Political and Economic Reform

Economic reforms have important political dimensions to them. In developing countries, the political situation in a country has major effects on the economic reforms. In the initial stages of reforms, political factors were not as important and reforms were mostly apolitical. However the scenario is quite different in case of second generation reform programs. Certain issues related to the political aspects of a country like governance, transparency, accountability and participation are of strategic importance to the success of economic reforms. On the other hand political institutions like the Constitution, the political parties, the bureaucracy, electoral process, etc. all have their bearing on the process of economic policy reforms.

The political impacts on economic reforms can be traced to three major determinants -

The willingness to reform

The power to initiate reforms

The capacity to sustain reforms.

The willingness to reform

The willingness to reform depends on the nature of polity prevailing in a country, the ideals it follows, the section of the population it is committed to the objectives it seeks to achieve in the long run.

Political parties or leaders garner political support by providing certain benefits to certain segments of the electorate. In the wake of economic reforms the economic power of the constituents of the political system reduces considerably. As such the ability of political units to provide niche economic benefits too would be reduced.

Another important determinant of the willingness of the political system to embrace economic reforms is the nature of political set-up that exists in the country. The relative efficiencies of democracy and dictatorship in implementing economic reforms have been major considerations. While it was initially felt that authoritarian political systems would be better disposed to implement economic reforms, however their willingness to do so have always remained less. However, adopting economic reforms would lead to reducing state intervention in economic activities. An authoritarian government, on the other hand would not be willing to let of the economic power that it wields.

Political ideology is another key factor. A socialist or communist state would not be willing to adopt reforms that lead to trade liberalization, privatization and free movement of capital. China, however, has been a willing exception to this. The Chinese have incorporated effective reforms within their socialist structure.

The power to initiate reforms

Mere willingness on the part of the political system in a country will not ensure effective economic reforms. The power to initiate reforms involves the process of getting consent from the numerous branches of the political system. In respect to this, authoritarian governments were deemed to have more power in initiating reforms.

Authoritarian governments can ignore opposition to reforms raised by constituent units or from political oppositions. However, when combined with the willingness factor, authoritarian political systems have not been found to be more effective in implementing economic reforms.

In a democracy, smooth procedures, transparent policies and a strong intent can generate requisite power to initiate reforms. Although many democratic third world countries had witnessed political opposition to economic reforms in the initial stages, with passage of time and the benefits of reforms pouting in, such opposition has boiled down considerably.

The capacity to sustain reforms

Success of economic reforms lies not merely in its acceptance and implementation by the political system, but the ability to sustain the reforms. Implementation of reforms, will no doubt, give rise to complicated issues. The political system must have the capacity to face such crisis and deliver measures for correction. The ability of the political system to timely evaluate and properly upgrade the reforms measures also plays an important role in the success of economic reforms.