there will be finals is usually not left to the discretion of instructors but institutionalized at a higher level of the university. there will be individuals who will be worse off under the new policy. In this situation. that we announce to our students at the beginning of the term that there will be finals. and that our announcement is based solely on our goal that students study hard. This textbook example highlights the political difficulties of trade liberalization. a liberalization proposal can be struck down ex ante even though it would garner a majority ex post. In this situation.e. students would anticipate this change in incentives and not study hard because there will be no finals. In order to elucidate the conditions under which such a connection can plausibly be argued for.g. the dilemma stemming from the fact that a policy announcement or implementation of a policy will change the optimal strategy of actors (Kydland/Prescott 1977). for example by lobbying parties (e. more liberal trade regime is in place. assuming rational students. for example. the winners no longer have an incentive to uphold their promise. might play a role in electoral reforms to the quantitative study of electoral rule changes in the modern era . Magee/Brock/Young 1989) or governments (e. At its core. Because the losers anticipate the winners’ reneging they will try to block liberalization policies. Even though they could be compensated by the winners of trade liberalization – a move that would still leave everybody at least as well off as before – the promise to compensate is not credible. Although a more liberal trade regime will enhance overall welfare. If we assume direct democracy. barriers to free trade can be sustained because of individual uncertainty over whether one will be a winner or loser of liberalization (Fernandez/Rodrik (1991). Once the new. Grossman/Helpman (1994).

MV is generally associated with few parties. gradual implementation of reform. aggregate support for reform can be lower than what it would have been under complete information. and a concentration of power with whoever happens to command the majority. Therefore. Conversely. it can decide upon trade liberalization and implement it much more swiftly than its PR counterpart – if it has the necessary support. the level of individual uncertainty can be expressed as a function of the time it takes the political process to decide upon and implement trade policy liberalization. If an individual had to decide upon supporting trade liberalization under F/R style conditions of uncertainty – under which system should that individual be more likely to support trade reform? We argue that a PR system is more conducive to generate the necessary support for trade liberalization. a dominant executive branch of government.” (F/R 1991: 1147) How can we tie in this prominent role uncertainty plays in the F/R model with the change of electoral rules? To see this. the problem of individual level uncertainty should decrease because individuals garner more information about their future role in the economy. coalition governments and a more balanced relationship between the executive and the legislative branches of government (see Lijphart 1999).“When individuals do not know how they will fare under a reform. This is also reflected in the speed with which policy reversals can be implemented. More specifically. Hence. with a strong position vis-à-vis the legislative. and credibility of compensation on the other. PR is associated with a higher number of parties. proportional representation and majority voting. however. If we take the predictions of the F/R model seriously. even when individuals are risk-neutral and there is no aggregate uncertainty. When there is a lengthy deliberation process and/or the reform is only 10 . our argument suggests a negative relationship between the degree of individual-specific uncertainty and the duration of the decision making and/or the implementation process. let’s first consider the differences between the two basic voting systems. the level of support should be lower than in the alternative scenario of a more gradual decision making and implementation process. the speed with which the executive can take and implement policy decisions is slower than under MV (Schmidt 2002: 150). because of the properties of such a political system outlined above. Under PR. namely for two reasons: Speed of decision making and policy implementation on the one hand. Contrast this to the political leeway an ideal type government enjoys under MV: Unconstrained by coalition partners. over the process of deliberation and. possibly.

