Deregulation

From Wikipedia, the free encyclopedia

Deregulation is the process of removing or reducing state regulations, typically in the economic sphere. It is the repeal of governmental regulation of the economy. It became common in advanced industrial economies in the 1970s and 1980s, as a result of new trends in economic thinking about the inefficiencies of government regulation, and the risk that regulatory agencies would be controlled by the regulated industry to its benefit, and thereby hurt consumers and the wider economy.

Economic regulations were promoted during the Gilded Age, in which progressive reforms were touted as necessary to limit externalities like corporate abuse, unsafe child labor, monopolization, pollution, and to mitigate boom and bust cycles. Around the late 1970s, such reforms were deemed as burdensome on economic growth and many politicians espousing neoliberalism started promoting deregulation.

Overview

As a result of deregulation, Orange operates phone booths in Wellington, New Zealand.

 

The stated rationale for deregulation is often that fewer and simpler regulations will lead to raised levels of competitiveness, therefore higher productivity, more efficiency and lower prices overall. Opposition to deregulation may usually involve apprehension regarding environmental pollution and environmental quality standards (such as the removal of regulations on hazardous materials), financial uncertainty, and constraining monopolies. 

Regulatory reform is a parallel development alongside deregulation. Regulatory reform refers to organized and ongoing programs to review regulations with a view to minimizing, simplifying, and making them more cost effective. Such efforts, given impetus by the Regulatory Flexibility Act of 1980, are embodied in the United States Office of Management and Budget's Office of Information and Regulatory Affairs, and the United Kingdom's Better Regulation Commission. Cost–benefit analysis is frequently used in such reviews. In addition, there have been regulatory innovations, usually suggested by economists, such as emissions trading.

Deregulation can be distinguished from privatization, where privatization can be seen as taking state-owned service providers into the private sector.

By country

Argentina

Argentina underwent heavy economic deregulation, privatization, and had a fixed exchange rate during the Menem administration (1989–1999). In December 2001, Paul Krugman compared Enron with Argentina, claiming that both were experiencing economic collapse due to excessive deregulation. Two months later, Herbert Inhaber claimed that Krugman confused correlation with causation, and neither collapse was due to excessive deregulation.

Australia

Having announced a wide range of deregulatory policies, Labor Prime Minister Bob Hawke announced the policy of "Minimum Effective Regulation" in 1986. This introduced now familiar requirements for "regulatory impact statements", but compliance by governmental agencies took many years. The labour market under the Hawke/Keating Labor governments operated under an accord. John Howard's Liberal Party of Australia in 1996 began deregulation of the labor market, subsequently taken much further in 2005 through their WorkChoices policy. However, it was reversed under the following Rudd Labor government.

Canada

Natural gas is deregulated in most of the country, with the exception of some Atlantic provinces and some pockets like Vancouver Island and Medicine Hat. Most of this deregulation happened in the mid-1980s. There is price comparison service operating in some of these jurisdictions, particularly Ontario, Alberta and BC. The other provinces are small markets and have not attracted suppliers. Customers have the choice of purchasing from a local distribution company (LDC) or a deregulated supplier. In most provinces the LDC is not allowed to offer a term contract, just a variable price based on the spot market. LDC prices are changed either monthly or quarterly. 

The province of Ontario began deregulation of electricity supply in 2002, but pulled back temporarily due to voter and consumer backlash at the resulting price volatility. The government is still searching for a stable working regulatory framework. 

The current status is a partially regulated structure in which consumers have received a capped price for a portion of the publicly owned generation. The remainder of the price has been market price based and there are numerous competitive energy contract providers. However, Ontario is installing Smart Meters in all homes and small businesses and is changing the pricing structure to Time of Use pricing. All small volume consumers are to be shifted to the new rate structure by the end of 2012. There is price comparison service operating in these jurisdictions. 

The province of Alberta has deregulated their electricity provision. Customers are free to choose which company they sign up with, but there are few companies to choose from and the price of electricity has increased substantially for consumers because the market is too small to support competition. If they choose they may remain with the utility at the Regulated Rate Option.

Former Premier Ralph Klein based the entire deregulation scheme on the Enron model, and continued with it even after the highly publicized and disastrous California electricity crisis (and the collapse of Enron because of illegal accounting practices.)

European Union

• 2003 Corrections to EU directive about software patents
• Deregulation of the air industry in Europe in 1992 gave carriers from one EU country the right to operate scheduled services between other EU states.

Ireland

The taxi industry was deregulated in Ireland leading to an influx of new taxis. This was due to the price of a license dropping overnight. The number of taxis increased dramatically.

United Kingdom

The Conservative government led by Margaret Thatcher started a programme of deregulation and privatisation after their victory at the 1979 general election. These included express coach (Transport Act 1980), British Telecom (completed in 1984), privatisation of London bus services (1984), local bus services (Transport Act 1985) and the railways (1993). The feature of all those privatizations was that their shares were offered to the general public. 

