Efficiency and Democratic Political Organisation; The Case for the Referendum

Familiar theories of market failure have diagnosed shortcomings in the economy, but theories of government failure argue that the state is incapable of correcting them. More than that, many criticisms of government implicitly or explicitly see failure as due to fundamental shortcomings of democracy. This paper argues that democratic forms of governments are not necessarily inefficient relative to other types of decisionmaking, for example, authoritarian government, and that if individuals are as rational in their actions and expectations as voters as they are meant to be in the market, then failures attributed to democracy lessen or disappear altogether. The paper demonstrates how more democracy, i.e. the use of the initiative and referendum, may actually improve the efficiency of government by giving the mass of citizens the information and opportunity to frustrate efforts of the classe politique to form a coalition against the voters. Empirical examples are drawn from the experience of Switzerland.