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Alternative Traditions in Public Choice

Anthony Downs and the Equilibrium Theory of Democracy

Anthony Downs et la théorie de l'équilibre de la démocratie
Jacob Jensen
p. 29-47

Abstracts

Anthony Downs was one of the founders of public choice theory, and An Economic Theory of Democracy (1957) remains one of the most cited texts within the field. Yet there is little historical scholarship on the development of Downs’s economic theory of democracy. Seeking to close this gap this article examines core characteristics and intellectual sources of his political ideas. The article argues that the overarching feature of Downs’s oeuvre was a theory of democratic politics as an equilibrium between the demand and supply of government goods and services. It shows that Downs explicitly intended his model as an answer to the public-expenditure problem of balancing government supply of publicly provided goods with citizens’ individual demands for these goods. The article thus provides a contribution to the literature on American public finance, demonstrating how Downs drew inspiration from Joseph Schumpeter, Harold Hotelling, and Walter Lippmann to address the problems associated with discerning the demand for public goods and services.

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1Twentieth-century political argument was largely a contest over the meaning of the concept of democracy (Müller, 2011). Though rarely addressed in histories of political thought, public choice was one of the twentieth century’s most significant contestations of the meaning of democracy. From the 1950s onwards, economists began applying their tools to topics that had become the reserve of political philosophers and political scientists. One of the pioneers of this economic approach to politics was Anthony Downs. His An Economic Theory of Democracy, published in 1957, remains one of the most cited public choice texts (Congleton, 2018, 235). Yet there is little historical scholarship on the development of Downs’s economic theories of democracy (though see Medema, 2013). Seeking to close this gap, this article examines the core characteristics and intellectual sources of his political ideas.

2The article argues that the overarching feature of Downs’s oeuvre was a conception of democratic politics as an equilibrium between the demand for and the supply of government goods and services. It shows that Downs explicitly intended his model as an answer to the public-expenditure problem of balancing government supply of publicly provided goods with citizens’ individual demands for these goods. The article thus provides a contribution to the literature on American public finance (Backhaus and Wagner, 2005; Pickhardt, 2006; Sturn, 2010; Marciano, 2013; Johnson, 2014; 2015; Hammond, 2015; Desmarais-Tremblay, 2017), demonstrating how Downs drew inspiration from Joseph Schumpeter, Harold Hotelling, and Walter Lippmann to address the problems associated with discerning the demand for public goods and services.

3The article proceeds in five sections. The first reconstructs Downs’s An Economic Theory of Democracy as a response to the postwar expansion of American government activity, leading him to engage with the fields of public finance and welfare economics. The second, third, and fourth sections examine the intellectual sources of Downs’s three most significant contributions to political theory. The fifth section explores Downs’s bureaucratic theory of the supply of public goods and services, which completed his equilibrium theory of democracy.

1. The Problem of Public Goods

4Born in 1930, Downs received his PhD from Stanford University in 1956. Downs wrote An Economic Theory of Democracy under the supervision of Kenneth Arrow who had done a dissertation on the economics of political decision-making, published in 1951 as Social Choice and Individual Values. Downs’s doctoral work was conducted in an institutional setting dictated by American Cold War concerns. The Office of Naval Research supported Downs’s dissertation on the request of Arrow who did some consulting for the Office. From this institutional perspective, the Cold War could easily be mistaken for the primary context of An Economic Theory of Democracy. But the opening paragraphs of Downs’s book pointed to increased government activity in the economy as the main impetus for engaging with the question of political decision-making. “Throughout the world, governments dominate the economic scene,” Downs asserted. “Yet the role of government in the world of economic theory is not at all commensurate with this dominance,” he continued (Downs, 1957, 3). Increased government spending, taxation, and regulation thus drove Downs’s foray into political theory. His aim was a theory of political behavior, which would match the theory of market behavior.

5In this, Downs was part of a trend within the economics profession. As government expenditures rose in response to welfare and warfare, and the allocation of available resources became an important policy question, the core political question of who rules was transformed into distributive and allocative questions about who gets what. Publicly provided goods and services, and the expenditures associated with their provision, needed to be legitimized anew. This was the challenge public finance theorists confronted from the late 1930s through the early 1950s.

6Aside from Richard A. Musgrave’s (1939) survey of voluntary exchange theories of public finance and Howard R. Bowens (1943) analysis of the use of voting in the allocation of economic resources, two economists stand out for their contributions to the theory of government expenditures, James M. Buchanan and Paul Samuelson. A PhD from the University of Chicago’s economics department, Buchanan was supervised by Roy Blough (Johnson, 2014, 482). But Buchanan quickly gravitated towards Frank Knight, one of America’s preeminent economists in the 1930s and an important figure in the early development of the so-called Chicago School of Economics (Emmett, 2009; Van Horn and Mirowski, 2009).

