Political economy of coalition government



A new multi-party coalition government has been sworn in in Pakistan. It has many challenges, especially with regard to the economy and governance.

The main one is the political economy of a coalition government since the literature largely explains that coalition governments work badly. This article not only provides its causes, but also explains what measures, if taken, can improve the performance of the current government.

First, decision-making in coalition governments is always slow since every major political initiative requires the approval of coalition partners.

This is also the reason why Prime Minister Shehbaz Sharif took many days to finalize his cabinet list. This type of policy delays performance.

Second, there is a conflict of political goals, known as political divergence, between coalition partners since each party pursues a different ideology and constituency.

For example, PPP pursues left-wing policies, PML-N pursues right-wing policies, and JUI pursues centrist Islamist political goals. Likewise, their constituents also have different political preferences.

To overcome this problem, a consensus on policy objectives is needed within the current government, which directs policies without too much delay. It will also give political signals to investors and the IMF, thus facilitating the work of the Ministry of Finance.

Otherwise, they may perceive the coalition to be an unstable government with no clear political preferences.

In this political dialogue and consensus, the exchange rate and fiscal policies must take priority because both need stability.

The available literature also shows that coalition governments spend more than single-party governments since each partner in government aims to spend more on their constituency in order to maintain public support.

Additionally, political business cycle theory predicts that governments spend more before elections to win votes. If the budget deficit increases in the current government, it dims Pakistan’s economic prospects.

Third, responsibility and reward among coalition members are shared. If a coalition government works badly, you don’t know which party to blame, and when the government works better, everyone tries to take credit for it.

It discourages the team members from showing outstanding performance as they realize that when the reward is shared why they have to work harder than others.

This obstacle can be overcome if there is a consensus that each party in the coalition will only take responsibility for the ministries assigned to it and will not interfere in the affairs of other ministries. In this situation, each ministry will report its performance and voters can rate the parties accordingly.

However, this status quo is difficult to maintain as all government departments are interdependent. They mostly rely on the Ministry of Finance for funds and each ministry will try to get more funds to spend more and perform better.

Fourth, coalition partners are potential opponents of each other in every election. Thus, they are incentivized to opt for such policies which provide them with benefits only to the detriment of their competitors.

This incitement can weaken the coalition and is a real test for the current government on how to deal with it.

In the current government, the Prime Minister, the Minister of Finance and the Minister of the Interior come from the PML-N. Thus, PML-N leads the coalition and has more power and responsibility to show better performance.

Therefore, it is PML-N’s job to keep the coalition intact and not let its partners pursue these inducements that seriously undermine government performance.

India offers a unique example where coalition governments during the period 1990-2014 performed better. One of its causes was consensus-based government and the second was that the main political party had more power and responsibility to take political initiatives and lead the government than the others.

If the same situation persists in the current coalition in Pakistan, it can also show good economic performance.

However, given the almost equal bargaining power of the PML-N and the PPP within the coalition and the potential rivalry between them, it is difficult to show any Indian example in Pakistan.

The author is a researcher at the PRIME think tank and a PhD student at Brunel University in London.

Published in The Express Tribune, May 2n/a2022.

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