two basic mechanisms have been proposed in the literature. thus reducing uncertainty. credibility of compensation promises.g. is needed to make integration politically feasible. if policy makers enjoy monetary discretion. Even though the F/R model is explicitly constructed as a positive model that does not include compensation considerations. Keefer/Stasavage 2003).g. Rodrik 1998).9 Checks and balances. the decisive question. and delegation to some independent decision making body on the other hand (for an overview. Economic integration tends to increase individual economic insecurity for several reasons. e.g. namely the existence of checks and balances on the one hand (e. Ex ante delegation of monetary policy to an independent central bank adds credibility to policy makers’ commitment to maintain price stability (Rogoff 1985). as captured by the notion of “veto players” in a political system make a policy promise more credible because to reverse an implemented policy requires consensus 8 A functionally equivalent effect could be brought about by the existence of a second chamber or other veto players not connected to the voting system. cf. We will test for these possible influences in the empirical section of this paper. it follows from this model r that credible compensation schemes are required to overcome the status quo bias against trade policy liberalization in the presence of uncertainty. Tsebelis 1995. Drazen 2001). Moreover. To achieve this. Rodrik 1998) have emphasized that a strong state. 2002). more open economies are also more vulnerable in the aggregate given their increased dependence on external factors which in turn translates into increased economic risks on the individual level. It is against this background that several scholars (e. then..gradually implemented then information about individual level costs (ci in the F/R model) will become more readily available. In Dani Rodrik’s (1998: 998) words: “Societies seem to demand (and receive) an expanded government role as the price for accepting larger doses of external risk. Cameron 1978. they may feel tempted to induce political business cycles in pre-election years (for an excellent overview and critique of political business cycle models cf. for example creating winners and losers along sectoral (Ricardo-Viner models) or factoral (Heckscher-Ohlin models) lines. 9 Delegation to an independent body as a mechanism to overcome time inconsistency problems has primarily been studied in the context of central bank independence (see Keefer/Stasavage 2003: 408). and especially welfare state. Trade integration triggers structural economic change. Conversely.8 Let’s turn to our second channel of influence. If these scholars are correct in asserting that international economic integration is only feasible under credible compensation. becomes how compensation can be made more credible ex-ante? What makes a compensation scheme credible? One possibility to enhance the credibility of policy promises is to reduce the discretion of policy makers in their implementation (Kydland/Prescott 1977).” This “compensation hypothesis” is backed up empirically by the strong and robust correlation between trade openness and public spending (Cameron 1978. 11 .

middle class voters vote for a center party which then aligns with the poor to exploit the rich. This theoretical reasoning is in line with empirical studies that suggest that coalition governments tend to have higher deficits in times of negative economic shocks.among all of the veto players. because PR seems to be generally associated with bigger government. In a PR system. suggests that PR tends to make compensation more credible. Tsebelis’ fundamental insight – that systems with more veto players have a harder time deciding on policy reforms – works to the advantage of those who have to rely on the credibility of policy promises. MV favors public good spending that is geographically targeted. overall spending is predicted to be higher under PR (and vice versa). the middle class party can ensure to not lose from redistribution. see also Persson/Tabellini 2005). more transfers and redistribution. because it is 12 . the existence of PR renders compensation more credible. This discussion. The literature offers several theoretical mechanisms bringing about this association. then. In contrast. Once a compensation scheme has been decided upon it is harder for actors to renege on their promise the more veto players are involved. preferences over redistribution and the different across-class coalitions that are likely to emerge under the two types of electoral systems. Roubini/Sachs 1989). The driving factor behind this opposite conclusions is that. The most common explanation focuses on PRs higher affinity towards universalistic transfer programs that derives from distinct logics of political representation (Milesi-Ferretti et al. Whether total government spending is higher under PR remains theoretically unresolved in the Milesi-Ferretti model: When the median voter is more interested in private consumption and transfers relative to public goods. because PR enhances the expected stability of compensatory expenditure programs already in place or agreed upon before a liberalization of external economic relations. it is not possible for the center left to ex-ante credibly commit to not redistribute from the middle class to the poor once in power. The model in Iversen and Soskice (2006) instead focuses on social classes. They do so because they fear redistribution towards the poor. in contrast.g. Moreover. representatives have incentives to advocate transfer programs favoring different groups with the result that overall transfer spending tends to be higher than in PR system. In a PR system. exactly because it is less likely that the coalition parties reach agreement on expenditure cuts (e. 2002. beyond its effect on the stability of status quo policies. Because MV systems produce a system of geographical representation. PR produces a system where different social groups (that are not geographically defined) are represented in parliament. With PR in contrast. in the MV case. The basic idea of their formal model is that middle class voters tend to vote for center-right parties and not for center-left parties in MV systems.

