Interestingly, inflation can by itself explain both the improvement and decline in democratic quality. This, of course, offers only a limited perspective on the matter, but it nevertheless draws attention to one hypothesis in Buhlmann’s original model: the quality of democracy in a country is dependent on that country’s ability to withstand economic shocks. In other words, the more stable the economy, the better the democracy.
A cursory examination of data in table 4.3 may suggests that, in general, CEECs have been doing reasonably well, most of them managing a declining inflation trend over the 2004-2011 period. Nevertheless, looking at the same data in terms of fluctuations reveals a different story. Firstly, inflation peaked in 2008 in all ten CEECs and fell dramatically the following year, as a result of efforts to placate the impact of the economic and financial crisis. Secondly, while most countries in the list show declining inflation trends, their starting points are vastly different. For instance, Romania exhibits the strongest declining trend with -6.1 points, but despite this, continues to register the highest inflation rate of all the CEECs in 2011, due in part to the fact that it had the highest starting point at 11.9 in 2004. The ECB Convergence Report for 2012 suggests that this tendency may continue: between 2011 and 2012, the reference value for price stability at the EU level was 3.1, and only Bulgaria and Czech Republic registered average rates below this
58 | P a g e point. Other CEECs, and most notably Romania, showed values well above the reference.
The report also argues that the evolution of inflation should be viewed in the wider context of previous economic developments in CEECs: economic growth and stabilization inherent to the accession process, and convergence criteria related to entry into the Eurozone (for Slovakia, Slovenia and Estonia). The latter in particular require that countries achieve a high level of price stability – meaning, in practice, that inflation rates must not be exceed the best three performing member states by more than 1.5 percentage points21.
Indeed, Table 4.3 shows that, with the exception of 2008 these three countries have experienced relatively mild price fluctuations, compared to the rest. For those countries where inflation rates have risen over the reference period (Estonia, Lithuania, Poland) the yearly rates themselves and the fluctuations are quite small, with the exception of 2008. Additionally, Poland has the weakest overal trend in the list. Estonia shows higher inflation in 2011 compared to 2010, but this is most likely linked with switching to the Euro.
All of this suggest that, in these countries, the inflation peak of 2008 may have had a stronger impact on the overall trend compared to the other cases in the sample. In other words, an overall greater price stability did not necessarily translate into declining inflation.
As regards the role of inflation in improving democratic quality, several observations are in order. Czech Republic is the only country out of the four registering such an improvement where price fluctuations are consistently small – with the exception of 2008, there are no values higher than 3. Secondly, Latvia has higher inflation rates prior to 2007 and registers a significant rise between 2007 and 2008, but immediately afterwards manages to bring and maintain price fluctuations under control. Out of the entire ten country sample, it is the only case that registers a negative inflation rate in 2010. Finally, Bulgaria and Romania both show overall high inflation and fluctuations, but have strong negative trends indicating significant improvement.
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59 | P a g e In short, where inflation contributed to a rising level of democratic quality, it did so in three ways: through small price fluctuations, the ability to bring rapidly rising inflation under control, and strong declining trends to compensate for overall high inflation.
Corruption is slightly more straightforward to account for, but also reveals a problem of consistency. The solution for DECL shows that a negative corruption perception trend covers three countries: Hungary, Slovakia and Slovenia. Going back to Table 4.6 reveals that both Hungary and Slovenia do indeed show negative trends, while Slovakia registers no change over the reference period. However, where they occur, these shifts are very small (-0.2 for Hungary and -0.1 for Slovenia). This means that the behaviour of COR in this model is almost certianly dependent on how dichotomization was performed, rather than on substantial empirical support.
To be clear: this does not invalidate the solution identified for DECL. Firstly, the solution is consistent with the hypothesis – a negative (in this case, also static) trend in corruption perception is indeed linked to the decline of democratic quality. But because QCA does not, unlike regression analysis, allow us to determine the intensity of this link, it is difficult to estimate exactly how strong an explanation corruption gives for democratic quality decline. Secondly, the solution clearly indicates that there are two alternative explanations for DECL (rising inflation OR rising corruption). In connection to the previous observation, this would simply suggest that inflation may be a better candidate to explain the decline.
Finally, an interesting point should be noted here. While logical minimization removes GINI from the final solution for both DEM or DECL, it remains the only condition present in the intermediate solutions to display an anomalous behaviour.
There is no consistent explanation in literature for why this might be the case. However, one possible reason for GINI’s atypical behaviour may again result from the way it was operationalized in this study: the Gini coefficient is the only variable in the set for which incomplete data is available between 2004 and 2011. For
60 | P a g e reasons of uniformity, I have calculated the trends based on the 2005-2010 time- frame instead. The data in table 4.4 shows that, while countries such as Bulgaria, Estonia and Hungary display strong trends in one direction or another, two show weak trends (Lithuania and Slovakia), while two others (Latvia and Slovenia) show no change at all over the entire 2005-2011 period. All of these, with the exception of Slovenia, show value changes of more than one percentage point sometime during the period in question. This could suggest that, had data been available for 2004 and 2011, trends for these countries may have been different. Given the holistic nature of QCA, it is quite possible that, in a different exercise, an alternative operationalization of GINI may result in a normal behavious, or even in its complete absence from the solution. But since GINI is not part of the solution, such an exercise is irrelevant here.
To summarize: in the sample of ten CEECs analyzed, the main explanation for both the improvement and the decline of democratic quality is primarily economic and rests on the impact of inflation. Corruption may offer an alternative explanation for decliing democratic quality, but re-examining the data suggests that it may not be as consistent as inflation. Finally, the Gini coefficient appears as part of the primitive solutions for both DEM and DECL, but behaves atypically, most likely due to being operationalized based on an incomplete data set. Applying logical minimization eliminates the Gini coefficient, so its anomalous behaviour does not affect the final solutions.
In the end, two out of six conditions explain the outcomes for the overall sample. Both their corresponding hypotheses are corroborated, and a high degree of parsimony is achieved.