Independent institutions and democracy

[Accountancy Cyprus, No. 120, September 2015.]

One of the defining features of political life in Cyprus over the last few years has been the frequent clashes between politicians and independent officials. There have been such instances in the more distant past, as when Attorney General Solon Nikitas resigned in 2005 because he felt that he was being undermined. But the frequency and intensity of the clashes has risen significantly in the last few years.

It is certainly not pleasant to watch a country’s politicians and top officials exchanging blows in public. But I will argue that there is a positive development underlying this ugly picture. What is happening is that our independent officials are finally beginning to assert themselves.

Many people hold a very narrow view of democracy as rule by the majority. There is much more to democracy than holding an election once every four or five years and handing power to the winner. Protecting the rights of the minority is just as important as allowing the majority to rule. An independent judiciary that protects individual rights from abuse by elected governments has long been recognized as a necessary complement to majority rule.  No-one today disputes the need for  a strong and independent justice system.

Well-functioning and mature democracies have also developed other independent institutions designed to function as a check on the executive. Government finances are checked by independent auditors to minimize corruption and graft; official statistics are produced by independent statistical agencies to avoid government manipulation; regulatory functions are carried out by independent agencies in order to ensure a stable operating environment free from political intervention.   

The realization of the importance of strong, independent institutions has been one of the most significant developments in economics in the last 10-15 years. A large body of research now shows convincingly that well-functioning institutions that safeguard the rule of law and guarantee the protection of property rights and the enforcement of contracts contribute significantly to economic growth.

There is but one difficulty. Well-functioning institutions are very hard to build. This is especially true in young countries without a long and established democratic tradition. As Gordon Brown famously quipped, “in establishing the rule of law, the first five centuries are always the hardest “.

In addition to being a young republic, Cyprus has also had a tumultuous history that did not allow its institutions to develop and mature. The country’s accession to the European Union in 2004 was a game changer as the EU places great emphasis on the development of independent institutions. Adopting the euro gave further impetus to the process, particularly with respect to the Central Bank.

It is no surprise then that it was Central Bank governors who first publicly clashed with successive governments over matters of policy. More recently we witnessed public sparring between the government and both the Attorney General and the Auditor General. Analyzing each case is beyond the scope of this short article, though I would argue that in most cases the independent officials were right and the politicians were wrong. Leaving the substance aside, however, the way governments (but also usually the opposition) have conducted themselves in these cases suggests that our political system has not accepted the independence of our country’s institutions.

No-one is infallible; that includes politicians and technocrats, presidents and top officials. A well-functioning democracy must nurture independent institutions to safeguard the rule of law and keep a check on the executive. Politicians must learn to respect those institutions, even when they do not agree with them. Perhaps most importantly, presidents must take great care to appoint competent and upstanding individuals to these crucial posts.