The relationship between PR and government. Persson and Tabellini (2005) report evidence that welfare state spending and government spending in general are higher under PR. quite a few countries have changed their electoral rules. the mere coincidence of these two trends does not in any way establish their causal connection. 13 . Japan. and thereby compensation. the more open individual countries will be. and more specifically welfare. do we have to hypothesize that globalization and the change of electoral rules towards more proportionality are related? The first reason stems from the observation of two trends temporally coinciding: First. Iversen and Soskice (2006) demonstrate that actual redistribution is higher under PR among a set of OECD countries. Of course. i. in some cases radically. PR makes compensation more likely and. it seems as a good starting place to think about the incentives policy makers may face to change electoral rules under conditions of globalization. spending suggests that the adoption of PR is a mechanism to credibly commit to compensate losers of economic integration not only because PR enhances the longevity of compensation programs already in place (as explained above). more credible. As we have shown elsewhere (Martin/Schneider 2007) levels of trade regulation in the world are strongly and positively associated with levels of regulation in a focal country.represented in the governing coalition. but also because PR enhances redistribution and welfare spending. Whatever the particular mechanism.e. In fact. Patrick Dunleavy and Helen Margetts (1995) have called 1993-94 an “annus mirabilis in which three established liberal democracies – Italy. the available empirical evidence suggests that market risks are reduced and that the poor fare better under PR. even after de-trending and controlling for common exogenous shocks. In short. By “globalization”. a “rush to free trade” (Rodrik 1994). then. the more open the world. and New Zealand – radically changed their voting systems”. we refer to a situation in which a generally high level of trade and capital account openness exists globally. in general. a liberalization of current account policies integrating economies (not only of developing countries) globally. their incentive to globally integrate their countries should be higher the higher the level of global integration. therefore. What reason. The theoretical mechanism underlying this empirical observation is straightforward: Policy makers face higher opportunity costs of maintaining a closed trade regime under conditions of generally high levels of trade openness. in the last 20 years. Put differently. Second. The prediction that emerges from the model is that redistribution will be higher in PR systems. Yet. To the extent that they wish to realize the gains from trade.

i. changing electoral rules towards more proportional voting provisions is a possible way to overcome resistance to trade reform. we turn to empirically test our theoretical propositions about a positive link between globalization and the proportionalization of electoral rules. indeed better able to overcome problems of credible commitment. We maintain the basic structure of the F/R-model but add to it by considering the political process and by endogenizing the mechanisms by which individual level uncertainty can be mitigated.e. As outlined above. In the next section. then more openness in the world should be associated with a trend to rendering electoral systems more proportional. trade liberalization. We model this by including a variable that captures trade openness of other countries. we seek to assess the degree to which the above modeled processes influence the change of electoral rules. voters/workers whose level of uncertainty about their post-trade reform role in the economy is systematically lower under more proportional voting provisions. If PR systems are. we proceed in three steps. thus. as we have argued above. Additionally. and the change of electoral rules. we expect the demand for and supply of electoral rules changes rendering a country’s voting system more proportional to increase with opportunity costs of maintaining a closed trade regime. Policy-makers and interested actors have. We first seek to re-establish Rogowski’s (1987) result of a positive association between trade and PR. Further. and the incentive to liberalize trade relations increases with global levels of integration. and a positive association between gains from trade being realized and the probability of being (re-)elected into office. 14 . we use not only trade to GDP ratios as a measure of integration but also two policy variables that capture integration as restrictions brought about by political decisions. incentives to push electoral reforms towards more proportionality in order to secure the gains from trade. Note that we allow for uncertainty on the part of workers/voters. opportunistic politicians.Given the time inconsistency and credible commitment problems outlined above.e. As a next step. these incentives increase with the opportunity costs of maintaining a closed economy rendering electoral rule changes towards PR more likely if these costs increase. our argument does not require hyper-rational actors. This argument assumes rational. 4 Empirical evidence In order to assess our hypotheses on the connection of globalization. the degree to which other countries are integrated into the world economy. i.

