Why Monarchies Rule When It Comes to Standard of Living

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Wharton's Mauro Guillen talks about his new research showing how monarchies benefit countries' economies.

As the U.K.’s House of Windsor prepares for Saturday’s royal wedding of Prince Harry and American actress Meghan Markle, British taxpayers are bracing to foot an estimated bill of more than $40 million (£30 million) for security arrangements alone. That surely is painful in the short run, but the long-term effects of monarchies are good for the economy and the standard of living, according to a new study by Wharton management professor Mauro Guillen.

Guillen’s study found that over the 110 years between 1900 and 2010, monarchies had a better record than republics in protecting property rights of businesses and individuals. The study, titled, Symbolic Unity, Dynastic Continuity, and Countervailing Power: Monarchies, Republics, and the Economy,” looked at data on 137 countries that included republics of different types and dictatorships. He spoke about his research on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)

Spurring Economic Growth

Why exactly are property rights so important? “The form of government has an immediate, direct effect on the protection of property rights,” Guillen said. When companies and individuals feel confident that their property rights — including intellectual property — will not be abused or confiscated by the government, they are more willing to invest in the economy, create more jobs and generate other economic boosters, he explained.

According to Guillen, property rights come under attack in three specific situations. One is when there is a social or political conflict in the country. “That always leads to undermining of property rights and has negative economic consequences,” he said. The second is when politicians remain in power. “As they get used to being the ones who run the government, they become abusive and they tend to privilege their friends — that’s why we have term limits,” he explained. The third is the level of checks and balances on the government. For example, the Congress or the judiciary in a country could restrain the executive branch from acting arbitrarily or expropriating the assets of a company or an individual.

“Don’t assume that monarchies are backward and that monarchies don’t deliver a good result economically. That’s not true.”–Mauro Guillen

In order for countries to thrive, “[you] need to reduce conflict; you need to reduce the number of years that politicians sustain power because we know that they become abusive sooner or later; and you want to have checks and balances,” he said.

Why Now?

The study is timely, according to Guillen. “There is a lot of discussion about whether it’s better to have a democracy or a dictatorship, and another dimension to this debate has been whether monarchies have a reason to exist today,” he said. The results surprised him. “I wasn’t expecting monarchies actually to perform relatively well in terms of delivering higher standards of living for the population,” he says. “But in a nutshell, that’s what I found.”

Over the past century, many countries have gained independence, especially in the 1950s, 1960s and 1970s, Guillen noted. Today, of the 190 or so countries in the world, around 23 have monarchies, he said. As it happens, the number of monarchies has been rising over the past few years, he added. “There is something about monarchies that keeps them in place, and some of that is the economic performance that they deliver.”

Both monarchies and democracies have a mixed record in delivering economic growth and all the benefits that flow from that. “We have some monarchies in the world that perform economically extremely well like the U.K., Sweden, Norway, the Netherlands, Denmark and Japan,” he said. Similarly, republics that have done well include the U.S., Germany and Italy. At the same time, many countries that are either monarchies or republics have poor track records, he noted.

Surprising, But True

Guillen said he is aware that his finding that monarchies do a better job at protecting property rights is “very counter intuitive.” People may say “that sounds really weird,” because they think kings and queens are arbitrary, and in many cases, absolute rulers.

Many monarchies have changed for the better over time, Guillen said, and pointed to the so-called “constitutional democratic monarchies” like those in Europe or in Japan. Such monarchies “tend to be very protective of property rights,” have a better chance of reducing internal conflict, and put limits on politicians and prime ministers that want to abuse their powers, he said. For every four monarchies that are democratic and constitutional, one is non-democratic, he noted, adding that many of those are in the Middle East.

To be sure, more and more countries have become democracies over the years. “The historical trend is towards monarchies — essentially kings and queens — accepting a constitutional order and accepting … the democratic rules of the game,” said Guillen. That could also mean the best of both worlds. “You can get all of the benefits from being a democratic country with a constitutional order, and at the same time you get some of the benefits from having a monarchy in place.”

Some constitutional democratic monarchies “work better than others, and have delivered a better standard of living for the population,” Guillen noted. “The evidence in my research shows that there’s no reason for those countries to abolish the monarchy.”

Why Some Monarchies Deliver

Guillen went over some of the chief benefits of monarchies. Countries that are not democratic, such as those in North Africa like Morocco or in the Middle East, may have “one advantage” over a country like the U.K., which is that in overcoming social or political conflict, they can engage in repression. Although such repression may help a monarchy cling to power, “in the long run this comes back to haunt them,” he said.

In constitutional democratic monarchies like the U.K., Sweden and Denmark, the key advantage is that they have much more legitimacy in telling politicians not to perpetrate themselves in power and make way for rotation, Guillen said.

Monarchies tend to be dynasties, and therefore have a long-term focus, Guillen noted. “If you focus on the long run, you are bound to be more protective of property rights,” he said. “You’re more likely to put term limits on politicians that want to abuse [their powers].” Here, he said Queen Elizabeth of the U.K. has exercised her constitutional role admirably in keeping the country’s prime ministers in check, whenever they seemed to overextend their reach.

“You need to reduce conflict; you need to reduce the number of years that politicians sustain power because we know that they become abusive sooner or later; and you want to have checks and balances.”–Mauro Guillen

Also, monarchies bring in “a psychological mechanism,” said Guillen. “If you’re the prime minister and you know there is a higher authority, although it may be a purely formal one and a pure figurehead like a king or queen, you are a little bit more subdued. If there’s nobody else higher or above you, then psychologically you are more prone to abuse your position,” he said.

“Don’t assume that monarchies are backward and that they don’t deliver good results economically — that’s not true,” Guillen said. At the same time, he made it abundantly clear that he is not making a case for a return to monarchies as the form of government. “I’m not advocating in any way, shape or form that every country in the world should adopt a monarchy on the basis of these results,” he said. “The monarchy only works wherever there is a tradition and a foundation for it.” For example, a monarchy in the U.S. would fail, he noted.

Guillen’s argument is more about allowing a particular form of government to prevail if it is delivering the goods. “There’s no point in those countries in which the monarchy works well to organize a movement to get it abolished, because it does produce higher standards of living.”

Republics’ Scorecard

Republics that protect property rights, ensure economic growth and higher standards of living are of two types — parliamentary republics like Germany, or presidential republics like the U.S.

Parliamentary republics tend to ensure better protection of property rights than presidential republics, Guillen found in his study. He pointed out that many presidential republics, especially in Latin America, perform poorly. “The U.S. is the exception rather than the rule among the presidential republics.”

Monarchies are also “much better than republics at navigating periods of uncertainty” such as the one triggered by Britain’s imminent exit from the European Union, Guillen said, citing research by other scholars on the subject. “Somehow, the institution of the monarchy [in the U.K.] provides a measure of stability.”

Image by Mark Jones – Cropped from Flickr version: https://www.flickr.com/photos/rambomuscles/27537241539, CC BY 2.0, https://commons.wikimedia.org/w/index.php?curid=65635766

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