7Buchanan’s main aim was to reframe government, and public expenditures, without relying on a vision of omniscient social planners or benevolent dictators. His first attempt to provide such a framework was his article “The Pure Theory of Government Finance,” which appeared in the Journal of Political Economy in 1949. In it, Buchanan distinguished between two opposing political theories of the state, which could provide the foundations for a pure theory of government finance. “In the first, or what might be called the ‘organismic’, theory, the state, including all individuals within it, is conceived as a single organic entity,” Buchanan explained. “In the second, the state is represented as the sum of its individual members acting in a collective capacity” (Buchanan, 1949, 496). Whereas the individualistic conception of the state operated with a fundamental opposition between citizen and government, the organismic conception subsumed private interest under the public interest. Buchanan aimed to develop an individualistic theory of democratic government. The rule of unanimity was a vital component in this effort because it allowed individuals to express their preferences as consumers of public goods.

8We should not overstate the influence of Buchanan’s theory in the 1950s, however. It was Paul A. Samuelson who developed the most significant interpretation of public expenditures. Published in The Review of Economics and Statistics, his “The Pure Theory of Public Expenditure” is generally regarded as the first formalization of the idea of public goods (Pickhardt, 2006; Hammond, 2015). A professor at MIT and the author of the widely used and influential textbook Economics, first published in 1948, Samuelson was one of the foremost representatives of the increasing use of mathematics in mid-century American economics.

9Samuelson (1954, 387) began the paper with a demarcation between private consumption goods, “which can be parceled out among different individuals,” and collective consumption goods, “which all enjoy in common in the sense that each individual’s consumption of such a good leads to no subtraction from any other individual’s consumption of that good.” The political implication of Samuelson’s logic was that coercion was required in the provision of public goods. Government officials would have to try a number of different routes to obtain information on the optimal level of provision of public goods and services. A number of avenues could be explored to find a solution, including indoctrination of consumers of public goods to reveal their preferences, or the use of polling as Bowen had suggested in his 1943 article. This did not change the fundamental problem of the public economy, however. Self-interest undermined the provision of public goods: “by departing from his indoctrinated rules,” Samuelson (1954, 389) concluded, “any one person can hope to snatch some selfish benefit in a way not possible under the self-policing competitive pricing of private goods.”

10In his search for the microfoundations of government activity, Downs (1957, 14-17) engaged both Buchanan’s and Samuelson’s efforts to legitimize an expanding state. In relating his model to this body of literature, Downs’s point of departure was Buchanan’s distinction between an organismic and an individualistic conception of the state. Downs presented Samuelson’s theory of public goods as a solution to the problem of the prevalence of coercion, which Buchanan’s theory of voluntary exchange between government and its citizens failed to recognize. But in Samuelson’s approach, the state undertook only the provision of those goods that had indivisible benefits. Downs (1957, 16-17) therefore argued that Samuelson’s theory of public goods was unsatisfying because it reduced government activities to an absolute minimum, making it unable to explain, let alone justify, government provision of divisible goods and services.

11Downs furthermore criticized the “false dichotomy” between the organismic and the individualistic theory of the state on which, according to Downs, both Buchanan’s and Samuelson’s approaches to public expenditure were based. While Downs (1957, 17) agreed that the organismic approach was based on a myth, he considered the individualistic approach incomplete because it did not take into account that “when a small group of men acting in coalition runs the apparatus of the state, we can reasonably speak of the government as a decision-maker separate from individual citizens at large.” The challenge was finding a mechanism that would create correspondence between citizens’ individual ends and those of the governing elite. The task, in other words, was to find a mechanism of representation that did not restrict government to providing only goods that were non-exclusionary and non-rivalrous. “Our model,” Downs (1957, 17) promised, “attempts to describe such a relationship.”

12To that end, Downs turned to a second body of literature concerned with the economics of welfare. Within this literature, his supervisor’s work on the impossibility of constructing a social welfare function loomed large. According to Downs (1957, 18), Arrow’s work had “demolished what was left of [Abram] Bergson’s social welfare function and dissolved the relationship between individual and social ends which it had tried to establish.” But Downs’s An Economic Theory of Democracy suggested that collective decision-making was not as doomed as Arrow had concluded. In fact, Downs (1957, 18-19) aimed to prove that Arrow’s theorem was not always relevant, and when relevant, it was applicable only to a rather limited range of areas of choice.