We capture this by including social expenditures and government consumption as dependent variables in our models and by relating these variables to measures of the proportionality of the voting system and to measures of trade integration. in two forms: Two dummy variables denote whether a country uses PR. Alongside the weighted applied tariff rate. Put differently. the “plurality” variable in the DPI data is 0. These variables capture mean district magnitudes as they apply to elections to the lower and upper parliamentary chamber. i. To gauge changes to electoral rules that render a country’s voting provisions more proportional. population. or a mixture of both. This data stem from the KOF Index of Globalization (Dreher 2006. regardless of whether the variable denoting MV is 0 or 1. GNI per capita. countries are coded as using PR that also employ features of plurality voting. That way we are able to capture changes that are less far reaching than systemic changes. From this. That way. Included are information on a country’s voting rules. Dreher/Gaston/Martens 2008). we construct a variable “PROPORTIONALIZE” that takes on the value 1 if either of the two district magnitudes was larger in t than it was in t-1. an increase in mean district magnitude is treated as an occurrence that renders the voting system more proportional. we turn to the variables “mdmh” and “mdms” in the DPI data set. PR_WIDE and PR_NARROW. Gross National Income (GNI). the weighted applied tariff rate.1 Sample. while maintaining comparability across cases.We finally turn to the question whether PR systems indeed offer more credible compensation schemes. respectively. and methods We draw on a variety of different data sets to assemble the data needed for our empirical analysis. MV. 15 . Our central dependent variables – use of PR and changes to the voting rules that render them more proportional – together with the independent variable “checks” that captures institutional veto players are based on the Database of Political Institutions (DPI) (Beck et al. we use the KOF indicator of global integration as a policy measure.e. PR_WIDE is coded 1 if the DPI data indicate that the country uses PR. we constructed two dummy variables. 4. From this. 2001). and government consumption as a share of GDP are taken from the World Banks World Development Indicators database (World Bank 2011). The DPI data contain information on a wide variety of institutional features of all countries for which data are available. Data on trade to GDP ratios (exports + imports / GDP). data. PR_NARROW is coded as 1 if the DPI show the country as using only PR.

suggesting that the trend to adopting more proportional voting rules (Martin 2009) may have slowed or have come to an end. Put differently. and – to some extent – capital.e. the values become larger with fewer restrictions. the overall standard deviation of the KOF restrictions indicator is 19. In fact.2 Results Figure 1 provides a first glimpse at the connection between integration and the use of PR. PR countries tend to show fewer fluctuations than non-PR countries. details are available upon request. we considered only countries that scored 8 and higher on the Polity2 combined democracy score. namely a high level of checks and balances. countries that employ PR consistently use less restrictive policies than countries that do not use PR. This observation lends plausibility to our theoretical assertion 16 . Accordingly. and our decision to include only democratic countries. The longest date range we cover in our multivariate analysis is 19762009 (see notes in regression tables). we use random effects logit models for those models that employ a dummy variable as their dependent variable (Models 1-5). The results are robust to alternative estimation techniques. we denote yearly averages of economic integration according to the KOF index on globalization (Dreher et al. First.Lastly. Figure 1 allows for three observations. Third. and a Prais-Winsten regression with panel corrected standard errors and AR-1 process in the error term for models 6-8.46 for the PR countries.62 for the non-PR countries and 19. Our sample is restricted by data availability. We use a specific sub-component of that indicator. Overall. the figure provides first. those countries that could profit from adopting PR in order to integrate more closely into the global economy may by now have already done so while the democracies that have not adopted PR either have lower levels of integration or have found functional equivalents for PR. Given the time-series cross-section nature of our data. namely the one that captures policy restrictions against cross border movements of goods. 2008). Note that this indicator takes on higher values if a country is more integrated into the global economy. i. Second. the gap between the two groups seems to have narrowed over the last few years. tentative supports to our argument that countries that are more integrated into the economy are more likely to use PR. 4. services. we draw on the OECD Social Expenditure Database (SOCX) (Adema/Fron/Ladaique 2011) to capture a country’s social spending (see below for details). On the vertical axis.

