Explaining Orbán: A political transaction cost theory of authoritarian populism

Abstract

Based on the theory of transaction cost economics, the paper argues that by vertically organizing political exchange, populist regimes reduce market-type political transaction costs – primarily bargaining, enforcement and information costs – prevalent in democracy. However, management-type political transaction costs – mainly organizational costs, partly stemming from corruption – rise as populists in power leverage government control through hierarchically organized clienteles. Operation of such clienteles is costly as maintaining them takes political and economic resources, including a corruption surcharge that government cronies are allowed to appropriate while accessing public resources. Transaction cost economics suggest that a shift from democratic towards authoritarian populist regimes occurs when formal and informal political institutions prove unable to maintain horizontal political exchange, and society seeks to internalize market-type political transaction costs through increased government discretion. Institutionally, this is based on a majoritarian approach to power, sidelining the system of checks and balances that constrain democratic governments. This is demonstrated on the example of Hungary that has turned into a textbook case of authoritarian populism under Viktor Orbán since 2010.