Americans are wrong to wish for an era of stable bipartisanship

America’s stability can no longer be taken for granted. That is one possible conclusion from the near assassination of Donald Trump, reinforcing lessons already learned from the attack on the Capitol in January 2021. Regrettably, America is not exceptional in this regard. The past few months alone have featured a shooting of Slovakia’s prime minister, an assault on Denmark’s prime minister and attacks on politicians in Germany.

Such violence strikes at basic tenets of democracy: that differences are resolved via elections and peaceful transitions of power. It also challenges one of the most reliable economic relationships of modern times: between democracy and prosperity. Often, the causality is thought to run from wealth to voting. But democracy, and the rule of law intrinsic to it, is crucial to accumulating and maintaining wealth. Is this relationship now coming unstuck? And should Americans long for a return to stable bipartisanship?

The downsides to instability are proportionate to the level of chaos. At its most extreme, instability undermines certainty about the future, and is a disincentive to savers and businesses alike. A revolution that topples a regime may also wipe out contracts and laws. Faced with upheaval, individuals seek to move money abroad or into assets such as gold, while entrepreneurs lose confidence. Marist, a pollster, finds that 47% of Americans think there is a chance of civil war, the most severe form of instability, in their lifetime. But their pessimism should be taken with a hefty pinch of salt. The fact that so few are dumping dollars and that so many businesses continue to pour money into America is evidence that the country is far removed from a true political cataclysm.

It does, however, exhibit a lower level of political instability, which carries its own costs. One is dysfunctional government. This plays out differently in every country. France’s fragmentation has left it with a caretaker administration for now, though it will probably fare better than Belgium’s recent record of 652 days without a government. In the short term this gap may not undercut growth because other public institutions from schools to rubbish collection remain intact. Nevertheless, the inability to approve budgets or pass laws allows problems to fester and can cripple state capacity. In America the two-party system ensures that one or the other always prevails, but hyper-partisanship has led to gridlock in Washington. The country’s repeated brushes with its debt ceiling, raising the spectre of a sovereign default, are an example of how its leaders struggle to handle routine tasks.

Another concern is the rise of populism as an outcome of the instability. Mr Trump talks of tariffs as a magical lever that will bring about a manufacturing renaissance in America. A more credible estimate from the Tax Foundation, a conservative think-tank, is that his tariffs would cause a nearly 1% decline in GDP and eliminate 700,000 jobs. Attacks on central bankers are another populist staple, seen in Brazil, Turkey and, quite possibly, a second Trump administration. Examining a century’s worth of data, Manuel Funke and Christoph Trebesch of the Kiel Institute for the World Economy and Moritz Schularick of the University of Bonn have documented the damage. Fifteen years after populists enter office, GDP per person is about 10% lower than in similar countries with more conventional governments. Meanwhile, public indebtedness climbs more under populists, as does inflation.

That political instability is bad for an economy should therefore be evident. More controversial is the opposite statement: that political stability can also hurt an economy. To be clear, this is not a criticism of orderly government—the ideal for any country—but of excessive stasis. “The Rise and Decline of Nations”, published in 1982 by Mancur Olson at the University of Maryland, is the most famous expression of this idea. He argued that institutional sclerosis may arise over time as special-interest groups gain a foothold in stable democracies. Their dominance of politics leads to declining economic efficiency. Empirical tests across a range of countries have lent support to his hypothesis, though there are exceptions and caveats. As with instability, it is useful to think of stasis in the extreme—say, the decades of one-party dominance in Mexico that enabled endemic corruption and cronyism.

Destruction can be creative

A corollary to Olson’s original theory was his view that systemic shocks were needed every now and again to loosen the grip of vested interests. He saw the defeat of Germany and Japan in the second world war as paving the way for their superior economic performance relative to America and Britain in the subsequent decades. Mercifully, it is now clear that growth-enhancing systemic shocks do not have to be bloody. Margaret Thatcher’s revolution in Britain is a case in point—something that may have influenced Olson’s strong support for democracy in his later writings. In a paper for the Swedish Institute for European Policy Studies, economists looked at thirty-plus European countries over a quarter-century, and found that some institutional instability is conducive to growth. The worst outcomes occurred in countries with stable but bad institutions; the best where institutions were more flexible and able to accommodate new, beneficial policies.

A common lament in America is the decline of bipartisanship. This is misplaced. There is reason to worry about bitter enmity in politics, such that one party’s supporters view the other’s as treacherous enemies. But vigorous disagreements that result in profound changes to institutions and policies are the essence of renewal in democratic countries and help underpin economic growth. It is a fraught balance—neither extreme instability nor excessive stasis, all while staying within the bounds of civilised discourse. That this balance has been the norm for decades in much of the West is a miracle. To lose it would be a tragedy. ■

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