From 1997-2010, the Labour governments of Tony Blair and Gordon Brown developed a program of what they called "better regulation". This included a general program for government departments to review, simplify or abolish their existing regulations, and a "one in, one out" approach to new regulations. In 1997, Chancellor Brown announced the "freeing" of the Bank of England to set monetary policy. They freed the Bank of England from direct government control and removed the power by the Bank of England (and therefore by the government) from controlling the financial activities of banks in the UK. In 2006, new primary legislation (the Legislative and Regulatory Reform Act 2006) was introduced to establish statutory principles and a code of practice and it permits ministers to make Regulatory Reform Orders (RROs) to deal with older laws which they deem to be out of date, obscure or irrelevant. This act has often been criticized and called "The abolition of Parliament Act".

New Labour did not privatize many publicly owned services because most had already been privatised by the previous Conservative government. However, some government-owned businesses such as Qinetiq were privatized. But a great deal of infrastructure and maintenance work previously carried out by government departments was contracted out (out-sourced) to private enterprise under the public–private partnership, with competitive bidding for contracts within a regulatory framework. This included large projects such as building new hospitals for the NHS, building new state schools, and maintaining the London Underground. These privatizations were never offered to the general public to buy shares, instead being offered to commercial companies only.

New Zealand

Since the deregulation of the postal sector, different postal operators can install mail collection boxes in New Zealand's streets.

New Zealand Governments adopted policies of extensive deregulation from 1984 to 1995. Originally initiated by the Fourth Labour Government of New Zealand, the policies of deregulation were later continued by the Fourth National Government of New Zealand. The policies had the goal of liberalising the economy and were notable for their very comprehensive coverage and innovations. Specific policies included: floating the exchange rate; establishing an independent reserve bank; performance contracts for senior civil servants; public sector finance reform based on accrual accounting; tax neutrality; subsidy-free agriculture; and industry-neutral competition regulation. Economic growth was resumed in 1991. New Zealand was changed from a somewhat closed and centrally controlled economy to one of the most open economies in the OECD. As a result, New Zealand, went from having a reputation as an almost socialist country to being considered one of the most business-friendly countries of the world, next to Singapore. However, critics charge that the deregulation has brought little benefit to some sections of society, and has caused much of New Zealand's economy (including almost all of the banks) to become foreign-owned.

Russia

Russia went through wide-ranging deregulation (and concomitant privatization) efforts in the late 1990s under Boris Yeltsin, now partially reversed under Vladimir Putin. The main thrust of deregulation has been the electricity sector (see RAO UES), with railroads and communal utilities tied in second place. Deregulation of the natural gas sector (Gazprom) is one of the more frequent demands placed upon Russia by the United States and European Union.

United States

History of regulation

One problem that encouraged deregulation was the way in which the regulated industries often controlled the government regulatory agencies, using them to serve the industries' interests. Even where regulatory bodies started out functioning independently, a process known as regulatory capture often saw industry interests come to dominate those of the consumer. A similar pattern has been observed with the deregulation process itself, often effectively controlled by the regulated industries through lobbying the legislative process. Such political forces, however, exist in many other forms for other special interest groups. Some of the examples of deregulation in the United States in the setting of industries are banking, telecommunications, airlines, and natural resources.

During the Progressive Era (1890s–1920), Presidents Theodore Roosevelt, William Howard Taft, and Woodrow Wilson instituted regulation on parts of the American economy, most notably in regulating big business and industry. Some of their most prominent reforms are trust-busting (the destruction and banning of monopolies), the creation of laws protecting the American consumer, the creation of a federal income tax (by the Sixteenth Amendment; the income tax used a progressive tax structure with especially high taxes on the wealthy), the establishment of the Federal Reserve, and the institution of shorter working hours, higher wages, better living conditions, better rights and privileges to trade unions, protection of rights of strikers, banning of unfair labor practices, and the delivery of more social services to the working classes and social safety nets to many unemployed workers, thus helping to facilitate the creation of a welfare state in the United States and eventually in most developed countries.

During the Presidencies of Warren Harding (1921–23) and Calvin Coolidge (1923–29), the federal government generally pursued laissez-faire economic policies. After the onset of the Great Depression, President Franklin D. Roosevelt implemented many economic regulations, including the National Industrial Recovery Act (which was struck down by the Supreme Court), regulation of trucking, airlines and the communications industry, the institution of the Securities Exchange Act of 1934, and the Glass–Steagall Act, which was passed in 1933. These 1930s regulations stayed largely in place until Richard Nixon's Administration. In supporting his competition-limiting regulatory initiatives President Roosevelt blamed the excesses of big business for causing an economic bubble. However, historians lack consensus in describing the causal relationship between various events and the role of government economic policy in causing or ameliorating the Depression.

Deregulation 1970–2000

Deregulation gained momentum in the 1970s, influenced by research by the Chicago school of economics and the theories of George Stigler and others. The new ideas were widely embraced by both liberals and conservatives. Two leading 'think tanks' in Washington, the Brookings Institution and the American Enterprise Institute, were active in holding seminars and publishing studies advocating deregulatory initiatives throughout the 1970s and 1980s. Cornell economist Alfred E. Kahn played a central role in both theorizing and participating in the Carter Administration's efforts to deregulate transportation.

