Democracy and economic development obviously influence each other, but the relationship is much more complex than what is envisaged in the neo-liberal argument, where democracy promotes economic development by making private property more secure and markets freer.
To begin with, given the fundamental tension between democracy and market, it is unlikely that democracy will promote economic development through promoting the free market. Indeed, the old liberals feared that democracy may discourage investment and thus growth (e.g., excessive taxation, nationalization of enterprises).[31] On the other hand, democracy may promote economic development through other channels. For example, democracy may re-direct government spending into more productive areas – e.g., away from military spending to education or infrastructure investment. This will help economic development. As another example, democracy may promote economic growth by creating the welfare state. Contrary to the popular perception, a well-designed welfare state, especially if combined with a good retraining programme, can reduce the cost of unemployment to the workers and thus make them less resistant to automation that raises productivity (it is not a coincidence that Sweden has the world’s highest number of industrial robots per worker). I could mention some more possible channels through which democracy may influence economic development, positively or negatively, but the point is that the relationship is very complex.
It is no wonder, then, that there is no systematic evidence either for or against the proposition that democracy helps economic development. Studies that have tried to identify statistical regularities across countries in terms of the relationship between democracy and economic growth have failed to come up with a systematic result either way.[32] Even at the individual country level, we see a huge diversity of outcomes. Some developing countries did terribly in economic terms under dictatorships – the Philippines under Marcos, Zaire under Mobutu or Haiti under Duvalier are the best-known examples. But there are cases like Indonesia under Suharto or Uganda under Museveni, where dictatorship resulted in decent, if not spectacular, economic performance. Then there are cases like South Korea, Taiwan, Singapore and Brazil in the 1960s and the 1970s or today’s China that have done very well economically under dictatorship. By contrast, today’s rich countries notched up their best-ever economic record when they significantly extended democracy between the end of the Second World War and the 1970s – during this period, many of them adopted universal suffrage (Australia, Belgium, Canada, Finland, France, Germany, Italy, Japan, Switzerland and the US), strengthened minority rights and intensified the dreaded ‘exploitation’ of the rich by the poor (such as nationalization of enterprises or a rise in progressive income tax to finance, among other things, a welfare state).
Of course, we don’t need to show that democracy positively affects economic growth in order to be able to support it. As Amartya Sen, the Nobel Laureate economist, argues, democracy has an intrinsic value and should be a criterion in any reasonable definition of development.[33] Democracy contributes to building a decent society by making certain things immune to the ‘one dollar, one vote’ rule of the market – public offices, judicial decisions, educational qualifications, as I discussed earlier. Participation in democratic political processes has intrinsic values that may not be easily translated into monetary value. And so on. Therefore, even if democracy negatively affected economic growth, we might still support it for its intrinsic values. Especially when there is no evidence that it does, we may support it even more strongly.
If the impact of democracy on development is ambiguous, the impact of economic development on democracy seems more straightforward. It seems fairly safe to say that, in the long run, economic development brings democracy. But this broad picture should not obscure the fact that some countries have sustained democracy even when they were fairly poor, while many others have not become democracies until they are very rich. Without people actually fighting for it, democracy does not automatically grow out of economic prosperity.[34]
Norway was the second true democracy in the world (it introduced universal suffrage in 1913, after New Zealand in 1907), despite the fact that it was one of the poorest economies in Europe at the time. By contrast, the US, Canada, Australia and Switzerland became democracies, even in the purely formal sense of giving everyone a vote, only in the 1960s and the 1970s, when they were already very rich. Canada gave native Americans voting rights only in 1960. Australia abandoned its ‘White Australia’ policy and allowed non-whites to vote as late as 1962. Only in 1965 did the Southern states in the US allow African Americans to vote, thanks to the civil rights movement led by people like Martin Luther King, Jr.[35] Switzerland allowed women to vote as late as 1971 (even later if you count the two renegade cantons, Appenzell Ausser Rhoden and Appenzell Inner Rhoden, which refused to give women votes until 1989 and 1991 respectively). Similar observations may be made in relation to developing countries today. Despite being one of the world’s poorest countries until recently, India has maintained democracy well for the last six decades, while Korea and Taiwan were not democracies until the late-1980s, when they had become fairly prosperous.
Corruption and lack of democracy are big problems in many developing countries. But the relationships between them and economic development are far more complex than the Bad Samaritans suggest. The failure to think through the complexity of the corruption issue is, for example, why so many developing country politicians who come to power on an anti-corruption platform not only fail to clean up the system but often end up being ousted or even jailed for corruption themselves. Latin American presidents, like Brazil’s Fernando Collor de Mello and Peru’s Alberto Fujimori, come to mind.When it comes to democracy, the neo-liberal view that democracy promotes a free market, which, in turn, promotes economic development, is highly problematic. There is a strong tension between democracy and a free market, while a free market is unlikely to promote economic development. If democracy promotes economic development, it is usually through some other channel than the promotion of a free market, contrary to what the Bad Samaritans argue.
Moreover, what the Bad Samaritans have recommended in these areas have not solved the problems of corruption and lack of democracy. In fact, they have often made them worse. Deregulation of the economy in general, and the introduction of greater market forces in the management of the government more specifically, has often increased, rather than reduced, corruption. By forcing trade liberalization, the Bad Samaritans have also inadvertently encouraged corruption; the resulting fall in government revenue has depressed public salaries and thus encouraged petty corruption. While all the time paying lip service to democracy, the Bad Samaritans have promoted measures that have weakened democracy. Some of this happened through deregulation itself, which expanded the domain of the market and thus reduced the domain of democracy. But the rest of it happened through deliberate measures: binding governments to rigid domestic laws or international treaties, and giving political independence to the central bank and other government agencies.
31
However, extension of franchise to poor people in European countries in the late 19th and the early 20th centuries did
32
See the literature reviews in A. Przeworski & F. Limongi (1993), ‘Political Regimes and Economic Growth’,
34
One important dimension that we need to bear in mind when understanding the struggle for democracy in today’s developing countries is that universal suffrage now enjoys an unprecedented legitimacy. Since the end of the Second World War, selective franchising – once so ‘natural’ – has become simply unacceptable. Rulers now only have a binary choice – full democracy or no election. An army general who has come to power through a military
35
Technically speaking, the blacks in the southern states were disenfranchised