Is proportional representation good or bad for the economy?
Stated by: Chris Gardner, Independent Contractors and Business Association (ICBA), Vancouver Courier July 3 2018.
NOTE: The claim about the economy, when made by the ICBA, is usually paired with “instability” – read the Fact Check on stability here.
Fact Check Summary
This claim is false.
The relationship between different aspects of economics and electoral systems is a complex topic subject to ongoing investigation with mixed findings.
There is certainly no consensus among researchers supporting a broad generalization that proportional representation is “bad for the economy.” If anything, more evidence points in the opposite direction.
A snapshot of the research on electoral systems and economics:
Economic growth: There is research showing no effect relationship between electoral systems and economic growth, and but more research looking at more countries over a longer period showing higher economic growth in proportional systems.
Economic stability: There is research showing less economic volatility and higher investor confidence in countries with proportional representation.
Debts, deficits and surpluses: There is research showing higher debt and deficits in countries with proportional systems.
There is research showing lower debt and deficits (and higher surpluses) in countries with proportional systems.
There is research showing that the degree of proportionality is what makes the difference, with “low magnitude” proportional systems outperforming both winner-take-all and fully proportional systems.
Spending: There is consistent research showing higher government spending on social expenditures in countries with proportional systems.
There is consistent research showing lower income inequality and greater redistribution in proportional systems.
There is some research showing higher spending overall in countries with proportional systems (not just on social expenditures), however, recent data does not show any difference in levels of spending between proportional and winner-take-all systems.
There is research showing the degree of proportionality matters, with “low magnitude” proportional systems outperforming both winner-take-all and fully proportional systems.
For those who want a lot of details, see below.
- Lijphart (2012) and Orellana (2014) found no relationship at all between electoral systems and economic growth.
- However, Knutsen (2011) looked at a much longer historical period involving 3,710 country-years of data covering 107 countries from 1820 to 2002. He found that proportional and semi-proportional systems produced an “astonishingly robust” and “quite substantial” increase in economic growth – a one percentage point increase – compared to winner-take-all systems.
- Norris (2011, John F. Kennedy School of Government, Harvard), examining the relationship between different aspects of democratic institutions and economic growth concluded, “the direct effects of proportional representation electoral systems are also significantly related to income, further confirming Knutsen’s conclusions” (of higher economic growth with PR).
- Alfano and Baraldi (2015) studied 91 countries from 1979–2010 and found the relationship between proportional and economic growth appeared as a curve with the growth rate reaching its maximum value in correspondence with an intermediate degree of proportionality, corresponding to a Gallagher index about equal to 6.5. The Gallagher Index measures how proportional election results are. A Gallagher Index of 0 would be perfectly proportional – the higher the score, the more disproportional the results, with Canada falling at score of around 12 (highly disproportional). Click here for information on the Gallagher Index, measuring disproportionality in elections). A score of 6.5 – associated with the highest level of economic growth – is a similar level of proportionality to Scotland and Ireland, which use Mixed Member Proportional and Single Transferable Vote with local regions/districts – proportionality combined with local representation).
Alfano and Baraldi found that the predicted economic growth rate for highly disproportional systems drops sharply into the negative territory for a Gallagher Index above about 14 (extremely disproportional). They argue that:
…in systems with an intermediate degree of proportionality, the beneficial accountability characteristics of plurality/majoritarian systems (which may induce office-motivated politicians to enact growth-promoting policies) are put beside the beneficial representativeness characteristics of PR (which induce politicians to enact public policies that benefit broad rather than narrow interests). Secondly, a mixed method enhances both political and government stability stimulating a relatively high growth rate.
- Nooruddin’s (2011) study of economic volatility and electoral systems found that coalition governments produced less economic volatility due to more stable economic policy. They are less prone to “policy lurch” (where one government undoes the policies of the previous government). He notes:
When a single party controls all the levers of the legislative process, it is better able to enact policies closer to its ideal point. The resulting policy might in fact be the preferred outcome for economic agents too (for instance, if the government in question favors a business-friendly policy regime), but the government can not guarantee that future governments will not reverse course should the opposition win. In this case, even if economic agents respond by investing in the country, they will remain wary of future policy change, and therefore forgo more irreversible investments.
Using cross-national time-series data from over 100 developing countries, that even after controlling for plausible alternative political factors and for theoretically-relevant economic factors, coalition governments in parliamentary democracies have higher growth rates than other forms of government, and such governments experience lower growth-rate volatility.
- Most researchers agree that countries with proportional representation spend more on average on social expenditures as a percentage of GDP (social programs, education, pensions etc). For example, Lijphart (2012) found that countries with PR spent an average of 4.75% more on social expenditures than majoritarian democracies.
- Orellana (2014) found the countries with proportional representation spend less on military expenditures.
Researchers cited by both opponents and proponents agree that single-member districts and winner-take-all-systems both tend to pull in the direction of narrowly targeted programs benefiting small geographic constituencies. Conversely, multi-member districts and proportional representation induce politicians to provide benefits for broad groups of voters.