Transportation

The first comprehensive proposal to deregulate a major industry in the United States, transportation, originated in the Richard Nixon Administration and was forwarded to Congress in late 1971. This proposal was initiated and developed by an interagency group that included the Council of Economic Advisors (represented by Hendrik Houthakker and Thomas Gale Moore), White House Office of Consumer Affairs (represented by Jack Pearce), Department of Justice, Department of Transportation, Department of Labor, and other agencies.

The proposal addressed both rail and truck transportation, but not air carriage. (92d Congress, Senate Bill 2842) The developers of this legislation in this Administration sought to cultivate support from commercial buyers of transportation services, consumer organizations, economists, and environmental organization leaders. This 'civil society' coalition became a template for coalitions influential in efforts to deregulate trucking and air transport later in the decade. 

After Nixon left office, the Gerald Ford presidency, with the allied interests, secured passage of the first significant change in regulatory policy in a pro-competitive direction, in the Railroad Revitalization and Regulatory Reform Act of 1976. President Jimmy Carter devoted substantial effort to transportation deregulation, and worked with Congressional and civil society leaders to pass the Airline Deregulation Act (October 24, 1978), Staggers Rail Act (signed October 14, 1980), and the Motor Carrier Act of 1980 (signed July 1, 1980). 

These were the major deregulation acts in transportation that set the general conceptual and legislative framework, which replaced the regulatory systems put in place between the 1880s and the 1930s. The dominant common theme of these Acts was to lessen barriers to entry in transport markets and promote more independent, competitive pricing among transport service providers, substituting the freed-up competitive market forces for detailed regulatory control of entry, exit, and price making in transport markets. Thus deregulation arose, though regulations to promote competition were put in place. 

U.S. President Ronald Reagan campaigned on the promise of rolling back environmental regulations. His devotion to the economic beliefs of Milton Friedman led him to promote the deregulation of finance, agriculture, and transportation. A series of substantial enactments were needed to work out the process of encouraging competition in transportation. Interstate buses were addressed in 1982, in the Bus Regulatory Reform Act of 1982. Freight forwarders (freight aggregators) got more freedoms in the Surface Freight Forwarder Deregulation Act of 1986. As many states continued to regulate the operations of motor carriers within their own state, the intrastate aspect of the trucking and bus industries was addressed in the Federal Aviation Administration Authorization Act of 1994, which provided that "a State, political subdivision of a State, or political authority of two or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier." 49 U.S.C. § 14501(c)(1) (Supp. V 1999).

Ocean transportation was the last to be addressed. This was done in two acts, the Ocean Shipping Act of 1984 and the Ocean Shipping Reform Act of 1998. These acts were less thoroughgoing than the legislation dealing with U.S. domestic transportation, in that they left in place the "conference" system in international ocean liner shipping, which historically embodied cartel mechanisms. However, these acts permitted independent rate-making by conference participants, and the 1998 Act permitted secret contract rates, which tend to undercut collective carrier pricing. According to the United States Federal Maritime Commission, in an assessment in 2001, this appears to have opened up substantial competitive activity in ocean shipping, with beneficial economic results.

The Airline Deregulation Act is an example of a deregulatory act whose success has been questioned. Since deregulation, real prices for air travel has fallen by more than half, and travelers have more options; but there have been questions about disruptions, employee pensions and the lack of small city service.

Energy

The Emergency Petroleum Allocation Act was a regulating law, consisting of a mix of regulations and deregulation, which passed in response to OPEC price hikes and domestic price controls which affected the 1973 oil crisis in the United States. After adoption of this federal legislation, numerous state legislation known as Natural Gas Choice programs have sprung up in several states, as well as the District of Columbia. Natural Gas Choice programs allow residential and small volume natural gas users to compare purchases from natural gas suppliers with traditional utility companies. There are currently hundreds of federally unregulated natural gas suppliers operating in the US. Regulation characteristics of Natural Gas Choice programs vary between the laws of the currently adoptive 21 states (as of 2008).

Deregulation of the electricity sector in the U.S. began in 1992. The Energy Policy Act of 1992 eliminated obstacles for wholesale electricity competition, but deregulation has yet to be introduced in all states. As of April 2014, 16 U.S. states (Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts, Michigan, Montana, New Hampshire, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, and Texas) and the District of Columbia have introduced deregulated electricity markets to consumers in some capacity. Additionally, seven states (Arizona, Arkansas, California, Nevada, New Mexico, Virginia, and Wyoming) began the process of electricity deregulation in some capacity but have since suspended deregulation efforts.

Communications

Deregulation was put into effect in the communications industry by the government at the start of the Multi-Channel Transition era. This deregulation put into place a division of labor between the studios and the networks. Communications in the United States (and internationally) are areas in which both technology and regulatory policy have been in flux. The rapid development of computer and communications technology – particularly the Internet – have increased the size and variety of communications offerings. Wireless, traditional landline telephone, and cable companies increasingly invade each other's traditional markets and compete across a broad spectrum of activities. The Federal Communications Commission and Congress appear to be attempting to facilitate this evolution. In mainstream economic thinking, development of this competition would militate against detailed regulatory control of prices and service offerings, and hence favor deregulation of prices and entry into markets. On the other hand, there exists substantial concern about concentration of media ownership resulting from relaxation of historic controls on media ownership designed to safeguard diversity of viewpoint and open discussion in the society, and about what some perceive as high prices in cable company offerings at this point.