13The result was an economic theory of democracy that contained three novel aspects. First, Downs formalized and elaborated on Joseph A. Schumpeter’s democratic theory by redefining voters as benefit-maximizers and politicians as vote-maximizers. Second, he used Harold Hotelling’s spatial model of competition to reconceptualize the purpose of ideologies as a response to uncertainty. Third, he formalized the journalist Walter Lippmann’s arguments about the ignorant citizen as an economically rational response to informational asymmetries.

2. Democracy as Competitive Politics

14In responding to the challenges set forth by these recent developments in public finance and welfare economics, Downs’s first step was to formalize Joseph A. Schumpeter’s theory of democracy as a competition between self-interested politicians for self-interested citizens’ votes. He acknowledged that the Austrian émigré’s “profound analysis of democracy forms the inspiration and foundation for our whole thesis, and our debt and gratitude to him are great indeed” (Downs, 1957, 29n11).

15Schumpeter’s theory of democracy was a conservative response to democratic upheavals in interwar Austria and America. Arriving in America in the midst of the Great Depression, Schumpeter developed his vision of aristocratic democracy in response to the New Deal, which he considered an example of the transformative power of democracy, extending as it did democracy into the economic sphere (Medearis, 1997). Schumpeter (2010, 226) argued that there was “no such thing as a uniquely determined common good that all people could agree on or be made to agree on by the force of rational argument.”

16To evade the challenges of identifying the public interest, Schumpeter simply reduced democracy to the bare minimum of electing, or evicting, representatives. Whereas in the classical theory of democracy “the selection of representatives is made secondary to the primary purpose of democracy which is to vest the power of deciding political issues in the electorate,” Schumpeter (2010, 241) defined democracy as “that institutional arrangement for deriving at political decisions in which individuals acquire the power to decide by means of a competitive struggle for the people’s vote.” In Schumpeter’s model, democracy was a method, not an ideal. The primary function of electoral voting was to produce government. This definition of democracy as procedure necessitated, and thus legitimized, the rule of professional elites.

17Schumpeter’s theory of democracy was closely connected to his theory of entrepreneurial competition. Juxtaposing competition for leadership in the economic sphere to competition for leadership in the political sphere, Schumpeter (2010, 243) conceded that competition was hardly ever perfect, though “never completely lacking either,” but it was the best approximation of fairness one could hope for. Just as competition on the market ensured that only the most entrepreneurial businesses survived, political competition for votes would ensure that the most competent leaders would be elected for office. Schumpeter’s model of democracy is therefore often seen as a precursor to postwar economic theories of democracy. As C. B. Macpherson (1977, 79) has pointed out, in Schumpeter’s model, “democracy is simply a market mechanism: the voters are the consumers; the politicians are the entrepreneurs.”

18In the late 1950s, both Gary Becker (1958) and Anthony Downs deployed Schumpeter’s theory of democracy as an electoral competition. But their contexts differed from Schumpeter’s. Becker and Downs were not concerned primarily with the efficacy of socialism versus capitalism. They were concerned with the growth of American public expenditures and government activism.

19Downs had initially wanted to work on the economics of expressways but changed topics when he was introduced to Schumpeter’s Capitalism, Socialism, and Democracy (Downs, 1993, 198). Against the background of Schumpeter’s theory of democracy, Downs set out to formalize how government officials in a democracy were made to fulfill their social function of formulating and carrying out policies, while pursuing their personal ambition of being elected and staying in power.

20The starting point of Downs’s analysis was the formalization of voters and politicians as self-interested actors. On the one hand, politicians acted to get reelected by maximizing their share of the vote. “Thus politicians in our model,” Downs (1957, 28) explained, “never seek office as a means of carrying out particular policies; their only goal is to reap the rewards of holding office per se. They treat policies purely as a means to the attainment of their private ends, which they can reach only by being elected.” On the other hand, the citizen, according to Downs (1957, 36), “casts his vote for the party he believes will provide him with more benefits than any other.” Citizens were nothing but consumers of public goods and services, seeking to maximize their piece of the public pie.

21In a telling passage, Downs conflated the distinctions between the political and the economic. “Corresponding to the infamous homo economicus,” Downs (1957, 7) explained, “our homo politicus is the ‘average man’ in the electorate, the ‘rational citizen’ of our model democracy.” In his analysis, political man was transformed into economic man. The public and the private remained separate, but any notion of behavioral asymmetry was dissolved. Citizens were treated as consumers in both realms, of public goods in the public economy and of private goods in the private economy. Downs thus transposed the political into an economic key. His model rested on an analogy between economics and politics in which parties behave like firms, politicians like entrepreneurial managers, and voters like customers, choosing the party that best serves their individual demands for public goods and services.