Building on this insight, some recent papers have studied the influence the electoral system on the composition of government spending. Specifically, they looked at single member (one winner takes it all) systems and multi-member (proportional) districts. Here is how Perssons and Tebellini put it (2008):
Multi-member districts and proportional representation diffuse electoral competition, giving the parties strong incentives to seek electoral support from broad coalitions in the population through general public goods or universalistic redistributive programs (e.g., public pensions or other welfare programs). In contrast, single-member districts and plurality rule typically make each party a sure winner in some of the districts, concentrating electoral competition in the other pivotal districts. Both parties thus have a strong incentive to target voters in these swing districts.
- Reinforcing the findings of more income redistribution in countries with proportional representation, multiple researchers (Birchfield, Vicki and Crepaz, Markus (1998), Iversen, T., & Soskice, D. (2006), Lijphart (2012), have found lower levels of income inequality in countries with proportional systems.
- It is important to note that unlike many of the List PR systems in Europe (most of the OECD), the proportional models proposed for Canada all retain local MPs elected by voters in specific ridings and regions. They do not include any MPs accountable only to voters in the country as a whole. Thus the incentives for local MPs to advocate targeting spending locally would be expected to continue in Canada.
- Research by Persson and Tabellini – summarized by Clemens and Jackson for the Fraser Institute – and by Perotti, Rostagno and Milesi-Ferretti (2001) found that countries with proportional systems had higher government spending overall (not just on social expenditures). Increased spending in countries with coalition governments has been showing to be related to the number of parties in government (the more parties in a coalition, the more spending). This research is often cited by opponents.However, research by Martin and Vanberg (2013) challenge the traditional findings that more parties in a coalition mean more spending. In their study of 15 European democracies over 40 years, they show that budgetary rules can “eliminate expansionary pressures on spending”. For example, determining from the outset that the budget will be (X dollars) means that if one Ministry wants more money, it has to come out of another Ministry’s budget. In terms of winner-take-all vs proportional systems, they conclude:“Our results demonstrate that at least for fiscal measures, there is no trade-off involved. Appropriate fiscal institutions can lead coalition governments to behave in budget making much as single member governments do. “
- Despite the findings that countries with proportional representation spend more, there is currently little difference in overall spending between OECD countries using proportional and majoritarian systems.
Deficits and Public Debt
- Orellana (2014) finds that “countries with more proportional electoral systems and more diverse party systems may actually tend to have lower budget deficits (higher surpluses) than countries with first-past-the-post systems and less diverse party systems.“ He finds that the projected national debt is 65.7 percent higher in majoritarian countries than in those with fully proportional systems.
- Previous research by Perssons and Tabelline (2003), as cited by Clemens et al. for the Fraser Institute (2016), had come to a different conclusion, finding higher deficits and debt in countries with proportional sytems. Orellana, argues that Perssons and Tabellini’s research was flawed due to the way they classified the electoral systems of certain countries. For example, Greece, an extreme outlier with a very large debt load, was treated as a country with a proportional system by Perssons and Tabellini. However, Greece’s system works more like a majoritarian system, by giving the party with the most seats a considerable winner’s bonus (currently 50 seats out of 300 in total).
- Carey and Hix (2010 – London School of Economics) make the same point about Perssons and Tabellini. They find that moderately proportional systems with an average number of seats per region between 5 and 9 did better than both majoritarian and highly proportional systems.
Birchfield, Vicki and Crepaz, Markus (1998). “The Impact of Constitutional Structures and Collective and Competitive Veto Points on Income Inequality in Industrialized Democracies.” European Journal of Political Research 34: 175-200.
Carey, John M. and Hix, Simon (2009). “The Electoral Sweet Spot: Low-magnitude Proportional Electoral Systems. PSPE Working Paper 01-2009. Department of Government, London School of Economics and Political Science, London, UK
Jason Clemens, Taylor Jackson, Steve LaFleur, and Joel Emes (2016). Electoral Rules and Fiscal Policy Outcomes. For the Fraser Institute: https://www.fraserinstitute.org/sites/default/files/electoral-rules-and-fiscal-policy-outcomes.pdf
Alfano, M. & Baraldi, A. (2015). Proportional Degree of Electoral Systems Growth: A Panel Test. Rev. Law Econ. 2015; 11(1): 51–78.
Iversen, T., & Soskice, D. (2006). “Electoral Systems and the Politics of Coalitions: Why Some Democracies Redistribute More Than Others. American Political Science Review 100-2: 165–81.
Knutsen, Carl (2011). “Which Democracies Prosper? Electoral Rules, Forms of Government, and Economic Growth.” Electoral Studies 30: 83-90.
Lijphart, Arend (2012). Patterns of Democracy. Government Forms and Performance in 36 Countries. New Haven, CT: Yale Press.
Lanny W. Martin and Georg Vanberg (2013). Multi-party government, fiscal institutions and public spending.The Journal of Politics, Vol. 75, No. 4 (Aug. 28, 2013), pp. 953-967 (15 pages).
Nooruddin, Irfun (2011). Coalition Politics and Economic Development. Credibility and the Strength of Weak Governments. Cambridge University Press.
Norris, Pippa (2011). Making Democratic-Governance Work: The Consequences for Prosperity. HKS Faculty Research Working Paper Series RWP11-035, John F. Kennedy School of Government, Harvard University.
Orellana, Saloman (2014). Electoral Systems and Governance: How Diversity Can Improve Policy Making. New York: Routledge Press.