Finance

The financial sector in the U.S. has evolved a great deal in recent decades, during which there have been some regulatory changes and the creation of new financial products such as the securitization of loan obligations of various sorts and credit default swaps. Among the most important of the regulatory changes was the Depository Institutions Deregulation and Monetary Control Act in 1980, which repealed the parts of the Glass–Steagall Act regarding interest rate regulation via retail banking. The Financial Services Modernization Act of 1999 repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.

Related legislation

• 1976 – Hart-Scott-Rodino Antitrust Improvements Act PL 94-435
• 1977 – Emergency Natural Gas Act PL 95-2
• 1978 – Airline Deregulation Act PL 95-50
• 1978 – National Gas Policy Act PL 95-621
• 1980 – Depository Institutions Deregulation and Monetary Control Act PL 96-221
• 1980 – Motor Carrier Act PL 96-296
• 1980 – Regulatory Flexibility Act PL 96-354
• 1980 – Staggers Rail Act PL 96-448
• 1982 – Garn–St. Germain Depository Institutions Act PL 97-320
• 1982 – Bus Regulatory Reform Act PL 97-261
• 1989 – Natural Gas Wellhead Decontrol Act PL 101-60
• 1992 – National Energy Policy Act PL 102-486
• 1996 – Telecommunications Act PL 104-104
• 1999 – Gramm-Leach-Bliley Act PL 106-102

Controversy

The deregulation movement of the late 20th century had substantial economic effects and engendered substantial controversy. As preceding sections of this article indicate, the movement was based on intellectual perspectives which prescribed substantial scope for market forces, and opposing perspectives have been in play in national and international discourse.

The movement toward greater reliance on market forces has been closely related to the growth of economic and institutional globalization between about 1950 and 2010.

Critics of economic liberalization and deregulation cite the benefits of regulation, and believe that certain regulations do not distort markets and allows companies to continue to be competitive, or according to some, grow in competition. Much as the state plays an important role through issues such as property rights, appropriate regulation is argued by some to be "crucial to realize the benefits of service liberalization".

Critics of deregulation often cite the need of regulation in order to:

• create a level playing field and ensure competition (e.g., by ensuring new energy providers have competitive access to the national grid);
• maintain quality standards for services (e.g., by specifying qualification requirements for service providers);
• protect consumers (e.g. from fraud);
• ensure sufficient provision of information (e.g., about the features of competing services);
• prevent environmental degradation (e.g., arising from high levels of tourist development);
• guarantee wide access to services (e.g., ensuring poorer areas where profit margins are lower are also provided with electricity and health services); and,
• prevent financial instability and protect consumer savings from excessive risk-taking by financial institutions.

For deregulation

Many economists have concluded that a trend towards deregulation will increase economic welfare long-term and a sustainable free market system. Regarding the electricity market, contemporary academic Adam Thierer, "The first step toward creating a free market in electricity is to repeal the federal statutes and regulations that hinder electricity competition and consumer choice." This viewpoint stretches back centuries. Perhaps the most famous economist of all, Adam Smith, argued the benefits of deregulation in his seminal work, The Wealth of Nations:

[Without trade restrictions] the obvious and simple system of natural liberty establishes itself of its own accord. Every man...is left perfectly free to pursue his own interest in his own way.... The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.

Scholars who theorize that deregulation is beneficial to society often cite what is known as the Iron Law of Regulation, which states that all regulation eventually leads to a net loss in social welfare.

Against deregulation

Sharon Beder, a writer with PR Watch, wrote "Electricity deregulation was supposed to bring cheaper electricity prices and more choice of suppliers to householders. Instead it has brought wildly volatile wholesale prices and undermined the reliability of the electricity supply."

William K. Black claims that inappropriate deregulation helped create a criminogenic environment in the savings and loan industry, which attracted opportunistic control frauds like Charles Keating, whose massive political campaign contributions were used successfully to further remove regulatory oversight. The combination substantially delayed effective governmental action, thereby substantially increasing the losses when the fraudulent Ponzi schemes finally collapsed and were exposed. After the collapse, regulators in the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS) were finally allowed to file thousands of criminal complaints that led to over a thousand felony convictions of key Savings and Loan insiders. By contrast, between 2007 and 2010, the OCC and OTS combined made zero criminal referrals; Black concluded that elite financial fraud has effectively been decriminalized.

Economist Jayati Ghosh is of the opinion that deregulation is responsible for increasing price volatility on the commodity market. This particularly affects people and economies in developing countries. More and more homogenization of financial institution which may also be a result of deregulation turns out to be a major concern for small-scale producers in those countries.

