countervailing power of large organizations. All firms want privileges and policy benefits from the government, and most large firms are politically active today. Yet all have an interest in maintaining a level playing field and preventing their competitors, suppliers, and customers from gaining privileges at their expense. At the same time, the competitive process of rent-erosion represents a force in an open access order against privilege. The result is many new sources of rents from the Schumpeterian creative destruction process of rent-creation, rather than a political process of rentcreation through privilege and limited access.

4.11 Democracy and Redistribution

Models central to understanding democratic decision making in the political economy literature hold that democracy is redistributive. Meltzer and Richard (1981), long a standard, show that when the distribution of income is skewed, the median voter theorem allows lowand middle-income citizens to redistribute income to themselves from the rich. This model assumes a one-dimensional setting in which voters face the sole policy choice of income redistribution. Acemoglu and Robinson (2000, 2006) use a variant on this logic in their recent work on democratization, showing that elections are a method by which the wealthy elite commit to a redistribution of income to the poorer masses over time (see also Boix 2003). This approach to democracy as redistribution is widely influential in studies of redistribution, government spending, welfare policy, and the role of the state in the economy (e.g., Iversen, 2005; Wren, 2006).

Our approach differs. Democracy involves responsiveness to the citizenry. However, the Meltzer and Richard approach forces the framework into one dimension where the only choice is redistribution. This framework misses the essence of responsiveness in open access orders. Open access orders involve inclusion, equality, and impersonality. Policy responsiveness involves not soak-the-rich redistribution but public goods and services that are complementary to the market, which provides open access to all.21 As we have emphasized, these policies involve mass education, financial and transportation infrastructure, and social insurance programs that in combination facilitate economic growth, increase human capital, and lower the risk to individuals from participation in markets. As Lindert (2004) emphasizes, it is not obvious that these programs are, on net, costly for

21Garrett (1998) provides a similar view in the context of democratic politics in contemporary Western Europe.

open access orders. The reason is in part the idea of complementarity. These programs are not mere transfers of income with deadweight losses, but are public goods that generate positive economic returns.

Most natural states cannot pursue impersonal policies, so they have trouble providing public goods, infrastructure, mass education, and social insurance programs. When they face high demands for responsiveness, too often it is in the form studied by Meltzer and Richard: direct transfers, such as those to government employees, teachers, and guarantees to labor. Various forms of populism in Latin America and Africa too often lead to macroeconomic imbalances, economic crises, and the collapse of regimes.

Open access orders avoid playing the zero-sum Meltzer and Richard game. Not only are elections more competitive in open access orders, but the ability of open access orders to provide impersonal policy benefits allows responsiveness to citizens to occur through a positive-sum game involving public goods.

An important aspect of the positive-sum game is institutional. To create and maintain equality and impersonality, open access orders create institutions and the rule of law that prevent discrimination. Constitutional provisions in the United States, for example, limit the ability of laws to discriminate against individuals, forcing laws to be general provisions that apply to broad classes of individuals.

As evidence for our perspective, consider the application of the Acemoglu and Robinson (2006) framework to the first transitions in the nineteenth century. One problem with their view is that the governments in all these states remained small in the nineteenth century, and they pursued few programs involving explicit redistribution. Government in these states cannot be interpreted as a deal to commit to transferring wealth from the rich to the poor. In a literal sense, Acemoglu and Robinson are wrong; however, they are right in a deeper one.

As part of the transition to open access orders, responsiveness meant inclusion: granting access of the citizenry to existing institutions of the rule of law, previously limited to the elite; initiating or expanding education to the masses; and opening access to the markets and organizations where once elites alone had privileges. Here, too, democratic responsiveness was not zero sum as envisioned by Meltzer and Richard. As we will see in Chapters 5 and 6, opening access was not forced on elites, but was in part driven by elites who found it in their interest to expand access. Again, the politics of inclusion and responsiveness involved a positive-sum game.

The literature on capitalism, democracy, and the welfare state also provides evidence for our approach. For example, Garrett (1998, p. 5) explains

the positive-sum logic of the corporatist open access orders of Western Europe:

Social democratic corporatist regimes are based on a virtuous circle in which government policies [such as social insurance programs] that cushion market dislocations are exchanged for the regulation of the national labor market by the leaders of encompassing trade union movements. The products of this virtuous circle include predictable patterns of wage setting that restrain real wage growth in accordance with productivity and competitive constraints, highly skilled and productive workers, cooperation between labor and business in the work place, and low levels of social strife more generally. These economic “goods” are attractive even to mobile asset holders generated by big government and high labor costs highlighted by neoclassical economics.

As another example, whereas the older literature on the welfare programs argued that the state forced these programs on an unwilling capitalist class, the more recent literature provides evidence that firms and business leaders cooperated in the creation of these programs (Estevez-Abe, Iversen, and Soskice, 2001; Garrett, 1998; Iversen, 2005; Iversen and Soskice, 2001; Mares, 2003; Swensen, 2002). At the heart of this new literature is the observation that the social programs induce workers to make firmand industry-specific investments that have payoffs for both workers and firms. Working from a very different tradition and evidence, Fishback and Kantor (2000) show that the origins of workers’ compensation programs in the American states required the cooperation of employers, insurance companies, and workers. The failure of any of these players to cooperate led to the failure of a state to adopt such a program. The lesson of these studies is that social welfare programs are not forced on the rich or employers, as in a zero-sum context, but emerge from a cooperative context in which both sides gain. These programs reflect open access orders and democracy within that order as facilitating complementarities rather than confrontation and zero-sum politics.

