Democracy is an attempt to provide legitimacy for law-making and government. Legitimacy resides in obtaining the consent of those affected by decisions. Democracy is also a practical process – of public debate, political organisation, institutional structure, and a majoritarian decision-making process. (Candidate selection is not straightforwardly majoritarian, but typically the decision-making of the legislature is.)

Ideally, the most fundamental tenets of a democracy make universal claims to consent: that electoral results should be recognised, that everyone is equal before the law, and that essential rights (or interests) are embedded in the highest order of legal process – such as a constitution.

In the same way that the strongest ethical case for free markets may well be peaceful conflict resolution, above all, democracy’s pre-eminent strength is the peaceful transition of power.

Recent elections have awakened a recognition of the fundamental weaknesses of electoral process. To be clear, this has nothing to do with the results. An electoral process is not measured by whether, on a given occasion, it delivers the result you desire. No one should be content with Macron obtaining a large majority in the National Assembly with the support of less than 30% of the electorate, or Trump winning a majority in the electoral colleges with only 70,000 more votes in swing states, or Corbyn ‘leading’ the national opposition based on a vote among half-a-million Labour Party members, or Britain embarking on huge constitutional change despite a majority of the electorate either voting against it, or not bothering to vote.

As a matter of mathematical fact, electoral systems frequently produce minority rule. This is bad, and worth being aware of when politicians of all colours make grand claims about their mandates. But it may not be not as bad as it sounds. The inherent flaws in electoral systems are very well rehearsed, as are fundamental problems in aggregating individuals preferences.

The objective of legitimate electoral systems is two-fold: to obtain a ‘fair’ result and to achieve ‘representation’. Part of the basis of legitimacy is giving voice to all interests and perspectives. So we want these to be reflected in electoral results. To that end, proportional representation is typically deemed superior to first-past-the-post (FPTP) systems.

Once representation is achieved, decisions still have to be made. Critics of proportional representation usually cite the absence of clear results and decisive government. Coalitions, which emerge more frequently under PR, also often hand the balance of power to minority parties – although this can also happen, as we have just seen in the UK, with FPTP.

Decisiveness & minority rule

Minority dominance is not just a mathematical possibility, it is the prevailing tendency of all electoral systems, in the absence of overwhelming national support for a party or a set of policies. Recognition of this is central to the strategy of what is now described by the media as a “well-run campaign”. Trump’s success in motivating workers in the rust belt, and Corbyn’s students who had never voted before, are prime examples. Successful targeting of very small percentages of the electorate can have dramatic electoral impact.

The dominance of minorities is also an inevitable product of a party system. Parties are run by activists – who are almost inevitability more likely to represent the extremes of the distribution of policy perspective. Conservative party members care more about Europe than the share of the population that votes Conservative, labour members are more wedded to nationalising the railways.

There are probably three main reasons why minority dominance is accepted. Firstly, there is no clear alternative – we accept the inherent flaws in the process in order to permit the peaceful transition of power. Secondly, in coalitions, holding the balance of power does not mean dominance. Coalitions often result in very reasonable compromises. Because elections are repeated games, a large party which gives away too much to a minority coalition partner is likely to be punished. Finally, we often agree on more than the electoral results reveal. A ranking of preferences is not a weighting of preferences. A significant share of the population might actually be relatively indifferent between Tories and Labour, Democrats and Republicans, etc., but when forced to have a view, they will express a preference.

This may provide a more accurate interpretation of turnout, and is a problem with polling. Perhaps not bothering to vote is an expression of indifference. Approximately 30% of the UK electorate don’t really care whether the UK is in the EU or not – and they may be right, it may matter a lot less than the commentariat thinks.

These observations provides a very strong case for checks and balances, proportional representation, and other constraints on “decisive” government. We only want elections to produce dramatic changes in policy when there is a very high level of agreement. In the same way, Americans permanently wring their hands over the absence of bi-partisanship, but when there is a real crisis – such as in 2008 – the political system pulls together. The hurdle for dramatic action should be high.

What does this brief discussion of democracy reveal? Electoral process has barely evolved since the early 1800s, and the flaws are all too obvious. Absent very high turnouts and large majorities, governments do not have compelling mandates for radical change. This is an indisputable fact – elections are won by changing the motivations and voting patterns of very small sections of the population. We accept the results because there is no alternative, because we have pre-agreed the process, because we have checks on excessive power, and because we weight the peaceful transition of power above (almost) all.

This is very pertinent to all the major elections across the developed world in the last few years. It also casts the “democratic” case for Brexit in a very different light. Taking back control is a very curious claim. Given the inherent flaws in majoritarian voting systems, the very basis of democracy is preventing any part of the political and legal institutional structure dominating, absent very high levels of consent. As a psychological device, “take back control” resonates because the assumption is that the control will be taken back by like-minded Britons. But as Scotland, and Corbyn reveal, the divisions among Britons run deep. It is more accurately described as handing a greater degree of power to a quixotic parliament and removing the checks and balances of international law.

About The Author

Eric Lonergan is a macro fund manager, economist, and writer. His most recent book is Money (2nd ed) published by Routledge. He is also a supporter of Big Issue Invest (BII), the investment arm of The Big Issue, and is one of the initial limited partners in BII’s Social Enterprise Investment Fund LP. In a personal capacity, he makes direct investments in social enterprises. He also supports and advises The Empathy Museum.

4 Responses

  1. Alex

    This comment isn’t about this article, but about your book, much of which I agree with. Early on, you describe the ‘money multiplier’ process, whereby banks take central bank reserves, ‘lend them out to companies and individuals, who then spend the cash, the recipients of which deposit this at their bank, who use this to make new loans, etc, resulting in some multiple of the initial reserves becoming ‘money’ circulating in the private sector.’

    I’m well aware that this is the standard econ textbook description of how the fractional reserve system operates. However, this is not the view of banking operations now held by many. The alternate view, described in the famous BoE’s famous 2014 ‘Money Creation’ paper, as well as in many other sources, is quite heavily at odds with this description. The ‘endogenous money’ view as it’s sometimes called, instead states that a commercial bank doesn’t ‘lend out’ funds, but rather when an eligable customer successfully applies for a loan, the bank creates a liability (deposit) and corresponding asset (loan contract), expanding its balance sheet. Only afterwords does it seek to meet the reserve requirement.
    Here is a more thorough account of the distinction https://www.pragcap.com/the-money-multiplier-and-the-myth-that-just-wont-die/
    I’m curious as to your view on these opposing descriptions.

    Reply
    • Eric Lonergan

      Hi Alex – the Bank of England description is broadly accurate. However, I think people are too sensitive about the textbook ‘money multiplier’. It really only means that deposits grow to a multiple of base money. The ‘endogenous’ nature of deposit growth is uncontentious, and described in textbooks I used in the early 90s. Some critics of the money multiplier argue that reserves simply don’t matter to deposit growth. This is similarly false. It is worth stimulating currency boards, the Greek situation, and Volcker’s policies to see that a CB can control deposit growth by restricting the supply of reserves.

      Reply
      • Eric Lonergan

        The money multiplier is also illustrative of a more primitive structure where cash is the dominant source of base money, not bank reserves.

      • Alex

        Agreed. And, certainly, people are too sensitive about the description, the main distinction being simply the order of causality, which is hardly an either/or question.

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