we use the trade to GDP ratio as a measure of real integration into the world economy (model 1). this is the more appropriate measure since our theoretical argument maintains that PR provides a more conducive environment to liberalization of trade policies and that it is this association that provides for the incentive to change electoral rules (see below).that PR is more conducive to commitments that allow for a more credible compensation of possible integration losers. our result on the central variable – a positive association between trade to GDP ratios and the use of PR – is in line with Rogowski’s original finding. Contrary to Rogowski’s results. This result notwithstanding. Table 1 presents results from a random effects logit regression. 2001) takes on the value 1. Results are qualitatively identical to using the weighted mean tariff rates. a negative correlation between country size and proportionality of the voting system. We find a negative influence of our measure of trade policy restrictiveness. b) that countries employing more open trade policies are also the ones using PR with higher probability. Higher integration levels as expressed by policy measures are associated with greater probability of using elements of PR in a country’s voting system. In model 2. Model 3 replicates these findings with an alternative trade policy variable. like New Zealand after the 1993 reform. namely the weighted mean of the applied tariff rate as provided by the World Banks World Development Indicators (World Bank 2011). Based on Rogowski’s (1987) finding of a positive influence of a country’s population on its number of electoral districts and. The dependent variable is a dummy variable that is coded 1 if the variable “pr” in the Database of Political Institutions (DPI) (Beck et al. We next turn to assess this connection in a multivariate setting. and. we use a measure of trade integration that focuses on trade policy rather than trade policy outcomes. we obtain a positive association between country size reflected in its population and the probability that a country uses PR. we include a variable that captures population totals in millions. namely the KOF index of economic globalization discussed above. hence. We next turn to the change of electoral rules. That way. This variable is denoted 1 if an event took place that rendered the electoral system more 17 . Overall. these results lend support to the propositions that a) countries that are more integrated into the global economy in terms of trade flows are more likely to use PR. Arguably. As independent variables. Models 4 and 5 use a dummy variable as dependent variable. we use a wide definition of proportional representation (PR_WIDE) that includes countries using a mixed system with both elements of PR and MV. or Japan.

active labor market programs. family. Figure 2 shows simple bivariate plots of year against sample averages of social expenditures as a percentage of GDP together with average yearly levels of international trade (right axis). and PR. although the variable fails to reach conventional levels of significance in model 5. this finding could also be explained by the fact that any political change becomes less likely with more veto players and that this logic also applies to changes of electoral rules. 2001). 18 . Of course. In both models. for example.proportional. but also. We opted to use this wide definition of social spending in order to capture the effects of trade and PR on the credibility of compensation promises since such promises should be more important not only for those who seek compensation for labor market displacement due to globalization processes. health. namely the OECD countries. is that the results on the influence of global integration levels hold up to the inclusion of the veto player variable. we use a measure of global integration levels. We define such events as an increase in the mean district magnitude of the voting districts for either House or Senate elections or both. As independent variables. in our view. This finding lends support to our argument about opportunity cost concerns driving electoral rules changes. this measure is positively and significantly related to the probability of an electoral rule change rendering a country’s voting system more proportional. The important observation. and other social policy areas. unemployment. we finally turn to the connection between compensation. In both models. Note that the data covers only a subset of our country sample. To close the causal chain in our argument. At the same time. The intuition behind this is straightforward: If a country increases the number of representatives elected per district this will lead to a more proportional electoral formula (Rae 1971). housing. incapacity-related benefits. to those seeking protection from health risks in a more volatile and hence more unpredictable economic environment. as defined by DPI (Beck et al. survivors. The data on social expenditure stem from the OECD Social Expenditure Database (SOCX) (Adema/Fron/Ladaique 2011). this method is very efficient as it allows comparing different countries with respect to our central concern of whether or not a country changes its electoral rules. We cautiously conclude that veto players may be a functional equivalent for more proportional voting rules under conditions of globalization. In other words: Countries that are relatively little integrated compared to other countries are more likely to change their rules towards PR than countries that already are highly integrated. the variable that captures the number of institutional veto players has the theoretically expected negative sign. namely the trade-to-GDP ratios in other countries from the point of view of the country under observation. including old age. The SOCX data cover a wide range of social programs. trade.

