“At this moment, in this country, you have no substitute,” was Cuban dictator Fidel Castro’s comment to Venezuelan proto-dictator Hugo Chavez last Sunday. When I read that news bit buried in a newspaper section bulging with stories about the U.S. elections, all I could think was: “Thank God the U.S. has institutions such that our political and economic well-being does not depend on any irreplaceable person.”
Castro and Chavez, like most other dictators, see themselves as their respective country’s last, best hopes. They believe that they literally have “no substitute.” The story of their encounter brought home to me that many candidates here in the U.S. are mediocre at best. I know that a range of others easily could substitute for them.
Although I would like to see stronger candidates, I know that the American republic will not only survive, but probably thrive, if a less than stellar individual wins a particular election. That is because the people who created our basic political institutions understood the importance of a system of institutions as opposed to brilliant individuals.
Neither Bush nor Gore is particularly bright, visionary or endowed with leadership ability. There are at least three Republicans and three Democrats who would make better presidents than either Gore or Bush. It is also clear that both parties contain more capable people than the ones I will see listed on my ballot for U.S. House and Senate races next week.
Will the conspicuous lack of talent in 2000 hurt us? The U.S. has not only survived many mediocre leaders, such as James Buchanan, Andrew Johnson and Warren Harding, but it has thrived. Despite the carping of a few wackos on the right and left, U.S. democracy is alive and well.
How did the philosophical outlook of our country’s founders affect U.S. government institutions? Benjamin Franklin, Thomas Jefferson and other founders were deists, who believed in the existence of a god, but only a limited one who had created the universe but did not control its ongoing events. Their famous analogy was to the watchmaker who creates a beautiful intricate instrument, sets it going and then lets it run by itself.
Adam Smith, the Scottish philosopher who gave birth to the discipline of economics, was a deist who saw a similar self-regulating, self-perpetuating mechanism in the impersonal economic interactions between people that we have come to call “the market.” Markets do not need any brilliant individual making decisions centrally; they result naturally from spontaneous actions of many households.
Similarly, the framers of the U.S. republic, including Franklin, Jefferson, John Adams, James Madison, Alexander Hamilton and John Jay, had great concern about structuring government institutions that would be robust enough to withstand the tests of history without hanging the fate of the nation on the talents of any one individual.
In the phrase of one of them, they wanted to create “a machine that would run of its own.” They largely succeeded. Alas, Latin America never has been able to do the same. Institutions that served the U.S. well were not necessarily appropriate to the very different societies and political cultures of these nations.
Indeed, given the deep social, ethnic and economic divisions of the region and its unhappy history even prior to independence, the Bolivarian hope that just, stable and productive democracies could be constructed was probably a forlorn one.
Nevertheless, for those of us who love Latin America, Venezuela’s electoral return to quasi-dictatorship after nearly 50 years of admittedly imperfect democratic is sad. But in that country, as in Peru, where Alberto Fujimori enjoyed broad popular support for many of his openly anti-democratic measures, the dream of the superhuman charismatic leader who will solve all ills remains a seductive one.
History tells us that the desperate hopes of Hugo Chavez’s supporters will be dashed sooner or later.
What does this have to do with economics? Simply put, nearly everything. Virtually all economists agree that societies have to establish appropriate laws, or “rules of the game,” for markets to operate efficiently. Resilient, adaptable institutions and the consistent rule of law are far more propitious for investment and economic growth than the vagaries of rule by charismatic individuals.
Anyone who has lived in a South American nation knows the tremendous amount of risk that both households and businesses face on a daily basis. Risks include abrupt changes in economic policy, volatile interest and exchange rates, frequent spasms of inflation, and a panoply of arbitrary and confiscatory measures.
Both businesses and households devote tremendous amounts of resources to protecting themselves against such risks. Investment always involves dangers, and as a result output and productivity growth is slow.
In the English-speaking nations and Western Europe, societies benefit when they are fortunate to have able leaders. But they also survive mediocre ones. Economic policies and the rules for doing business do not fluctuate with the whims of one individual.
Crafting institutions that foster the “rule of laws, rather than men” in the long term is not easy. We owe much of our wealth, as well as our liberty, to the fact that our nation was founded by people who understood how important their task was. The pain in the daily life of many Russians, Bolivians, and Pakistanis show us what the alternative might be.
© 2000 Edward Lotterman
Chanarambie Consulting, Inc.