3. Ideology as Information

22But if politicians were merely self-interested economic agents with little concern for the public interest, what was the purpose of ideology? If politicians had no convictions, what explained the ubiquity of ideology? Downs argued that the purpose of ideologies was to reduce uncertainty. Rather than having to acquaint themselves with every issue on the ever-shifting political agenda, voters could merely consult the political parties’ ideological platform and more or less foresee each party’s stance on specific matters of policy (Downs, 1957, Chapter 7).

23In the effort to explain the predictive capacity of this theory of political ideologies, Downs relied on Harold Hotelling’s spatial model of competition. Hotelling had articulated a market theory of representative democracy in a side-remark in his 1929 article on “Stability in Competition.” Because it has received little attention in the historical scholarship on public choice, it is worth taking a closer look at this article.

24Born in 1895, Hotelling was hired by Stanford University’s mathematics department in 1927, a position he held until he moved to Columbia University in 1931 and then on to the University of North Carolina at Chapel Hill in 1946. Hotelling’s economics was organized around three themes (Darnell, 1990, 15 and 22). First, as a mathematician and statistician he was committed to providing economics with a more rigorous theoretical foundation. Second, he was mainly interested in the policy implications of economics. Third, his work was guided by socialist convictions. More specifically, Hotelling’s key concern was how public policy could be improved through mathematical analysis of the market mechanism’s ability to maximize the public good. All of these features are apparent in his 1929 article on “Stability in Competition,” the only one he produced on the particular issue of competition.

25The main context in which “Stability of Competition” should be placed is the interwar debates about capitalism versus socialism. Hotelling’s main point in the article was that market competition tended to produce socially undesirable outcomes, arguing that “[o]ur example has also an application to the question of capitalism v. socialism, and contributes an argument to the socialist side” (Hotelling, 1929, 52). The wastefulness of competition provided an argument in favor of socialism because the market did not result in a socially optimal society.

26To be more specific, “Stability in Competition” examined the conditions of competitive stability in markets, advancing a spatial model of competition. Rather than assuming that only one price can be obtained in the market, Hotelling imagined the market as an “extended region.” As illustration he supposed that customers were uniformly distributed along a line of fixed length—for example the main street in a town. Now imagine two stores selling exactly the same product at exactly the same price but located at different ends of the street. Given that the model’s customers differ only in terms of geographical location along the street, they will choose the store which is closest because it provides the lowest cost of transportation. Only customers who live at exactly halfway between the two stores will be indifferent as to which store to buy the product at. The implication of Hotelling’s spatial model is that stores and firms will tend to move geographically closer to each other in order to win customers from the competing firm. As a result, firms tend to “cluster unduly” in discordance with the public interest as “more and more sellers of the same commodity arise” (Hotelling, 1929, 45, 14).

27Hotelling pointed out that his spatial model could be used in several areas not usually considered within the purview of economics. He argued that the tendency for competing units to cluster around a median was so general that it was not confined to economic life:

In politics it is strikingly exemplified. The competition for votes between the Republican and the Democratic parties does not lead to a clear drawing of issues, an adoption of two strongly contrasting positions between which the voter may choose. Instead, each party strives to make its platform as much like the other’s as possible. Any radical departure would lose many votes, even though it might lead to stronger commendation of the party by some who would vote for it anyhow. Each candidate ‘pussyfoots’, replies ambiguously to questions, refuses to take a definite stand in any controversy for fear of losing votes. Real differences, if they ever exist, fade gradually over time though the issues may be as important as ever. (Hotelling, 1929, 54-55)

28In Hotelling’s model of competition, political differences between the parties, just as the location of the stores on main street, would gradually disappear and cluster around a median. The implication of Hotelling’s spatial model was that the center, whether geographical, economic, social, or political, would always be served better than the periphery. The result was that the public interest ceased to be the object of policy. Winning by catering to the majority, at the expense of the minority, was the only goal in politics. Competition for votes, rather than responsiveness to the public interest, was the essence of politics under democratic capitalism, according to Hotelling.

29We see, then, in Hotelling’s article the first signs of an economic theory of democratic representation. Much like the public choice theorists engaging with increasing government expenditures, Hotelling’s model redescribed voters as customers being served by politicians competing for their vote. But, crucially, Hotelling’s analysis was a critical complaint about the spread of market-like patterns of competition to politics. To Hotelling, the resulting lack of responsiveness to the broader interests of communities was deplorable. This insight was lost in subsequent developments of the theory of democracy as a competition between politicians.