Democratization

From Wikipedia, the free encyclopedia

Democratization (or democratisation) is the transition to a more democratic political regime, including substantive political changes moving in a democratic direction. It may be the transition from an authoritarian regime to a full democracy, a transition from an authoritarian political system to a semi-democracy or transition from a semi-authoritarian political system to a democratic political system. The outcome may be consolidated (as it was for example in the United Kingdom) or democratization may face frequent reversals (as it has faced for example in Venezuela). Different patterns of democratization are often used to explain other political phenomena, such as whether a country goes to a war or whether its economy grows. Democratization itself is influenced by various factors, including economic development, history, and civil society. The ideal result from democratization is to ensure that the people have the right to vote and have a voice in their political system.

Causes

There is considerable debate about the factors which affect or ultimately limit democratization. A great many things, including economics, culture, and history, have been cited as impacting on the process. Some of the more frequently mentioned factors are:

• Wealth. A higher GDP/capita correlates with democracy and some claim the wealthiest democracies have never been observed to fall into authoritarianism. The rise of Hitler and of the Nazis in Weimar Germany can be seen as an obvious counter-example, but although in early 1930s Germany was already an advanced economy, by that time, the country was also living in a state of economic crisis virtually since the first World War (in the 1910s), a crisis which was eventually worsened by the effects of the Great Depression. There is also the general observation that democracy was very rare before the industrial revolution. Empirical research thus lead many to believe that economic development either increases chances for a transition to democracy (modernization theory), or helps newly established democracies consolidate. One study finds that economic development prompts democratization but only in the medium run (10–20 years). This is because development may entrench the incumbent leader but make it more difficult for him deliver the state to a son or trusted aide when he exits. However, the debate about whether democracy is a consequence of wealth, a cause of it, or both processes are unrelated, is far from conclusive. Another study suggests that economic development depends on the political stability of a country to promote democracy. Clark, Robert and Golder, in their reformulation of Albert Hirschman's model of Exit, Voice and Loyalty, explain how it is not the increase of wealth in a country per se which influences a democratization process, but rather the changes in the socio-economic structures that come together with the increase of wealth. They explain how these structure changes have been called out to be one of the main reasons several European countries became democratic. When their socioeconomic structures shifted because modernization made the agriculture sector more efficient, bigger investments of time and resources were used for the manufacture and service sectors. In England, for example, members of the gentry began investing more on commercial activities that allowed them to become economically more important for the state. This new kind of productive activities came with new economic power were assets became more difficult for the state to count and hence more difficult to tax. Because of this, predation was no longer possible and the state had to negotiate with the new economic elites to extract revenue. A sustainable bargain had to be reached because the state became more dependent of its citizens remaining loyal and, with this, citizens had now leverage to be taken into account in the decision making process for the country.

• Social equality. Acemoglu and Robinson argued that the relationship between social equality and democratic transition is complicated: People have less incentive to revolt in an egalitarian society (for example, Singapore), so the likelihood of democratization is lower. In a highly unequal society (for example, South Africa under Apartheid), the redistribution of wealth and power in a democracy would be so harmful to elites that these would do everything to prevent democratization. Democratization is more likely to emerge somewhere in the middle, in the countries, whose elites offer concessions because (1) they consider the threat of a revolution credible and (2) the cost of the concessions is not too high. This expectation is in line with the empirical research showing that democracy is more stable in egalitarian societies.

• Culture. It is claimed by some that certain cultures are simply more conductive to democratic values than others. This view is likely to be ethnocentric. Typically, it is Western culture which is cited as "best suited" to democracy, with other cultures portrayed as containing values which make democracy difficult or undesirable. This argument is sometimes used by undemocratic regimes to justify their failure to implement democratic reforms. Today, however, there are many non-Western democracies. Examples include: India, Japan, Indonesia, Namibia, Botswana, Taiwan, and South Korea. Research finds that "Western-educated leaders significantly and substantively improve a country's democratization prospects".

• Social Capital. Robert Putnam argues that certain characteristics make societies more likely to have cultures of civic engagement that lead to more participatory democracies. Putnam argues that communities with denser horizontal networks of civic association are able to better build the "norms of trust, reciprocity, and civic engagement" that lead to democratization and well-functioning participatory democracies. Putnam contrasts communities with dense horizontal networks, to communities built around vertical networks and patron-client relations which he asserts are unlikely to build the culture of civic engagement necessary for democratization.

• Dictatorship type. The three dictatorship types, monarchy, civilian and military have different approaches to democratization as a result of their individual goals. Monarchic and civilian dictatorships seek to remain in power indefinitely through hereditary rule in the case of monarchs or through oppression in the case of civilian dictators. A military dictatorship seizes power to act as a caretaker government to replace what they consider a flawed civilian government. Military dictatorships are more likely to transition to democracy because at the onset, they are meant to be stop-gap solutions while a new acceptable government forms.

• Scrambled Constituencies. Mancur Olson theorizes that the process of democratization occurs when elites are unable to reconstitute an autocracy. Olson suggests that this occurs when constituencies or identity groups are mixed within a geographic region. He asserts that this mixed geographic constituencies requires elites to for democratic and representative institutions to control the region, and to limit the power of competing elite groups.

