Application of rational-choice assumptions in understanding political process and for carrying out political analysis has resulted in public-choice theory. How government’s policies and decisions regarding resource allocation are made? How public and social policies are decided? Do preferences and policies of government reflect the actions of specific interest groups within the economy? Answers to these questions relate to the field of rational-choice theory. Anthony Downs, An Economic Theory of Democracy, Mancur Olson, The Logic of Collective Action: Public Goods and the Theory of Groups, William A. Niskanen, Bureaucracy and Representative Government in the area of party competition, interest group behaviour and policy influence of bureaucrats and James Buchanan on social choice theory have applied the rational choice theory or political economy theory for political analysis. It focuses on the behaviour of interest groups and their effect on the state’s policies and applies the assumptions and techniques of rational-choice in public policies, public goods and political issues.
Anthony Downs in his An Economic Theory of Democracy extended the arguments of the elitist democratic theory of Schumpeter and others and developed it into an economic theory of democracy. According to this, as it is in the elitist democratic theory, politics and electoral arena is political market analogous to economic market. Politicians behave like entrepreneurs, voters like consumers and political parties as businesses. He says, ‘Parties in democratic politics are analogous to entrepreneurs in profit-seeking economy. So as to attain their profit ends, they formulate whatever politics they believe will gain the most votes, just as entrepreneurs produce whatever products they believe will gain the most profits for the same reasons.’13 Politics becomes an economic game played by the elite to maximize political gains. Implication of Downs’s argument is that voters behaving as consumers select their representatives as self-interested consumers will select goods or services for purchase. This has two implications: (i) voters remain the final wielder of power fulfilling the basic presumption of democracy that power rests with the people, and (ii) the majority party can claim that its policies reflect or the interests of the majority of the voters fulfilling the criteria of representation.
However, contrary to the assumption of Downs, we are aware that voters are not always the most informed and most rational decision-makers. Various irrational elements and ideological inclinations such as liberal versus welfare values, national pride, religious affiliations, personality factor, immigration issues, etc. go into a voter’s decision. In countries such as India and other developing countries, rational decision can at best be part of a relatively smaller group of voters, the rest are charged with voting as per sectional, caste, religious and local considerations. However, their decisions may be considered as rational only if all these criteria are included as part of rational choices. Further, Downs’s approach does not consider the factor of ‘factionalism’ within political parties, which work as internal check of elite consolidation.
Mancur Olson in his The Logic of Collective Action: Public Goods and the Theory of Groups argued against the corporatist tendency in liberal democracy. As we have discussed in on power, dominance and hegemony, corporatism relates to organized interests and their participation in the decision-making process, especially organized capital and labour and how the industrial relations between employer and trade union are mediated by the intervention of the state. This means corporatist model of power distribution deals with incorporation of certain organized interest, mainly employer and labour, into the process of decision-making and government. Olson argues against this tendency and suggests that corporatism results in government’s policies being shaped by the preferences and sectional interests of these groups rather than by consideration of broader public good.14 Olson feels that one joins groups to secure public goods but it can also be secured by even being a ‘free rider’. For example, even if a few groups and employees associations or a small group of officials fight for government’s decision on salary hike to government employees, its benefits also go to those employees who never participated or agitated. In a way, this becomes a public good and creates the problem of free riders. This is more relevant in big membership organizations where a few take chances. According to Heywood, it becomes apparent that ‘there is no guarantee that existence of a common interest will lead to the formation of an organisation to advance or defend that interests.’ This is because to some the purpose may always be served by being ‘free riders’.
William A. Niskanen in his Bureaucracy and Representative Government argues that irrespective of their image as public servants, bureaucrats are mainly motivated by their career self-interests and expansion of agencies they work with. This leads to an increase in budget as government agencies and senior bureaucrats largely shape budget-making. The implication is that a self-interested bureaucracy invariably indulges in their enlargement and this, in turn, leads to a state that becomes interfering because of bureaucratic expansion. Thus, rational self-interests make the bureaucrats expand the activities of the government. However, in a welfare democracy, this may not always be possible. More so, when citizens are vigilant, have right to information about the activities of the government and bureaucrats and have a legislative financial control process that is accountable.
Another explanation related to rational-choice is in terms of social choice theory. Its hypothesis, says Stieglitz, is ‘that government action can be explained as the outcome of individuals acting rationally in their own self-interest, in response to the political “rule of the game’’’.15 James Buchanan, a Nobel Laureate (1986) has worked on the aspects of the ‘rule of game’, i.e., constitution. This involves putting constraints on the government so that the redistribution of resources should not go in favour of a section or a few. For example, if governments do not put a constraint on it fiscal deficit targets or borrowing options, it may act under the influence of powerful interests to distribute subsidies, transfer payments, spend more on current expenses than on asset creations.
Rational choice theory with its application in public choice and social choice formulations gives inputs for understanding the interplay of economics and politics. The basic criterion of this interplay is the economic incentive or motive of resource reallocation by the governments. In the Indian context, two studies (Bardhan and Rudolphs) have focused on this aspect and have analysed the policy of the state in terms of political economy of interest groups.
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