Reform Capacity

Reform capacity—the ability of political decision-makers to adopt and implement policy changes that benefit society as a whole—can be achieved in two different ways. One method is to build institutions that concentrate power, enabling governments to ignore losers from reform. The other method, which governments rely more on in systems where power is shared, is to build institutions that enable governments to compensate losers from reform. The book discusses numerous empirical examples of how governments have built support for reforms by compensating losers. These examples are drawn from several different policy areas, including trade and labor market policy, fiscal policy, social policy, and tax and economic policy. If political decision-makers in power-sharing democracies are able to solve the bargaining problems that can sometimes complicate negotiations between winners and losers, power-sharing systems have certain advantages over power-concentration systems. Power sharing can lead to high reform capacity in societies where interest groups are powerful enough to block reforms. Power sharing can also lead to high reform capacity when reforms have short-term costs and long-term benefits, since it helps to correct some of the short-sightedness inherent in democratic policymaking.