4.12 Adaptive Efficiency and the Seeming Independence of Economics and Politics in Open Access Orders

The defining feature of an open access society is open entry into politics and economics. On the political side, the extension of citizenry creates mass politics and political competition and is fundamental to opening access. In different eras, incorporation of citizens has extended to ever-larger sets of groups, beginning with native males, extending to native women, and later to broader groups. On the economic side, allowing access to organizational

forms, enabling participation in credit and goods markets, and empowering individuals to enter any market in which they feel they can compete are fundamental to opening access.

Economic and political accesses are deeply connected. Political responsiveness in open access orders reflects shifts in economic interests. This, in turn, leads political officials to provide a range of public goods and services that respond to economic opportunities. Early in open access history, public goods focused on access to institutions and services that were traditionally the exclusive domain of elites, such as access to markets, rule of law, and the administration of impersonal justice. Open access orders of the nineteenth century also provided infrastructure, especially those providing access to markets (roads, canals, railroads) in Western Europe helping to transform vast areas of once traditionally organized, self-sufficient, poor peasant agriculture into market economies. Extension of mass education also began in this era. In the twentieth century, public goods extended to a wide range of local public goods, services, and social insurance programs that dampened the effects of market vicissitudes for individuals.

The approach in this chapter has new implications for understanding democracy. The dominant view identifies democracy with electoral competition. We disagree. Elections in natural states differ from those in open access orders in several ways. Open access affords a rich civil society, a free press, and open competition of an opposition, whereas natural states tend to limit each of these. The ability of open access orders to provide impersonal benefits allows them to offer a far wider array of public goods than natural states. These states use public goods to respond to electoral demands in ways that are more complementary to markets at lower cost than do natural states. In contrast to the Meltzer and Richard (1981) zero-sum game of redistribution, which characterizes many natural states, elections and responsiveness become a positive-sum game in open access orders (Garrett, 1998). Only open access societies can sustain democracy in the sense of a stable system for controlling political officials and responding to citizens.

This chapter also suggests a new “logic of collective action.” Olson and other theorists of rent-seeking emphasize the pernicious effects of organized interests. These theories have no explanation for why open access orders have been sustained for generations. Taking the political system as a given, these approaches show that organized interests at the margin gain rents. By taking open access as a given, however, these approaches fail to see that organizations are a major reason for the system’s stability. Organizations are tools that allow constituencies to mobilize when their interests are

threatened and that help police the government when it threatens to violate constitutional principles.

The ability to provide a changing mix of public goods is just one manifestation of the open access order’s ability to adjust to dynamic change, what Hayek (1960) and North (2005) have called adaptive efficiency. All societies face new challenges, dilemmas, and crises. Open access orders provide the best means of adapting in the face of these ongoing challenges. By virtue of open access, these societies generate a range of new ideas in the face of dilemmas. Political competition also provides those in power with strong incentives to adapt policy in ways that address the problem; failing to do so risks losing power. Reflecting Schumpeterian creative destruction, economic actors are quick to find and exploit new sources of profits in the changing conditions. New economic solutions change the incentives facing political actors. The political system also embodies creative destruction, as the political opposition has especially strong incentives to devise creative solutions to dilemmas (Riker, 1982a): providing more attractive solutions than those offered by the incumbent is an obvious route to political office. Open access orders are better than natural states at generating new ideas and at discarding bad ideas in the face of the omnipresent unfolding of new problems faced by all societies.

Adaptive efficiency in open access orders appears to be the result of independent economic and political systems. In a natural state, all big economic organizations are necessarily also political organizations because they cannot survive and protect their privileges without serving political ends. In contrast, most large economic organizations in the market economies of open access orders focus on market activities. As Rosenberg and Birdzell (1986) emphasize in their economic history of organizations in the West, economic organizations in open access orders do not have to serve political interests. In terms of our approach, economic organizations in open access orders need not be closely tied to political actors to maintain their rights or to ensure their survival from expropriation. Open access orders protect the rights of individuals and organizations and provide the rule of law, including the enforcement of contracts. Markets and other systems in open access orders, therefore, appear more autonomous than in natural states where all major market organizations must also serve political ends. The same logic holds for politics. Although political systems in open access orders support impersonal markets, markets seem to exist without action or support of the political system.

This seeming independence reflects equilibrium independence, however. In an open access order, political actions that affect economic interests

result in economic organizations that become more politically active. Mobile resources and fiscal interests both directly constrain policymaking, if in ways sufficiently subtle that scholars often miss them. If political actors anticipate the potential reactions of economic actors, this deters the types of policies that would cause economic actors to become politically active. The extent to which economic actors appear to operate largely through economic organizations depends on this close, but not obvious, connection between economics and politics.

The seeming independence of the political and economic systems in open access orders also explains why open access orders exhibit a much higher degree of adaptive efficiency than natural states. The much greater degree to which economic arrangements can adjust independently of political arrangements gives open access societies much more flexibility in the face of dynamic change. Because open access orders successfully control violence, everyday political and economic decision making do not take place in the shadow of violence. The greater degree of independence of economics and politics can be deceptive and misleading. If we take the economy or democracy as a given, we miss the subtle but striking forms of interaction that sustain open access.