• Education. It has long been theorized that education promotes stable and democratic societies. Research shows that education leads to greater political tolerance, increases the likelihood of political participation and reduces inequality. One study finds "that increases in levels of education improve levels of democracy and that the democratizing effect of education is more intense in poor countries".

• Urbanization. There is research to suggest that greater urbanization, through various pathways, contributes to democratization.

• Natural Resources. University of California, Berkeley political scientist Thad Dunning proposes a plausible explanation for Ecuador’s return to democracy that contradicts the conventional wisdom that natural resource rents encourage authoritarian governments. Dunning proposes that there are situations where natural resource rents, such as those acquired through oil, reduce the risk of distributive or social policies to the elite because the state has other sources of revenue to finance this kind of policies that is not the elite wealth or income. And in countries plagued with high inequality, which was the case of Ecuador in the 1970s, the result would be a higher likelihood of democratization. In 1972, the military coup had overthrown the government in large part because of the fears of elites that redistribution would take place. That same year oil became an increasing financial source for the country. Although the rents were used to finance the military, the eventual second oil boom of 1979 ran parallel to the country’s re-democratization. Ecuador’s re-democratization can then be attributed, as argued by Dunning, to the large increase of oil rents, which enabled not only a surge in public spending but placated the fears of redistribution that had grappled the elite circles. The exploitation of Ecuador’s resource rent enabled the government to implement price and wage policies that benefited citizens at no cost to the elite and allowed for a smooth transition and growth of democratic institutions.

• Foreign trade. A 2016 study found that preferential trade agreements "encourage the democratization of a country, in particular if the PTA partners are themselves democracies."

• Democracy protests. Research indicates that democracy protests are associated with democratization. A 2016 study found that about a quarter of all cases of democracy protests between 1989-2011 lead to democratization.

• Threat of civil conflict. Research suggests that the threat of civil conflict encourages regimes to make democratic concessions. A 2016 study found that drought-induced riots in Sub-Saharan Africa lead regimes, fearing conflict, to make democratic concessions.

• Overthrow of dictators. Rebels may overthrow their dictators with the aim of establishing a democratic government, but this method is rarely successful. The death of a dictator rarely ushers in democracy. One analysis found that "of the 79 dictators who have died in office (1946-2014)... in the vast majority (92%) of cases, the regime persists after the autocrat's death."

• International cooperation. A 2002 study found that membership in international organizations "is correlated with transitions to democracy during the period from 1950 to 1992."

• Foreign intervention. Democracies have often been imposed by military intervention, for example in Japan and Germany after WWII.^[ In other cases, decolonization sometimes facilitated the establishment of democracies that were soon replaced by authoritarian regimes. For example, Syria, after gaining independence from French mandatory control at the beginning of the Cold War, failed to consolidate its democracy, so it eventually collapsed and was replaced by a Ba'athist dictatorship. In general, most attempts to establish democracy by military means have failed.

• War-making. Jeffrey Herbst, in its acclaimed paper "War and the state in Africa", explains how democratization in European states was achieved through war making and how it is a cause of state formation missing in Africa today. He exemplifies how war caused the state to become more efficient in revenue collection, it forced leaders to improve administrative capabilities; and created and environment where populations could develop a sense of unification. European states where under constant threat of being invaded and bursting into war with their neighboring countries. This demand to be constantly vigilant enabled the development of effective revenue collection systems and, those states that did not raise sufficient revenue for war perished. War also created a common and powerful association between the state and its people, given that citizens felt threatened as a nation and, it was only as a nation that they would thrive. Fighting wars made people feel more associated with the state.

• Peace and security. Wars may contribute to the state building that precedes a transition to democracy, but war is also a serious obstacle to democratization. While adherents of the democratic peace theory believe that democracy comes before peace, historical evidence shows the opposite. In almost all cases, peace has come before democracy. There is little support for the hypothesis that democracy causes peace, but strong evidence for the opposite hypothesis that peace leads to democracy. Christian Welzel's human empowerment theory posits that existential security leads to emancipative cultural values and support for a democratic political organization. This is in agreement with theories based on evolutionary psychology. The so-called regality theory finds that people develop a psychological preference for a strong leader and an authoritarian form of government in situations of war or perceived collective danger. On the other hand, people will support egalitarian values and a preference for democracy in situations of peace and safety. The consequence of this is that a society will develop in the direction of autocracy and an authoritarian government when people perceive collective danger, while the development in the democratic direction requires collective safety. This explains why almost all attempts to establish democracy by violent means have failed

Transitions

Democracy development has often been slow, violent, and marked by frequent reversals.

