An economics paper suggesting that higher salaries for politicians leads to better politicians is based on a highly subjective of the evidence. Using evidence of municipal election in Brazil it tries to show that higher salaries for Politicians. If you like more government expenditure & increased power to the incumbents, then you will concur.

The Adam Smith Institute Blog referred (via Chris Blattman’s Blog) to an Economics Paper on Motivating Politicians by Claudio Ferraz (PUC-Rio) & Frederico Finan (UCLA). This paper tries to “estimate the effects of monetary rewards on political selection and legislative performance”

The conclusion drawn from this study (Pages 27 & 28) are:-

1. “We find that higher wages increases political competition and improves the quality of legislators, as measured by education, type of previous profession, and political experience in office.”
2. “In addition to this positive selection, we find that wages also affect politicians’ performance, which is consistent with a behavioral response to a higher value of holding office”
3. “we find an increase in a number of visible public goods (e.g. number of schools, computer labs, health clinics, and doctors) in municipalities that offer higher salaries.
4. “(T) here is no improvement on others (e.g. water and sanitation).”

Now consider this comment on local elections by the Economist on 9^th Oct 2008

  Transparência, an NGO, has examined the last set of races in three state capitals (São Paulo, Rio de Janeiro and Belo Horizonte), which took place in 2004. Of 55 vereadores elected in São Paulo, 40 declared that they had spent more than 100,000 reais (then $35,000) on their races. One candidate spent over five times that amount. In Rio de Janeiro, some campaigns were even more expensive in terms of votes gathered per real spent. Certain successful candidates in the city spent more than $15 for each vote they won. (In comparison, George Bush spent $5.60 per vote he garnered in the American presidential election that year, and John Kerry, the Democratic candidate, $5.20 for each of his.) If undeclared spending were added, the sums would be even greater.

My own experience of local elections in Brazil, particularly during a visit in 2004 were of the following

–         Small towns controlled by single families, who also happen to be the most affluent in the town.

–         Sitting a restaurant in a small time, with a vehicle going past every few minutes playing the same jingle. It alternated between a motorbike, a Fusca (VW Beetle) and a Combi (VW van – like the 1960s camper-vans)

–         In major city centres the shopping streets being full of campaigners for their candidates.

Other factors to consider

1. The paper uses the monthly salaries from 2004. For a small town of 10,000 to 50,000, salaries were restricted to 30% of he state legislature, equating to R$2900 (c. GBP560) per month. At the same time the minimum salary (which maybe a third of the population survive on) was R$245. In other words, a small town councillor can receive more than eleven times the minimum wage. In the UK, it is around 1.5 times (although in the UK, the expectation is to work at least 20 hours per week, whereas in Brazil, the Vereador is full-time.
2. In Brazil, vereadores have the power to award contracts. In many municipalities there is not the necessity to put contracts out to tendor. There is, with the role, considerable patronage opportunities.
3. Vereadores can receive a pension of 50% of salary after just one term. Therefore, it is possible to become a vereador, a member of the state house of representatives, the state senate, the national house of representatives, and the national senate, all collecting a 50% pension on the way.
4. Government expenditure in Brazil, accounts for about 40% of GBP, much higher than is the for middle income countries.

I do not find the conclusions incorrect, just the normative interpretation of those conclusions. In other words

1. Higher salaries lead to increased political competition, which leads to increased expenditure to get elected. Having high levels of qualifications makes one stand out when there are lots of candidates.
2. If politics is the family business, sending ones children to university (funded by the high salaries from holding government office) will perpetuate the family. It therefore becomes a barrier to entry for the poor.
3. Due to the high number of candidates, populist politics abound. Politicians need to spread largesse. It is visible public works that get votes, more than drains, or quality of the local police service.
4. Populist politics lead to larger and more intrusive government.
5. Higher salaries, along with powers of patronage, favour those with money and access to a local political machine. Incumbents have the advantage, and getting elected to high office becomes an investment.
6. The powers of patronage also lead to a local political business cycle. Local roads get fixed in election year.

In other words, higher salaries in Brazil have lead to increased corruption, increased power to the incumbents and more government expenditure. This is consistent with the findings of the paper.