30It was certainly overlooked, or ignored, by Downs. He nonetheless used Hotelling’s model according to which the parties in a two-party system tended to converge on the median voter. “[W]hereas parties in a multi-party system try to remain as ideologically distinct from each other as possible,” Downs (1957, 115) explained, “[p]arties in a two-party system deliberately change their platforms so that they resemble one another.” But Downs completely missed the fact that Hotelling’s model was meant as a critique of the way in which competition results in neglect of the public interest in favor of the coveted median. Downs instead legitimized the result as a proof of representative democracy’s ability to reach a state of equilibrium. Downs thus purported to explain the prevalence of centrist politics by reference to the self-interest of voters and politicians. In combination with the formalization of Schumpeter’s theory, the result was the most comprehensive explanation of democratic decision-making in economic terms that had yet been produced.

4. Rational Ignorance

31While Downs’s spatial model of political competition relied on the assumption that citizens vote according to their preferences for public goods and services, his theory of rational ignorance led him to the conclusion that abstention from voting is rational. The theory was based on an analysis of the effects of information costs. Downs (1957, 207) analyzed “what political decision-making is like when uncertainty exists and information is obtainable only at a cost.” He claimed to prove three propositions. First, that in “an uncertain world, rational decision-makers acquire only a limited amount of information before making choices” (Downs, 1957, 207). Second, that “reporting is biased because the reporter must select only some of the extant facts to pass on to his audience” (Downs, 1957, 207). And third, that “[a] rational citizen keeps properly well-informed by systematically exposing himself to a particular set of information sources he has chosen for his purpose” (Downs, 1957, 207-208). The problem, however, was not so much whether or not citizens were able to acquire the relevant and necessary information, but whether the costs of acquiring it would prevent them from doing so.

32Downs played on the long-running theme of the ignorance of the masses but shifted the vocabulary to the cost-benefit analytical terms of economics. The result was strikingly different from what previous theorists of democracy had argued. In Downs’s model, it was no longer a question of the ability of the masses to acquire information but a question of costs. Citizens, in Downs’s theory, were not irrational. Instead, he recast their lack of information as rational.

33In the subsection on “The Quantity of Information It Is Rational to Acquire,” Downs (1957, 215) thus argued that the “information-seeker continues to invest resources in procuring data until the marginal return from information equals its marginal cost.” Such was the cost-benefit analysis of the voter. When marginal return met marginal cost in the equilibrium equation, voters had acquired enough information to make their decision. In other words, the degree of ignorance in political matters was rooted in individual analyses of the costs and benefits of obtaining the relevant information. In most cases, benefits were negligible and costs high.

34Three factors determined the size of voters’ investments in information. “The first is the value to him of making a correct decision as opposed to an incorrect one” (Downs, 1957, 215). If voters derived no value from investing in making the best decision, they would not vote. The second factor was the “relevance of the information to whatever decision is being made” (Downs, 1957, 215). That is, voters engaged in an estimation of the probability of the chances the acquired knowledge had of making them change their decision. The third factor was the cost of obtaining information. According to Downs, the “comparison of the estimated marginal cost and estimated marginal return of any bit determines whether this particular bit should be acquired” (Downs, 1957, 216). Though these were highly innovative shifts to the register of economics, his conclusions about voters’ willingness and ability to acquire the necessary knowledge to participate in elections were perfectly in line with Walter Lippmann’s arguments in Public Opinion from 1922 and The Phantom Public from 1925, and Downs (1957, 14) explicitly acknowledged the connection.

35Born in 1889, Walter Lippmann became one of the nation’s most prominent public intellectuals, famous for his combination of journalism and political philosophy. In his 1922 Public Opinion, Lippmann argued that citizens could simply not have a competent opinion about the increasingly complex issues facing a modern society. The traditional democratic ideals of the nineteenth had become outdated. People, divided in the pursuit of their own purposes, were both unable and unwilling to participate in the complex public affairs of the nation.

36The problem was that the world that had to be dealt with politically was out of sight. Perceptions of reality were always mediated, and in order to create the illusion of a common good experts were required. “[R]epresentative government, either in what is ordinarily called politics, or in industry,” Lippmann (1992, 30-31) explained, “cannot be worked successfully, no matter what the basis of election, unless there is an independent, expert organization for making the unseen facts intelligible to those who have to make the decisions.” According to Lippmann traditional democratic theory never confronted the problem that arose from the discrepancy between ideals and reality.

37Instead, traditional democratic theorists, Lippmann claimed, assumed that society was in harmony. Democratic idealists knew that citizens’ political knowledge was limited, that the area of self-government was not boundless, and that communities were not as self-contained as their theory required (Lippmann, 1992, 264-267). Democratic idealists, Lippmann (1992, 270) argued, recognized that “[c]onditions must approximate those of the rural township if the supply of information is to be left to casual experience.” This circumscribed version of the democratic community was wholly unfit for the complexities of the modern experience, however.

