People feel more content with their governance if they feel that their economic circumstances are as comfortable as they could reasonably expect. Governments therefore have an incentive to try to ensure that the economy is healthy and that most people feel that they are receiving a fair share of the total wealth.
In a democracy, this incentive is very strong: it affects the likelihood of a leader being re-elected. Bill Clinton’s election in 1992 was widely attributed to his emphasis on the economy in that that campaign – but overall economic performance is not sufficient. CBS News on 15 January 2018, in a piece entitled Commentary: “It’s the economy, stupid” could be trumped, reported that voters don’t support the President if they feel that they are personally worse off or that the division of wealth is unfair. There are several factors that contribute to economic satisfaction:
- Personal disposable income to spend as consumers;
- Employment availability, working conditions and job satisfaction;
- Prices and availability of goods and services;
- Living conditions, including environmental factors and quality of basic services;
- A feeling of economic security, including employment prospects and benefitprovisions;
- Perceptions about economic fairness, although individualists and collectivists differ on what that means (2.2);
- Perceptions about whether people in other countries are doing better or worse.
Economic satisfaction is driven by all of these factors: individually, in aggregate and in the relationship between them. Satisfaction may be susceptible to government ‘spin’ but is essentially driven by the overall health of the economy and how its wealth is divided.
Governments in any political system need to avoid discontent and this makes them susceptible to economic pressures:
- The level of taxation is politically sensitive – particularly the level of income tax – so governments have an incentive to reduce it and, therefore, to reduce levels of government spending (3.5.2).
- Companies can make political contributions (6.4.5) and they can put economic pressure on politicians by threatening to reduce the number of people employed, or to relocate their activities entirely. A government needs the taxes they pay, and the employment they offer, so it has an incentive to create a business-friendly environment.
- People can withhold taxes. For example, the British population rejected the ‘poll tax’ in 1990 and rioted – as described by The Economist on 25 September 2003 in an article entitled Council tax: Can’t pay, won’t pay.
The incentive to governments to deliver a feeling of economic satisfaction to the majority of their populations is an economic constraint upon their power. Governments have some impact upon how much wealth is created and, more directly, upon how it is divided – and they are certainly seen by their populations as being responsible for economic well-being.