Historical cases

In Great Britain, there was renewed interest in Magna Carta in the 17th century. The Parliament of England enacted the Petition of Right in 1628 which established certain liberties for subjects. The English Civil War (1642–1651) was fought between the King and an oligarchic but elected Parliament, during which the idea of a political party took form with groups debating rights to political representation during the Putney Debates of 1647. (DJS -- incomprehensible sentence.) Subsequently, the Protectorate (1653-59) and the English Restoration (1660) restored more autocratic rule although Parliament passed the Habeas Corpus Act in 1679, which strengthened the convention that forbade detention lacking sufficient cause or evidence. The Glorious Revolution in 1688 established a strong Parliament that passed the Bill of Rights 1689, which codified certain rights and liberties for individuals. It set out the requirement for regular parliaments, free elections, rules for freedom of speech in Parliament and limited the power of the monarch, ensuring that, unlike much of the rest of Europe, royal absolutism would not prevail. Only with the Representation of the People Act 1884 did a majority of the males get the vote. 

The American Revolution (1765–1783) created the United States. The new Constitution established a relatively strong federal national government that included an executive, a national judiciary, and a bicameral Congress that represented states in the Senate and the population in the House of Representatives. In many fields, it was a success ideologically in the sense that a relatively true republic was established that never had a single dictator, but voting rights were initially restricted to white male property owners (about 6% of the population). Slavery was not abolished in the southern states until the constitutional Amendments of the Reconstruction Era following the American Civil War (1861–1865) and the Civil Rights given to African-Americans were only achieved in the 1960s.

The French Revolution (1789) briefly allowed a wide franchise. The French Revolutionary Wars and the Napoleonic Wars lasted for more than twenty years. The French Directory was more oligarchic. The First French Empire and the Bourbon Restoration restored more autocratic rule. The Second French Republic had universal male suffrage but was followed by the Second French Empire. The Franco-Prussian War (1870–71) resulted in the French Third Republic.

The German Empire was created in 1871. It was followed by the Weimar Republic after World War I. Nazi Germany restored autocratic rule before the defeat in World War II.

The Kingdom of Italy, after the unification of Italy in 1861, was a constitutional monarchy with the King having considerable powers. Italian fascism created a dictatorship after the World War I. World War II resulted in the Italian Republic. 

The Meiji period, after 1868, started the modernization of Japan. Limited democratic reforms were introduced. The Taishō period (1912–1926) saw more reforms. The beginning of the Shōwa period reversed this until the end of World War II.

Since 1972

According to a study by Freedom House, in 67 countries where dictatorships have fallen since 1972, nonviolent civic resistance was a strong influence over 70 percent of the time. In these transitions, changes were catalyzed not through foreign invasion, and only rarely through armed revolt or voluntary elite-driven reforms, but overwhelmingly by democratic civil society organizations utilizing nonviolent action and other forms of civil resistance, such as strikes, boycotts, civil disobedience, and mass protests.

Indicators

One influential survey in democratization is that of Freedom House, which arose during the Cold War. Freedom House, today an institution and a think tank, produces one of the most comprehensive "freedom measures" nationally and internationally and by extension a measure of democratization. Freedom House categorizes all countries of the world according to a seven-point value system with over 200 questions on the survey and multiple survey representatives in various parts of every nation. The total raw points of every country places the country in one of three categories: Free, Partly Free, or not Free. 

One study simultaneously examining the relationship between market economy (measured with one Index of Economic Freedom), economic development (measured with GDP/capita), and political freedom (measured with the Freedom House index) found that high economic freedom increases GDP/capita and a high GDP/capita increases economic freedom. A high GDP/capita also increases political freedom but political freedom did not increase GDP/capita. There was no direct relationship either way between economic freedom and political freedom if keeping GDP/capita constant.

Views

Francis Fukuyama wrote another classic in democratization studies entitled The End of History and the Last Man which spoke of the rise of liberal democracy as the final form of human government. However it has been argued that the expansion of liberal economic reforms has had mixed effects on democratization. In many ways, it is argued, democratic institutions have been constrained or "disciplined" in order to satisfy international capital markets or to facilitate the global flow of trade.

Samuel P. Huntington wrote The Third Wave, partly as response to Fukuyama, defining a global democratization trend in the world post WWII. Huntington defined three waves of democratization that have taken place in history. The first one brought democracy to Western Europe and Northern America in the 19th century. It was followed by a rise of dictatorships during the Interwar period. The second wave began after World War II, but lost steam between 1962 and the mid-1970s. The latest wave began in 1974 and is still ongoing. Democratization of Latin America and the former Eastern Bloc is part of this third wave. 

A very good example of a region which passed through all the three waves of democratization is the Middle East. During the 15th century it was a part of the Ottoman Empire. In the 19th century, "when the empire finally collapsed [...] towards the end of the First World War, the Western armies finally moved in and occupied the region". This was an act of both European expansion and state-building in order to democratize the region. However, what Posusney and Angrist argue is that, "the ethnic divisions [...] are [those that are] complicating the U.S. effort to democratize Iraq". This raises interesting questions about the role of combined foreign and domestic factors in the process of democratization. In addition, Edward Said labels as 'orientalist' the predominantly Western perception of "intrinsic incompatibility between democratic values and Islam". Moreover, he states that "the Middle East and North Africa lack the prerequisites of democratization".