38“In the absence of institutions and education by which the environment is so successfully reported that the realities of public life stand out sharply against self-centered opinion,” Lippmann (1992, 310) argued, “the common interests very largely elude public opinion entirely, and can be managed only by a specialized class whose personal interest reach beyond the locality.” He thus explained that the public interest would have to be produced by a superior class of experts who were able to see beyond their own parochial interests. Lippmann claimed that this professional class’s superior ability to manage the complex supply of information would be sufficient to make the common good intelligible to the public.

39But, in the space of just a few years, Lippmann’s concerns about the limitations of democracy grew darker. Not only did the average citizen not possess adequate competence to participate in the public affairs of the nation. Lippmann now argued that the public was but a phantom. In the 1925 The Phantom Public, Lippmann (1993, 4) asserted of the citizen that “[i]n the cold light of reason he knows that his sovereignty is a fiction. He reigns in theory, but in fact he does not govern.” The omnicompetent citizen of traditional democratic theory was an unattainable ideal, a myth. The general public’s participation in political affairs should be confined to an absolute minimum and limited to procedural concerns: “To support the Ins when things are going well; to support the Outs when they seem to be going badly, this,” Lippmann (1993, 117) argued, ”is the essence of popular government.” This procedural definition of democracy, very similar to Joseph A. Schumpeter’s, underscored the need for a professional class.

40Downs (1957, 14) admitted that his conclusions tended to “prove logically contentions that Lippmann and others have reached by observing politics empirically.” But whereas Lippmann asserted that it was impossible, or at least difficult, for people to reach an informed decision about public issues because of socio-psychological limitations, Downs shifted the register to that of economics, arguing that ignorance was rational. This shift, among other things, allowed him to produce a novel theory of abstention from voting.

41Downs (1957, 260) started from the simple, but very real observation that “[c]itizens in a democracy who are eligible to vote in democratic elections often fails to do so.” Downs argued that if there were zero costs to voting, those who were indifferent to the outcome of the election would not vote, while those who had any kind of preferences would go to the voting booth. As such, in this simple model, the degree of indifference was the key to explaining abstention from voting in zero-cost elections. The problem arose when the returns of voting were introduced into the model. According to Downs (1957, 274), “the returns from voting are usually so low that many voters abstain; hence tiny variations in the cost can sharply redistribute political power.” This was especially to the disadvantage of low-income groups for whom the costs of obtaining the required information was often greater than the benefits they received. They simply required higher returns from voting to bear the costs of obtaining the necessary information, which high-income groups were better able to pay. This resulted in low-income groups being less informed and thus more uncertain, which again led them to discount the returns of voting.

42The total returns a citizen received from voting in an election depended upon four variables: “(1) the benefits he gets from democracy, (2) how much he wants a particular party to win, (3) how close he thinks the election will be, and (4) how many other citizens he thinks will vote” (Downs, 1957, 274). The rationality of abstention thus rests on arguments that are similar to the problem of so-called free riding, which Musgrave and Samuelson advanced in their theories of public goods. Citizens free ride when they enjoy the benefits of a good but do not pay for it.

43From his novel theory of abstention, Downs reached the same conclusion as Lippmann. “In any society which contains uncertainty and a division of labor,” Downs (1957, 221) explained, “men will not be equally well-informed politically, no matter how equal they are in all other respects.” In other words, an expert elite necessarily emerges, which, because it is better informed, has greater influence over government policy formation. “This conclusion emphasizes once more,” Downs (1957, 247-257) pointed out, “the inherent inequality of political power in democratic societies.”

44Democratic politics was thus not necessarily at odds with domination. Instead, Downs (1957, 257) came to the conclusion that “the cost of information prevents our model government from ever functioning by consent of the governed in a pure sense.” In Downs’s model of democracy, then, informational asymmetries justify, or at the very least explains, the emergence of political and administrative elites. These elites have little sense of the public interest. Aiming only to be reelected, they cluster around the political middle-ground.

45Downs (1957, 274), however, argued that “[o]ne of the returns from voting stems from each citizen’s realization that democracy cannot function unless many people vote. This return is independent of his short-run gains and losses, but it is not very large because the benefits of democracy are indivisible.” In this sense, democratic elections were a public good in so far as participation in them did not reduce others participation in them. This allowed some citizens to free ride on other citizens’ participation. Nonetheless, Downs (1957, 274) claimed that the realization that democracy required many people to vote prevented “universal abstention from paralyzing democracy.” This point is often overlooked, but it nonetheless demonstrates the limitation of Downs’s economic theory of democracy. Though it revolves around an economic conception of self-interest, which predicts that individuals will abstain from voting, social values are reintroduced to make democracy meaningful, rendering the assumption of self-interest unrealistic.

