Every country in the need of economic reform faces the same conundrum: if there is a broad consensus among experts on the direction such reforms should take and if we know what reforms have proven successful elsewhere, why don’t they just spread from country to country? Johnny Munkhammar, Senior Fellow at the European Enterprise Institute, talks about this issue and explores the reasons for political resistance to market reforms in his book The Guide to Reform. The concern all reformist governments have was well captured by Jan-Claude Juncker, the prime minister of Luxembourg, whom Munkhammar quotes: “We all know what to do, but we don’t know how to get re-elected once we have done it.”
Although Munkhammar’s analysis is focused on the OECD countries, it is applicable to developing democracies as well. Experiences around the world show that economic prosperity follows greater economic freedom. Yet some aspects of economic liberalization such as deregulation, more flexible labor market, or free trade make politicians fear that in the short term reforms will be unpopular with some parts of the electorate and won’t get them reelected. But that’s not necessarily the case and Munkhammar offers some advice on effective reform strategies.
There are opponents to economic reforms in every county because of a simple fact that reforms tend to have dispersed benefits and concentrated costs. Whether it’s labor unions, businesses that want protection, or farmers attached to subsidies, special interests can make change politically difficult even though economic arguments speak for market reform. Munkhammar points to an often cited example of Ireland, a country that not long ago was the poorest in Europe but today is among the richest thanks to reforms that built a more friendly business environment and unleashed entrepreneurship. He also discusses political frameworks that best facilitate economic reforms. Among them, he highlights the importance of seeking social input on policy ideas and transparent decision-making.
A key strategic component of successful economic reforms is having a popular mandate. If reforms are suddenly sprung after the elections upon a population that does not understand the need for reforms, they are likely to encounter resistance. But it’s not enough to just talk about the need for reforms. Parties need to have well-prepared reform proposals prior to the elections so that once they win the popular mandate, they can launch reforms right away and make the benefits visible before the next election. The reformist government must also be ready to face the opposition and stay on track so that the greater public interest is not stalled by special interests. Finally, just passing new laws is not enough – reforms need to be implemented and followed through, which often is the hardest part of the process.
Published Date: March 04, 2008