we have argued. Interestingly. If voters care about the state of the economy and trade openness is efficiency enhancing but hampered by uncertainty about one’s future state in a post-reform economy. The social expenditure data are available only for a subset of OECD countries. We therefore chose to replicate findings from models 6 and 7 with a larger sample. Most importantly. We have based our assertion on the problems inherently related to efficiency enhancing policies that produce winners and losers in society. Legrenzi 2004). hence. 5. more proportional voting rules should mitigate this uncertainty by providing for a more credible compensation. we observe that PR countries consistently outspend non-PR countries – at the same time that international integration levels really began taking off. Conclusion Ronald Rogowski (1987) has hypothesized about a “natural affinity between trade and PR”. namely the problem of credibly committing to compensate the losers. We have argued that PR systems are better able to credibly commit to such compensation and that. However. While overall trade levels increase (except for the drop in 2009 due to the world financial and economic crisis). We have extended his hypothesis to the change of electoral rules in a way that makes them more proportional. The results on the controls are in line with earlier findings. namely that richer countries spend more on social and other government services (see. We take this as evidence that promises to compensate losers from globalization processes are not only more credible in PR political systems but that these promises are actually made good on. these efficiency considerations should be most pronounced in 19 . for example. and government spending more generally. average social protection is equally on the rise. and government consumption (model 7) as their dependent variables. respectively. and that larger countries have relatively smaller public sectors (Alesina/Wacziarg 1998).Again. a clear pattern emerges. only those countries that rely solely on PR as their voting rule are positively associated with social expenditures. we find a positive and significant relation between openness of economic policies and spending. Chang 2002. How do these results hold up against the inclusion of other variables? Table 3 shows regression results for models that use social expenditure (models 6 and 7). countries using PR should be better able to integrate into the global economy. from 1990 onward. Because of this. In all models. even if government expenditure is not necessarily proportional to social expenditures. policy makers face an incentive to adopt voting rules that are more proportional in order to better realize the gains from trade.

for example. liberalization of the trade regime should become more likely with more social spending already in place. However. Countries with a more proportional voting system spend more on social protection and on government expenditures in general. To our knowledge there is no research that directly investigates into this straight-forward implication of the compensation hypothesis. Second. Such a measure could be based on the integration level in specific regions or integration levels of all other countries but weighted by their distance or existing trading patterns with the country under consideration. is one valid measure. it would make sense to analyze decisions to liberalize the trade regime and test whether these are more likely under a higher social safety net. we have supported our theoretical argument by empirically identifying a positive association between PR and social expenditures. If the logic of the compensation hypothesis is right. So far. namely under globalized conditions. we have focused on global integration levels. our main link between trade integration and a change of electoral rules towards more proportionality under conditions of economic globalization is supported by the empirical evidence. it might be useful to identify some way to compute more ‘targeted’ measures that leave more variation across countries (given a specific year). If indeed compensation is necessary to make integration politically feasible. We have backed up these assertions by first showing a positive association between PR and trade shares on the one hand.situations where the opportunity costs of maintaining a closed economy are particularly high. which – in our view . 20 . We find a positive link between openness levels in the world and the probability that a county renders its voting provisions more proportional. Future versions of this paper could. one should observe this pattern. investigate other possibilities of operationalizing the opportunity costs of maintaining a closed economy. Thirdly. Hence. A possible avenue for future research emerges from one observable implication of our theoretical model that we have not tested in this contribution. and PR and openness of trade policies on the other.

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Both the German and the New Zealand system award voters two votes. Examples include Germany or New Zealand after the 1993 electoral reform. Albania Argentina Australia Austria Belgium Bolivia Brazil Bulgaria Colombia Costa Rica Croatia Cyprus Czech Republic Denmark Dominican Rep Ecuador El Salvador Estonia Finland Germany Greece Guatemala Hungary India Indonesia Ireland Israel Italy Japan Korea South Latvia Lesotho Lithuania Macedonia Madagascar Mexico Moldova Mongolia Netherlands New Zealand Nicaragua Niger Norway Panama Paraguay Peru Philippines Poland Portugal Romania Senegal Slovak Republic Slovenia South Africa Spain Sweden Switzerland Turkey Uruguay Venezuela 26 . 2001). meaning that their electoral system is based exclusively on PR.Appendix A: Sample and definitions List of countries using proportional representation. based on DPI (Beck at al. on with which to vote for a party list (PR). Non-bolded countries may use elements of both PR and MV. Bolded countries fit the narrow definition of PR systems. the other with which to vote for a candidate in a winner-take-all contest (MV).

