Bargaining in Less-Democratic Newly Industrialized Countries

Abstract

Do governments in less-democratic newly industrialized countries (NICs) bargain with their citizens? In this article we develop a game-theoretic model to show that the government may not be able to avoid bargaining in open economies such as the Asian NICs when economic conditions are less than optimal. The reason is that, in the absence of government bargaining, citizens acting rationally and strategically choose to withdraw resources such as labor or production investment from a weak economy. Under these circumstances, government bargaining to elicit resource investment is a sub-game perfect equilibrium outcome. To test the model, we analyze data on production investment in the Asian NICs of South Korea, Taiwan, Singapore, and Malaysia from the 1960s to the 1990s. The analysis supports the prediction of the formal model and, hence, makes three contributions to the study of this topic. First, when we relax the assumption that citizens are naïve, governments in less-democratic open economies such as the Asian NICs may not be able to avoid bargaining with their citizens. Second, resource-withholding or withdrawal is an equilibrium strategy that convinces the government to bargain. Third, governments may bargain credibly even in the absence of formal constraints.

Informal accountability, credible actions, and democratization in Taiwan

“…Some studies note that it is the government who pursues government accountability or democratization, to improve or enhance citizens' support for the government (Haggard and Kaufman 1997;Feng 1997;Yap 2005). Others point out that accountability and democratization are in response to mobilization by non-government actors, such as labor or the middle-class, for greater responsiveness and representation (Thompson 2004;Huber et al 1993).…”

“…Our theoretical model builds on these arguments to consider government accountability or democratization as the Informal accountability,credible actions,and democratization in Taiwan 105 result of the interaction of both sets of actors against a backdrop of economic performance. That is, the government and non-government actors are not naïve but respond strategically to each other's actions as empowered or enfeebled by the economy, given their own preferences (Bates 1981;Yap 2005). The players' preferences are as follows: the government prefers to stay in office and nongovernment actors prefer an accountable and responsive government to engender economic performance (Bates 1981;Powell and Whitten 1993;Palmer and Whitten 1999;Cheibub and Chernykh 2008).…”

“…This oversight is unfortunate: studies show that governments variously institute informal accountability procedures-including sanctioning government officials, increasing monitoring and review by private-sector committees, and expanding suffrage-to demonstrate accountability for weak economic performance (Guo 2007;Yap 2005;Young 1992). Further, a growing literature on informal institutions show that they significantly influence political behaviors, sometimes competing with formal institutions while at other times complementing or underpinning formal ones (Helmke and Levitsky 2006;Lauth 2005;Howard and Roessler 2006).…”

“…1 Our study heeds recent scholarship calling for study of the ''political feasibility'' in achieving outcomes (Weimer 2008: 492). Informal government accountability refers to unwritten rules of responsiveness and sanctions that the government upholds and enforces on its officials and agencies (Helmke and Levitsky 2006;Yap 2005;Brinks 2003). Thus, informal government accountability shares similar criteria for economic accountability in democratized countries, that is, they comprise sanctions and expand monitoring of the government (Duch 2001;Arceneaux 2003;Powell and Whitten 1993;Palmer and Whitten 1999).…”

“…Third, as a newly-industrialized country, Taiwan's experience is a potential foundry for other newly-industrializing or industrialized countries, that is, countries that are transforming the economic base of the country into manufacturing. In particular, the demands of economic transformation underlies strategic interaction, that is, it motivates the government and citizens to interact to achieve their political, social, or economic goals based on other players' behaviors or expected reactions and the structure of the game (Fudenberg and Tirole 1992;Morrow 1994;Yap 2005). In contrast, economies with resource-endowments may see players, particularly the government, divert resources to achieve political, social, or economic goals in the short-term and circumvent strategic interaction.…”