ABSTRACT
External "shocks" from the international economy are not just an excuse contrived by hard-pressed Third World governments and their apologists in academe, the World Bank or the Overseas Development Council. Paradoxically, countries adhering to a variant of import-substitution industrialization are much more susceptible to external shocks than countries that are committed to some form of export-oriented industrialization. Established democracies appear to be much more effective at undertaking some forms of adjustment than other types of political systems. Established democracies appear to devote more resources to human capital. Transitioning democracies, by contrast, are almost a mirror image of continuous democracies on some critical attributes. The ability of continuous democratic regimes to manage adjustment has been underestimated in part because their significantly higher differentials compared to established authoritarian political systems in all three aspects of political capacity has been overlooked: higher political extraction, higher institutional credibility, significantly more direct and explicit policies for mobilizing society's resources.