5. The Supply of Public Goods

46In the 1960s, Anthony Downs began working on bureaucratic decision-making. Now an economist at the Real Estate Research Corporation in Chicago, Downs was still affiliated with the RAND Corp. The first indication that Downs was working on a theory of bureaucracy was given in his “Why the Government Budget Is Too Small in a Democracy,” published in World Politics in 1960.

47Expanding on an argument he had made in An Economic Theory of Democracy, Downs (1960, 541) contended that voters’ rational ignorance of the costs and benefits of policies meant that government budgets were smaller than they would have been if voters had complete information. More interesting for present purposes, Downs (1960, 542n4), in a lengthy footnote, interjected that his theory ignored the effect of governmental bureaus on the size of the budget in a democracy: “If self-aggrandizing bureaus were included in the model, each would try to maximize its own income, power, and prestige within the government. Hence it would submit a maximum estimate of its needs to the central budgeting agency (i.e., the directors of the governing party).” This idea of law-like ever-expanding bureaucracies was far from new, however.

48In a 1955 article in The Economist, the British naval historian Cyril N. Parkinson (1955) stated his now infamous law “that work expands so as to fill the time available for its completion.” Parkinson’s Law, as it came to be known, put a name on the easily recognizable tendency of administrative bureaus to expand, seemingly without limits.

49Though Downs recognized this tendency, he asserted that bureaucrats’ self-interested behavior did not contradict his argument that the government budget was too small in a bureaucracy. “[T]he central budgeting agency would be aware of the bureau’s inflationary tendencies and would develop outside checks against each bureau’s vote-gain estimates,” Downs (1960, 543n4) theorized. In other words, Downs argued that the self-interest of politicians would tend to off-set the self-aggrandizing behavior on the part of bureaucrats. His theory of democracy thus complemented his theory of bureaucracy, explaining how politicians’ desire to get reelected counterbalanced bureaucrats’ desire to enlarge their bureaus.

50Nonetheless, Downs (1960, 543n4) acknowledged that bureaus aimed to make their services needed, and this characteristic required a separate theory of bureaucracy on which he was working. Downs developed this bureaucratic model over the course of the 1960s, culminating in the 1967 Inside Bureaucracy. The book was intended to provide political science and economics with a theory of bureaucratic decision-making “to enable analysts to predict at least some aspects of bureau behavior accurately, and to incorporate bureaus into a more generalized theory of social decisionmaking—particularly one relevant to democracies” (Downs, 1967, 1). Inside Bureaucracy was thus meant to complement An Economic Theory of Democracy. Where the latter developed a theory of the demand side of the political process, the former developed a theory of the supply side of the political process.

51In the acknowledgments, Downs (1967, vii) stated that his greatest debts were to Gordon Tullock. The two had crossed paths earlier in the 1960s in a series of exchanges about majority voting in the Journal of Political Economy, with Tullock attacking its efficacy and Downs defending it (Tullock, 1959; Downs, 1961; Tullock, 1961). Tullock’s The Politics of Bureaucracy, published in 1965, was the first book in the construction of an economic theory of bureaucracy. Born in 1922, Tullock went into public service after graduating with a Law degree from the University of Chicago. From 1947 to 1956, he worked as a foreign service officer in the U.S. Department of State, serving as Vice Consul in China and as a political officer at the American embassy in South Korea. These experiences in the federal bureaucracy formed the personal background of his reflections on politics (Tullock, 1965, front matter).

52In The Politics of Bureaucracy, Tullock probed what, if not the public interest, people in public functions served. He argued that they mostly serve their own self-interest. The world of bureaucracy that Tullock depicted was bleak. His analysis was based on a stark contrast between economics and politics. “Generally speaking,” Tullock (1965, 11) wrote, ”’politics’ describes social situations in which the dominant or primary relations are those between superior and subordinate.” He then went on to juxtapose “politics” with “economics,” arguing that “[t]he latter, as a discipline, describes social situations in which persons deal with one another as freely contracting equals” (Tullock, 1965, 10-11). Tullock’s definition of politics was thus part of an attempt to rehabilitate the market as the sphere of freedom.

