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December 17th, 2013

An Economist’s Perspective On A Constitution

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Estimated reading time: 5 minutes

Blog Admin

December 17th, 2013

An Economist’s Perspective On A Constitution

0 comments

Estimated reading time: 5 minutes

Andrew Lilico
Andrew Lilico

With the UK’s economic recovery in sight, it is necessary to consider how the economy will influence the construction of a constitution. Andrew Lilico, Chairman of Europe Economics, has given us his views on how economic considerations affect the content of a constitution and how the constitution affects the economy. 

I have been asked to write about the economic aspects of a constitution.  These can be divided into two class: first there are the economics of the design of a constitution; second, there are the economic consequences of a constitution.  Let us take these in turn.

First the economics of the design.  By this, I mean the economic or “game theoretic” aspects of the constitution itself.  Any constitutional arrangement will set up a set of incentives for the different parties to the constitution and thus affect the strategies those parties pursue.  For example, suppose a constitution had a monarch whose job was simply to remove a democratically elected ruler who, once in place, became a tyrant.  If such a monarch were totally credible, then no democratically elected ruler would be likely to attempt to become a tyrant, since any such attempt would by definition be frustrated and result in removal.  But in that case the sole power of the monarch would never be exercised.  Since it was never exercised, eventually the question might arise as to how credible it was that it could ever be exercised if it were required.  So in the end, economic game theory might teach us that as through lack of use the power of the monarch to act ceased to be credible, it could become in the interests of a tyrant to become elected to test whether the monarch’s power could, indeed, be used.

Similarly, game theory might teach us what sorts of interests might be represented in a constitution if, say, voting were compulsory and only two main political parties were allowed (or if other aspects of the constitution tended to force parties into two groups) versus if voting were non-compulsory and many parties were allowed.  If voters could be arranged linearly and fairly evenly (say, distributed according to the well-known “bell curve”) from “far left” to “far right”, then in a mandatory two-party system with compulsory voting, a “winner-takes all” system of legislation in which the government gets to decide all the laws, and politicians that seek mainly to have their preferences enacted into legislation (rather than, say, to have said their piece), game theory tells us that politics will tend to be very centrist, with the two parties chasing the median voter.  Our constitutional arrangements can thus be expected to have significant impact on the functioning of our politics — not simply in the sense of creating issues or constraining behaviour, but also by setting the incentives of the political game.

Again, game theory offers us various insights as to why people vote at all, if they have the alternative of not voting, which can have implications for our constitutional design.  For example, what would happen to voting if there were a constitutional duty for voting methods to evolve through time with technology so as to make it as easy to vote as possible?  One might think the consequence would be higher voter turnout, but one game theoretic analysis of voting suggests it might make voting happen less.  For ponder this: why do folk vote?  Is it to influence the outcome of an election?  But in how many seats is the majority only one vote?  And in how many elections does the government come in with a majority of only one?  Surely no-one votes because of any rational belief that their individual vote could change the result of the election?  Why, then?  One theory is that we vote for much the same reason we cheer at a football match or clap at a music concert — to take part; to express our approbation.  But it might be that taking part is only of any value if, say, it can be witnessed and can be seen to entail some effort — e.g. by walking down to the polling booth.  If we allow people to vote by text in such a way that no-one sees, we might remove much of the reason it’s worth voting at all and, by reducing the cost and visibility of voting, end up with fewer votes not more!

Let us move on to the economic consequences of a constitution.  Let us consider four economic aspects:

–          Property

–          Tax

–          Contract

–          Equality

One fundamental economic idea, often affected by or expressed in a constitution, is property.  Is property truly private, or is it fundamentally to some degree shared?  What sorts of things can be property?  For example, can land truly be privately owned or is land only ever something that can be owned in the deepest sense by the sovereign, with private citizens at most leasing its use, temporarily?

Constitutions vary considerably on these points.  In some, property is a human right, and it is extremely difficult for the state, for example, to nationalise any businesses or compulsory purchase land.  In other constitutions, all land has been ultimately owned by the Monarch, so compulsory purchase is much more straightforward, amounting to little more than the revoking of a lease.

In some constitutions property plays a very fundamental role, because constitutional liberties begin as specific promises about the treatment of property.  For example, we might begin with a specific promise that the King will not confiscate the Barons’ horses without proving some good cause, and end up with the general right to trial by jury.

Similar considerations apply to taxes.  Some constitutional arrangements have begun as protections of property against the arbitrary application of tax.  For example, that is often seen as the origin of the House of Commons — as a body that arose to give or without consent to taxation.  Other constitutional issues include: Can taxes be applied retrospectively?  And, is it constitutionally legitimate to apply taxes to things people are (e.g. wealthy; tall; foreign) or only to things people do (e.g. earn income; play basketball; bring in imports)?

Another deep question is to what extent a contract (conceived as a special kind of promise) creates property.  Do you own your contract rights?  Do contracts enjoy the same or analogous constitutional protections to property?

Many constitutional arrangements can impinge upon property in unexpected ways.  For example, it is arguably fundamental to the existence of truly private property that its exercise be free.  By this, we mean that my property is only mine if I am able to use it as I like, if others are not instructing me as to what I must do with it.  An important case of this is that property is only mine if I have no obligation to use it fairly.  I am not, for example, required to spread my chocolate purchases evenly over all the local chocolate-selling stores.  Similarly, I am not obliged to given even amounts to every charity.  Such free use of property might be curtailed temporarily for some good public policy purpose — e.g. my car might be commandeered by the police to chase a bank robber.  But if it is permanently curtailed the property is no longer mine.

This principle brings the constitutional status of property into potential strong conflict with other constitutional principles, such as equalities rules.  Just as commandeering my car might be compatible with my still owning it if done temporarily, so requiring me as a company-owner to be fair in my hiring of women versus men, or the young versus the old, or some religious groups versus other might be compatible with my still truly owning it if such a measure is temporary.  But if we build into a constitution an obligation to be fair in the exercise of property we are, in effect, saying that property is always to some extent public, that no truly private property exists.  In establishing our constitutional principles we must thus to some extent choose between equality and property.

There are many other economic aspects of constitutions, such as rights of choice or the rule of law as opposed to the rule of men, but I hope by now I have convinced you that economic considerations are fundamental to the design of any constitution, both in understanding how the incentives created by the constitution play out and also in grasping the economic consequences of our constitutional choices.

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Andrew Lilico is a writer on politics and economics for publications including the ConservativeHome website, CityAM and the Daily Telegraph, and the Chairman of Europe Economics.

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