Figures and tables 75 Average  yearly integration levels (KOF) Average  integration levels (KOF) in democracies using PR 70 65 Average  integration levels (KOF) in  democracies not  using PR 50 1970 55 60 1980 1990 Year 2000 2010 Figure 1: Average yearly integration in PR and non-PR countries Average yearly social expenditure. % of GDP 16 18 20 22 24 Average  yearly trade (X+M/GDP) (solid red line) Average  social expenditure (% of GDP)  in democracies using PR (solid black line) Average  social expenditure (%  of GDP) in democracies not  using PR (dashed black line) 60 1970 1980 1990 Year 2000 2010 Figure `2: Levels of social expenditure in PR and non-PR countries 27 70 80 90 Average yearly trade 100 .

47** 0.01.085*** (0.024** (0. ***: p<0.05.1 Table 1: Proportional representation.158*** (0.363*** (1. ***: p<0. Random effects logit regression with standard errors in parentheses.007) 1.46*** The dependent variable is a dummy variable denoted 1 if a country employs proportional representation and 0 otherwise.156) 1437 77 1976-2009 11.034) 0.039*** (0.022) -0.033** (0.433) 921 74 1988-2009 22.597) 1487 73 1975-2008 95.328) -9.007) 1.019) -0.026 (0.911*** (3.199*** (0. trade and trade policies Model 4 Average Trade (% of GDP.030 (0. applied (weighted mean) KOF Economic Integration (Policy measures) Population (millions) Constant N= Number of countries= Years= Wald chi(2) 0.158*** (0.308) -9.034*** (0.491 (0.023 (0.020) -0. country i) KOF Economic Integration (Policy measures) Population (millions) Checks and balances (institutional veto players) Constant N= Number of countries= Years= Wald chi(2) -0.014) Model 2 Model 3 -0.015) -9.076*** (0.651** (0.01.010) 0. countries ≠ i) Trade (% of GDP.57*** The dependent variable is a dummy variable denoted 1 if a country changed its electoral rules in a way that rendered them more proportional and zero otherwise.090*** (3.433) 1562 78 1975-2009 44.005 (0.18*** 0.022) 0. *: p<0.011) Model 5 0. **: p<0.034) -0.033) 1349 72 1976-2008 14. **: p<0.102*** (0.59*** 0.Model 1 Trade (% of GDP) Tariff rate. Random effects logit regression with standard errors in parentheses.1 Table 2: Episodes of proportionalization and levels of globalization 28 .05. *: p<0.

808) 1334 72 1980-2008 0.35e-13*** (8.012) -3.75*** Model 8 0.056*** (0.00003) 12. panel corrected standard errors in parentheses.05.040*** (0.00007 0.507 (0.487*** (0.733) 656 29 1980-2008 0.4892 33.581) 0. wide definition (dummy) Country uses PR.1 Table 3: Social expenditures and government consumption.00005 12.60e-13 1. Prais-Winsten regression assuming an AR(1) process in the error term.5212 14.Country uses PR.00005) 12. and the share of government consumption of GDP (model 8). PPP Constant N= Number of countries= Years= R(2) Wald chi(2) Model 6 0.38*** The dependent variables are the percentage of social expenditures of GDP (models 6 and 7).019) -1.0001** (0.24e-13*** (1.88e-14) 0.212*** (1. **: p<0.964** (0.21e-13 0.593) 0. ***: p<0.5105 29.783*** (1. narrow definition (dummy) KOF Economic Integration (Policy measures) GNI (PPP) Per capita GNI. *: p<0.99*** Model 7 2.020) -4.39e-13) 0. and PR 29 .601*** (0.806) 656 29 1980-2008 0.041** (0.01.429) 0. trade.00009*** (0.