Before the Fall

Tuesday, January 30, 2001

Why do citizens acquiesce in regimes of which they obviously disapprove? Around the world, socialist and authoritarian regimes have survived for decades despite rampant corruption, an absence of fundamental rights, harsh taxation, restrictive economic regulation, and general failure to foster economic growth.

One answer is that these regimes rely on power, coercion, and repression. Yet as important and ubiquitous as these tools are for authoritarians, exclusive reliance on force cannot explain why authoritarian regimes survive. Abundant evidence, for example, demonstrates that authoritarian regimes that suffer poor economic performance are much less likely to survive. Authoritarian failure in the wake of poor economic performance implies that authoritarians need at least some support from their citizens, although not as much as democratically elected governments do.

Consider the seven-decade dominance of Mexican politics by the Institutional Revolutionary Party (PRI) and its demise in recent years. The PRI system was at once tragic and brilliant: tragic in that it forced citizens to accept massive corruption, low levels of government service, and highly inefficient policies; brilliant in that it forced citizens not only to accept these features but to play a role in maintaining the system.

Reward and Punishment

To understand this tragic brilliance, one must probe into the seemingly monolithic and highly centralized political arrangement that prevailed for so long—inside the logic of Mexican federalism and the political incentives faced by the multiple localities that make up the national political arena. To understand the PRI system, consider a locality where most citizens prefer the opposition to the PRI. Voters there face the choice of whom to elect as their local leader: the local PRI candidate or the opposition candidate. Before they decide, however, voters must consider that the PRI controls the national government. On average, local governments in Mexico receive 80 percent of their funds from higher governments, which were controlled by the PRI.

The national PRI used its fiscal control to reward or punish each locality based on its electoral behavior. If voters in a locality elected the opposition, the PRI-controlled central government withheld its funds. Even if all localities preferred the opposition, the PRI could remain in power because of its credible threat to punish those who defected to the opposition. Voters thus faced the difficult choice between an opposition without funds and the local PRI with funds. In short, the PRI maintained its monopoly by using the national PRI’s political control of the central government’s fiscal resources to drive a wedge between local PRI candidates and opposition candidates.

The PRI held its political monopoly by virtue of a complex incentive system that induced citizens not only to acquiesce, but to play their role in supporting the party.

So far so good, but the story is only half complete. Because the story takes the PRI’s hold on the national government as a given, it cannot explain why citizens tolerate massive corruption and inefficiency. To address the question of national power, consider voters in the national election districts.

Although voters in a majority of electoral districts might have preferred to be governed by a more efficient opposition, the system worked against them. In the face of the PRI’s credible punishment, no locality wanted to be the first to defect. Without a mechanism to coordinate with a majority of localities, voters in one district alone could not affect the system. The only direct leverage voters in a given district had was to decide whether to support the PRI or the opposition. Supporting the opposition yielded no effect on the system but induced the PRI to punish the district. So voters in each electoral district acquiesced and supported the PRI.

Only if voters across a majority of electoral districts coordinated to elect the opposition to national office could they affect the national system. Yet coordination was difficult. Because of the risk of punishment, none wanted to move first and bear the costs of organizing a national opposition party. The system thus gave citizens too little choice. Although citizens did not like the system’s corruption and inefficiency, they reluctantly helped to preserve that system.

Democratization and the PRI’s Demise in the 1990s

In the 1990s, the PRI dramatically lost its hegemonic position. By the mid-1990s the opposition governed the vast majority of large cities; in 1997 the PRI for the first time lost majority control over the lower chamber of Congress; and in July 2000 the PRI lost the presidency to an opposition candidate, Vicente Fox.

What accounts for the PRI’s loss of hegemony? Over the last few decades, three critical changes slowly but significantly altered the PRI’s ability to maintain the system discussed above. First, the economic collapse of the 1980s, in the wake of the international debt crisis, decreased the revenue flowing into the regime, thus reducing the resources available to the PRI to reward its supporters. Second, growing opportunities in the international market, particularly for localities seeking to integrate with the United States economy, raised the opportunity costs of remaining under the PRI system. Third, economic liberalization and greater openness allowed many localities to exploit international opportunities.

At some point during the 1980s, a critical juncture occurred at which these economic changes caused a switch in the preferences of a small number of localities. The value of providing local public goods and services complementary to markets grew sufficiently large that a few localities were willing to support the opposition. Our research shows that the municipalities most likely to defect to the opposition were those that experienced the greatest economic opportunity costs of remaining under the traditional, inefficient PRI system. The municipalities that defected to the opposition National Action Party (PAN) are more internationally and trade oriented. They are also more market oriented in that they have higher per capita incomes and higher economic growth rates.

Ultimately, the PRI’s long-term goal of maintaining power came into conflict with Mexico’s economic development.

These initial defections from the PRI allowed the opposition to gain a series of local strongholds, making it increasingly competitive in local elections. The opposition-preferring but PRI-supporting majority of districts then faced what is known as a “tipping game.” The unilateral defection of some localities altered the incentives of other localities. If voters in one district believe that voters in other districts will also defect, they too have an incentive to defect. The initial unilateral defections thus facilitated tipping.

As evidence for the tipping game, observe that opposition congressional victories in single-member districts jumped from around 8 percent in 1994 to nearly 50 percent in 1997. A similar pattern holds for municipal elections, where the opposition in the early 1980s was barely able to win about 3 percent of the municipal races but then grew exponentially to about 20 percent after 1995 and 40 percent in recent years. The tipping point in local races seems to have taken place after 1995, when the overwhelming majority of localities defected from the PRI as a result of the peso crisis of 1994 and the serious economic downturn in the following two years.

The sweeping presidential victory of Vicente Fox in 2000—including his large margin of victory—is not so surprising, then, given this tipping phenomenon. Tipping had already occurred at the local level by 1995 but could only become visible in a national race first in the midterm elections of 1997—when the PRI lost its majority in the Chamber of Deputies, Mexico’s lower house of Congress—and then in the presidential race of 2000.

Conclusions

The PRI held its hegemonic position by virtue of a complex incentive system that induced citizens not only to acquiesce but to play a role in supporting the PRI. Three critical factors account for the PRI’s success: the control of national fiscal resources by the party, the ability of its leaders and bureaucrats to target resources selectively to localities, and the lack of outside options for the local jurisdictions. As a result, opposition-preferring voters throughout Mexico nonetheless voted again and again for the PRI.

This also helps explain why, during the period of hegemony, the country wasted a large portion of its resources, allocating much of the country’s wealth for pure political reasons. The PRI system raised government revenues to provide funds for the party. Policy matters or needs of the citizenry had little effect on federal allocation decisions—instead, the PRI allocated funds to help it win elections.

Finally, we now understand why poor areas remained poor and why the PRI system hindered richer ones from growing. First, the rural poor constitute the core PRI constituency. Modernization tends to undermine this support. Second, because the PRI historically had a harder time maintaining support in economically advanced regions, it had no incentive to foster the growth, power, and migratory draw of these regions. Instead, potentially high-growth areas were precisely those most likely to be punished under the PRI system. Third, because of the critical importance of winning elections, the PRI devoted much national policymaking to aiding short-term electoral goals rather than long-term goals, such as Mexico’s economic development. Put simply, economic development conflicted with the PRI’s long-term goal of maintaining power.