POLITICAL ENTRENCHMENT: Why parties may adopt policies that hurt the interests of their core voters

There are certain circumstances in which an incumbent political party can increase its chances of re-election by implementing policies that harm its core constituency. What''s more, it can be rational for the core constituency of a party that is expected to implement such a policy nevertheless to vote for that party.

These are the central arguments made by Gilles Saint-Paul, Davide Ticchi and Andrea Vindigni in a study published in the June 2016 Economic Journal. Their research describes the phenomenon of ''political entrenchment'', in which political parties of both left and right may adopt policies that hurt the economic interests of their core voters.

They illustrate the theory with a number of historical and contemporary examples. These include immigration – where left-wing governments typically pursue liberal policies that may be more likely to affect unskilled workers adversely – and the North American Free Trade Agreement (NAFTA), implemented by a Democratic administration whose base includes the workers most threatened by free trade.

The theory provides a rationale for the constitutionally prescribed term limits that are observed in many real world constitutions. By lowering the value of capturing power in the future, term limits can reduce the political incentives to adopt entrenchment policies.

The study considers a left-wing party that may find it optimal to implement a policy that damages the interests of the (relatively) poor citizens that are generally a large part of its constituency. By reducing the income of the lower classes or by not adopting policies that increase it, the left-wing party makes income redistribution more valuable for such citizens. This in turn increases the incentives for poorer people to vote for the left in the future as this party can more credibly commit to redistributive policies.

In addition, the research shows that poor individuals may still find it convenient to vote for the left even when they anticipate the future adoption of entrenchment policies. This is because of the higher total gains obtained from having this party in power relative to its opponents.

The analysis also shows that the phenomenon of political entrenchment is more likely when the rents from office are larger. This suggests that we should expect more entrenchment in political systems with relatively limited checks and balances. Examples include many Latin American countries, characterised by presidential governments with limited separation of powers between the legislature and the judiciary.

Increases in state capacity – that is, the capacity of the state to raise taxes – when its initial level is relatively low (as in developing countries) may favour entrenchment behaviour. This may have harmful consequences for the welfare of the lower classes.

The researchers present three examples that are consistent with their theory. The first is represented by immigration policies in Western Europe and the United States. Theory and some evidence suggest that immigration lowers the wage of competing workers. Since unskilled workers are naturally part of the constituency of left-wing parties, one would expect these parties to support conservative migration policies, in line with the economic interests of a large share of their voters.

But the evidence on the pattern of immigration laws passed by the European Union in recent years and in the United States throughout the twentieth century does not support this prediction. Instead, it shows that the left has favoured the adoption of liberal immigration policies while the right has had a more conservative stance.

The theory of political entrenchment explains these facts in the following way: the adoption of liberal immigration policies raises income inequality by reducing the income of unskilled workers. Therefore, the value of income redistribution for these workers increases, which in turn raises their incentives to vote for left-wing parties.

A second example where political entrenchment may have played a role is the passing of NAFTA by the Democratic-controlled Congress in 1992 with the support of President Clinton. While free trade has positive aggregate gains in standard trade theory, theory also suggests that it has important distributive effects. In particular, in the absence of suitable compensation, low skilled workers in the United States will lose while high-skilled workers gain.

This makes it somewhat surprising that the agreement was signed by a Democratic administration, which may be expected to give a relatively strong political voice to the lower classes. The theory of political entrenchment suggests that a possible reason why the Democratic administration went ahead with NAFTA is that by widening the earnings gap between skilled and unskilled, it would increase future political support for the redistributive programmes that are traditionally advocated by Democrats.

A third example is represented by the dysfunctional educational policies of many Latin American countries. These have been recognised as playing a key role in explaining the persistence of underdevelopment and income inequality in that continent.

The researchers show that while the quality of education in most Latin American countries has been historically very low, the left-wing parties and leaders of countries such as Argentina, Bolivia, Nicaragua and Venezuela have failed to implement programmes aimed at modernising their countries'' school systems.

The researchers conclude by emphasising that the concept of political entrenchment does not apply only to left-wing parties and economic policies. They note that right-wing parties may also adopt policies that hurt the economic interests of their voters.

One example is national defence policies. To the extent that right-wing parties are perceived as having a political comparative advantage in providing national defence and right-wing constituencies attach more weight to it, then it is possible that the right pursues entrenchment strategies through unnecessarily aggressive foreign policies.

''A Theory of Political Entrenchment'' by Gilles Saint-Paul, Davide Ticchi and Andrea Vindigni is published in the June 2016 issue of the Economic Journal. Gilles Saint-Paul is at the Paris School of Economics. Davide Ticchi and Andrea Vindigni are at the IMT Institute for Advanced Studies Lucca.