Fareed Zakaria has examined the security interests benefited from democracy promotion, pointing out the link between levels of democracy in a country and of terrorist activity. Though it is accepted that poverty in the Muslim world has been a leading contributor to the rise of terrorism, Zakaria has noted that the primary terrorists involved in the 9/11 attacks were among the upper and upper-middle classes. Zakaria has suggested that the society in which Al-Qaeda terrorists lived provided easy money, and therefore there existed little incentive to modernize economically or politically. With little opportunity to express themselves in the political sphere, scores of young Arab men were "invited to participate" through another avenue: the culture of Islamic fundamentalism. The rise of Islamic fundamentalism and its violent expression on September 11, 2001 illustrates an inherent need to express oneself politically, and a democratic government or one with democratic aspects (such as political openness) is quite necessary to provide a forum for political expression.

Larry Pardy observed that governments are motivated by political power, which is generated by two factors: legitimacy and means. The legitimacy of a democratic government is achieved through the consent of the population through fair and open elections while its financial means are derived from a healthy tax base generated by a vibrant economy. Economic success is based on a free market economy with the following elements: property rights, a fair and independent judiciary, security, and the rule of law. The core elements that support economic freedom convey the same basic rights onto individuals. Conversely, there can be no rule of law for investors when governments crack down on political opponents and no property rights for industry when personal wealth can be arbitrarily seized.

According to Clark, Golder, and Golder, an application of Albert O. Hirschman's exit, voice, and loyalty model is that if individuals have plausible exit options, then a government may be more likely to democratize. James C. Scott argues that governments may find it difficult to claim a sovereignty over a population when that population is in motion. Scott additionally asserts that exit may not solely include physical exit from the territory of a coercive state, but can include a number of adaptive responses to coercion that make it more difficult for states to claim sovereignty over a population. These responses can include planting crops that are more difficult for states to count, or tending livestock that are more mobile. In fact, the entire political arrangement of a state is a result of individuals adapting to the environment, and making a choice as to whether or not to stay in a territory. If people are free to move, then the exit, voice, and loyalty model predicts that a state will have to be of that population representative, and appease the populous in order to prevent them from leaving. If individuals have plausible exit options then they are better able to constrain a government’s arbitrary behaviour through threat of exit. For instance, Alex Tabarrok argues that the reverse of this occurred in Ferguson, Missouri; those who could left the township, but ultimately the local government abused its power as people could not exit in part due to a string of excessive fines which forced them to stay.

A sustainable democracy has to involve far more than fair and open elections. It rests on a solid foundation of economic and political freedom that, for Western nations, had to be pried from governments over centuries. It goes back at least to 1215 when King John accepted limits on his powers and conceded certain rights in the Magna Carta. Then, as now, governments will be motivated to support rights and freedoms only when it directly impacts the government's ability to maintain and exercise political power. It does not arise with idealistic notions of democracy and freedom, implied fiscal contracts with citizens, exhortations from donor states or pronouncements from international agencies. Fukyama was essentially correct with his assertion regarding the end of history – that Western liberal democracy represents the endpoint of mankind's ideological evolution. It represents a mechanism whereby our free market system efficiently allocates resources in our economy while co-existing in a symbiotic relationship with our democratic system of government. Our governments are incentivized to protect the economy while the foundations for that economy create the conditions for democracy.

According to a study by political scientist Daniel Treisman, influential theories of democratization posit that autocrats "deliberately choose to share or surrender power. They do so to prevent revolution, motivate citizens to fight wars, incentivize governments to provide public goods, outbid elite rivals, or limit factional violence. Examining the history of all democratizations since 1800, I show that such deliberate choice arguments may help explain up to one third of cases. In about two thirds, democratization occurred not because incumbent elites chose it but because, in trying to prevent it, they made mistakes that weakened their hold on power. Common mistakes include: calling elections or starting military conflicts, only to lose them; ignoring popular unrest and being overthrown; initiating limited reforms that get out of hand; and selecting a covert democrat as leader. These mistakes reflect well-known cognitive biases such as overconfidence and the illusion of control."

In other contexts

Although democratization is most often thought of in the context of national or regional politics, the term can also be applied to:

International bodies

International bodies (e.g. the United Nations) where there is an ongoing call for reform and altered voting structures and voting systems.

Corporations

The concept of democratization can also be applied in corporations where the traditional power structure was top-down direction and the boss-knows-best (even a "Pointy-Haired Boss"); This is quite different from consultation, empowerment (of lower levels) and a diffusion of decision making (power) throughout the firm, as advocated by workplace democracy movements.

The Internet

The loose anarchistic structure of the Internet Engineering Task Force and the Internet itself have inspired some groups to call for more democratization of how domain names are held, upheld, and lost. They note that the Domain Name System under ICANN is the least democratic and most centralized part of the Internet, using a simple model of first-come-first-served to the names of things. Ralph Nader called this "corporatization of the dictionary."

Knowledge

The democratization of knowledge is the spread of knowledge among common people, in contrast to knowledge being controlled by elite groups.

Design

The trend that products from well-known designers are becoming cheaper and more available to masses of consumers. Also, the trend of companies sourcing design decisions from end users.