The previous chapter provided a new theoretical framework to explain cross-national variation in national economic performance. Unlike previous explanations that emphasize the importance of getting policies “right,” having leaders with strong “political will,” or protecting leaders from special interests, my argument takes an almost opposite tack. Rather than powerful governments capable of imposing the right policies, what the developing world needs, I argue, are institutions that promote policy moderation by dispersing policymaking authority to multiple actors, each accountable to different constituencies. In this sense, what I am calling for is “more democracy,” even “too much democracy” (if such a thing can be even said to exist). The more voices that have to be heard before policy can be made, the harder it is for governments to make unilateral and arbitrary policy shifts, which in turn bolsters investors' confidence about the content and stability of future policy. This counter-intuitive argument comes with one condition: it is important that the actors to whom policy is dispersed have an incentive to cooperate with each other when absolutely necessary (e.g., in response to crisis). Therefore, I argued above that coalition or minority parliamentary democracies should fare best, but that the oppositional framework of divided presidential systems might lead to “gridlock” rather than “moderation” and therefore to less desirable outcomes.

This chapter is the first of four empirical chapters in which I shall try to convince the reader of the empirical utility of this explanatory framework.