53Downs did not use the concept of bureaucracy as scornfully as Tullock did. On the contrary, Downs (1967, 1) considered bureaucracies to be among the most important organizations in the complex societies of the modern world. And methodologically, Downs’s theory of bureaucracy was more strictly economic than Tullock’s, especially with regard to the assumption of rationality. The premise of Downs’s theory of bureaucracy was that public administrators were driven primarily by self-interest (Downs, 1967, 2). This assumption of self-interest generated three hypotheses (Downs, 1967, 2). First, that bureaucrats try to attain their aims rationally. Secondly, that bureaucrats’ ends are complex, aimed as they are at a variety of goals, including “power, income, prestige, security, convenience, loyalty (to an idea, an institution, or the nation), pride and excellent work, and desire to serve the public interest.” Third, that the social functions of bureaus help determine their internal structure and the behavior of their bureaucrats.

54In the second chapter on the “Life Cycle of Bureaus,” Downs analyzed how and why bureaus come into existence and how they are kept alive after they have fulfilled their social function. Downs distinguished four ways that a bureau can be created. First, there was the Weberian “routinization of charisma,” in which a group of people form a bureaucratic organization to realize a charismatic leader’s ideas. Second, a bureau may be created to carry out a specific function. Third, a bureau may come into existence by being separated into an independent institution from an existing bureau. Fourth, an “entrepreneurial” group of people, pursuing a specific policy, may start an organization to promote this policy (Downs, 1967, 5). While this life cycle helped explain why bureaus came into existence and how they were kept alive, Downs’s book on bureaucracy holds little of interest in terms of prescriptions for making public administration more responsive to citizens’ demands for public goods and services. That was not the purpose of the book.

55Far more significant in this regard was his 1971 article on “Public Goods and Private Status,” co-authored with R. Joseph Monsen and published in the Public Interest. In the article, Monsen and Downs (1971, 64) argued that “consumer behavior is motivated by the desire for emulation and differentiation, and that consumers want to create visible distinctions between large social groups or classes, and, within such groups more subtle distinctions of individuality.” The problem with public goods, when viewed in this light, was that they did not allow citizens to express their need for differentiation as consumers. Publicly provided goods had the disadvantage, compared to privately provided goods, that they were “ineffective in satisfying consumers’ desire to distinguish themselves through consumption” (Monsen and Downs, 1971, 68).

56Monsen and Downs drew a number of policy implications from their “law of consumer differentiation.” These included that government goods should be redesigned to allow consumers to express their individuality; that goods, which could just as easily be distributed by the private sector, should be removed from the public sector; that metropolitan areas should be allowed to vary the quality of public services among neighborhoods; that competition should be increased through the use of honorary and monetary rewards; that competition among communities should be emphasized to a much greater degree; that private providers of goods and services should be employed to a much greater degree to facilitate greater product diversity; and, finally, that international competition should be related to domestic welfare rather than military power (Monsen and Downs, 1971, 72-76). Monsen’s and Downs’s article thus provided a normative account of how the supply of public goods could be adjusted to serve citizens’ individual preferences in the same way that firms served consumers’ preferences on the market. In this sense, they redefined the citizen as a customer of public goods and services.

6. Conclusion

57After his foray into public administrative theory, Anthony Downs made few contributions to public choice and political theory. Instead, he devoted his time to urban economics where he produced the majority of his scholarly output. But the two did intersect. In the 1976 Urban Problems and Prospects he had a chapter on “Separating the Planning and Procurement of Public Services from their Production and Delivery.” But it mostly reiterated the points he had made with R. Joseph Monsen, albeit within the framework of the divorce between provision and production of public services that was then becoming fashionable. In a sense, Downs’s political-theoretical work was complete by the early 1970s. He had produced an equilibrium theory of the demand for and supply of political goods and services comparable to the theory of the demand for and supply of market goods and services. This amounted to a full-scale reinvention of the idea of politics.

I would like to thank Niklas Olsen, Mikkel Thorup, Søren Rud, Thomas Erslev, Nina Toudal Jessen, Valdemar Hedelykke Grambye, Perry Anderson, Simone Sefland Pedersen, Emil Eiby Seidenfaden, and Ludvig Goldschmidt Pedersen for comments on earlier drafts of this paper. Special thanks to the two anonymous referees and the editors of this issue for their thoughtful and constructive suggestions for improvement.

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References

Bibliographical reference

Jacob Jensen, Anthony Downs and the Equilibrium Theory of DemocracyŒconomia, 11-1 | 2021, 29-47.

Electronic reference

Jacob Jensen, Anthony Downs and the Equilibrium Theory of DemocracyŒconomia [Online], 11-1 | 2021, Online since 01 March 2021, connection on 20 September 2021. URL: http://journals.openedition.org/oeconomia/10467; DOI: https://doi.org/10.4000/oeconomia.10467

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About the author

Jacob Jensen

Saxo Institute, University of Copenhagen, jacob.jensen@hum.ku.dk

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