How strong are the institutions of liberal societies?

By R.A. | WASHINGTON

LIBERAL democracies, while not exactly on the brink of a descent into fascism, are facing a period of crisis. Tomorrow, when Americans go to the polls, one of the major-party candidates will be a man whose campaign has dispensed with the notion that its talking points should bear any resemblance to truth, and who has routinely promised to take measures in office which would violate the spirit or letter of the law and constitution. In Britain, meanwhile, parts of the public reacted with fury when a British court carried out its constitutional role as it saw fit, suggesting its judgment concerning the role of Parliament in invoking Article 50 was a betrayal of the people. These developments seem to presage something far worse—maybe, some worry, the end of functional democracy and its replacement by fascism. In the Financial Times today, Mark Mazower finds parallels in Germany before the Nazis and America today:

The most striking parallel of all: political parties moved to the extremes and spoke about one another as if they were fundamentally illegitimate. Judiciary and police became politicised. It is this crisis of institutions that provides the most striking parallel between Weimar and the US today.

How serious is the situation? Are the institutions of democracy truly at risk?

To answer that question, we need to be clear what we mean by institutions and what role we think they play in our societies. In economics, institutions are social structures which exist outside the market, and which have evolved to help reduce the costs associated with some human phenomenon. For example, one quite common institution—the firm—developed (depending on your view) in order to overcome the costs associated with efforts to design complete contracts, or to assign decision rights, or to facilitate the development of particular cultures and incentive structures.

Political institutions aren't so different. Consider the institution of a free press. There are all sorts of reasons why groups with political power might seek to limit the freedom of the press: to undermine the strength of rival political groups, for instance, or to keep control over society by preventing dangerous or inflammatory ideas from spreading. Yet over time, some societies developed the norm that the use of state power to constrain the press was not in society's best interest: that social and political stability was better served, over the long run, when those in power exercised restraint and allowed views to circulate within a relatively untrammelled marketplace of ideas. Many societies have sought to bolster this norm by enshrinining it in law and constitution; America's founders decided to stick it in the Bill of Rights, for example. Doing so strengthens the norm both by communicating its fundamental importance to society and by raising the cost of weakening the norm (which either requires going through a long and difficult constitutional process or weakening the institutional status of the constitution as a whole).

Of course, there are lots of ways to chip away at an institution, even one enshrined in the constitution. Donald Trump's habit of heaping scorn on the journalists who attend his rallies, and of inviting his supporters to intimidate them, is probably not going to land him in front of a judge. It does, however, undermine the broader social consensus that supports the institution of a free press.

What is a political institution really? It is a social consensus supporting particular behaviour in particular contexts, designed to prevent people from pursuing narrowly rational actions when those actions are detrimental to long-run welfare. We all agree we are going to do things a particular way, because when there are defections from doing things that way, society doesn't work as well. We all agree that we are going to pay at the end of the meal, even though we have already eaten, because when too many people defect from that norm the experience of dining out becomes dramatically worse for everyone. We all agree that politicians shouldn't base their campaigns on falsehoods, because the norm that campaigns should be at least somewhat rooted in reality makes for better public policy.

Inevitably, people have an incentive to defect from the norm established by an institution. Not paying for dinner is easier, if you can get away with it. Lying throughout a campaign is a useful strategy, if you can get away with it. For useful institutions to persist, then, there must be punishments for defection from the norm. Sometimes there are civil or criminal penalties for defection, though in the absence of a true social consensus regarding the norm those penalties might be too weak to support the institution (think about extralegal use of alcohol or drugs). Most of the time, social opprobrium is a critically important part of the process of defending the norm. Society relies on its members to shame people who run out on dinner bills. It relies on its members, and on institutions like political parties and the press, to shame and discourage people who flout important political norms. In liberal democracies, when an important political figure gets caught in a blatant lie, or ignores a public norm that leaders should not engage in open racism, or declares his intention to violate constitutional principles, we expect the public outcry to be fast and furious, and we expect the figure to suffer some professional consequence as a result: to face a loss of power, or a loss of status, or a loss of position.

If these social costs decline, or if public shaming becomes less effective, society can flip from a good institutional equilibrium to a bad one. If the cost to defecting becomes easier to bear, then more leaders will do it, which further reduces the stigma of defecting. For one side to push the other to hew to the norm is costly, both because resources must be spent holding one's opponents to account, and because there is the opportunity cost to unilaterally refusing to fight dirty. The longer and more successfully one party campaigns on falsehoods, or politicises institutions of the civil service, or cows the press, the less advantage the other side gets from keeping to the old norm. Indeed, the need to win short-run political battles in order to obtain the power to restore the old, good institutions can become the justification for abandoning institutional shackles.

Many liberal democracies appear to be on this path at the moment. Important institutions have suffered a loss of legitimacy. Many of the normal checks on defections from adherence to institutional norms have been weakened. This weakening is pernicious because some important institutions inevitably check others. The long attack on the mainstream media in America, for instance, has reduced the ability of the press to hold politicians to account. Public worry over the costs of a loss of democratic legitimacy is itself being used as a justification for the abandonment of other norms. This is a frightening place to be. There is no external other in charge; either we all agree to play by the rules that keep society running or we don't. Either those who recognise the importance of existing political institutions are successful in defending them or they aren't.

That is not to say that all is lost. Events can alter the dynamic and lead to a reaffirmation of the old norms. It is possible, for instance, that a thumping electoral loss for Republicans will lead to a partisan split and a renewed commitment among some GOP leaders to the norms that Mr Trump has disregarded. External pressures (like a national security crisis or a natural disaster) could temporarily raise the cost of defection, resetting society at the old equilibrium. Society might also find other ways, through new technologies, for instance, to more effectively discourage defection. Or, people who had not previously thought much about the role of institutions in generating good governance might make strengthening social norms more of a priority.

It is also somewhat (though only somewhat) encouraging to note that liberal political institutions seem to be quite resilient over long stretches of time. Liberal democracy tends to emerge and persist in places with strong civil society (or what Daron Acemoglu and James Robinson would describe as "inclusive institutions"). In such societies, strong, overlapping networks of civic organisations—like unions and professional associations, volunteer and charitable groups, public-interest and social-reform groups, religious and cultural institutions, and so on—check each other and provide forums within which people can work together to establish and protect valuable social and political norms. In such places, inclusive political institutions tend to reappear (or can be rebuilt) after periods of national trauma: like civil war or invasion.

But civil society is not a perfect defence against such traumas. German civil society in the decades before the first world war was relatively inclusive if not especially liberal or democratic. German government was responsive enough to public opinion to enact pioneering welfare reforms and build an early example of the modern social safety net, and liberal democracy flourished in West Germany after the second world war. In between, a strong civil society did not prevent a collapse in the legitimacy of prevailing political institutions and the rise of the Nazis.

It can seem overwrought to warn about the risk of fascism in the context of proud old democracies like America and Britain. And in truth, neither is about to see brownshirts in the streets or the complete domination of government and society by autocrats. At the same time, it is important to understand that liberal society is not immutable. There is not much holding it up apart from the institutions we build, which themselves rest on a fine balance of costs and benefits. Mess around with those costs and benefits enough, and the thing can come crashing down.