ESSA

ESSA

Has Democracy Become an Obstacle to Economic Prosperity in the Developed World?


David Haines

By

April 1st, 2012


Appealing to popular misconceptions and fear mongering have become commonplace tools of attracting voter support even if the long term economic prospects of the country are diminished as a result.


Democratic governments by definition must have the support of the majority of voters in to remain in power. One potentially fatal flaw in this system is that whilst the majority wield the power to hire and fire politicians, this same majority consists of voters who are often ignorant of how the economy works and are either resistant or downright hostile to any changes that threaten their own short term self-interest. Appealing to popular misconceptions and fear mongering have become commonplace tools of attracting voter support even if the long term economic prospects of the country are diminished as a result.

Greece is a poignant example. Years of overgenerous welfare and pensions schemes, together with job security verging on invincibility, having made a considerable contribution to their enormous debt burden. Now that the party is over, the need to restructure the entire economy in the midst of deep recession is devastating. Even the US came close to defaulting on its debt, with the Democratic and Republican parties vying for political advantage in a game of political brinksmanship, culminating in the loss of its S&P AAA rating – almost making a mockery of the once ironclad concept of ‘risk-free’ debt.

Australia is also showing signs of becoming increasingly unstable due to the democratic system (though universes away from the ‘Greek tragedy’). The government bows to populist pressure by protecting industries instead of explaining to voters that an ‘economy in transition’, as they so often refer to it, means jobs will be lost and inefficient sectors will perish in favour of new and more efficient industries. The government should be seeking to ease this transition by retraining workers, not by paying huge subsidies to industries that otherwise cannot compete.  Meanwhile the Liberal/National Party opposition is promising to rescind almost every Rudd/Gillard government initiative, leaving businesses with very little certainty and thus hesitant to invest. Public opinion is so malleable that not only the opposition but also various lobby groups have been able to whip up such a frenzy of fear of imminent economic doom resulting from the carbon and mining taxes (amongst other policies), that the head of the federal Treasury, Martin Parkinson, has had to remind Australians that they do not live in Greece!

Perhaps Plato was right (the irony that he was Greek notwithstanding) when he argued in ‘The Republic’ for an ideal state to be run by wise Philosopher Kings or ‘Guardians’. Translated for our era this would be a society led by technocrats with each government department run by the best and brightest minds from their respective fields. Unfortunately without elections there would be little safeguard against tyrannical or corrupt behaviour, and therefore for now I will have to agree with Winston Churchill’s remark that “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.”

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

  • lolimar

    “The government bows to populist pressure by protecting industries instead of explaining to voters that an ‘economy in transition’, as they so often refer to it, means jobs will be lost and inefficient sectors will perish in favour of new and more efficient industries.”

    True, it’s easy to say that moving resources away from inefficient industries towards more efficient sectors will be better for everyone. But I don’t think you’ll find it so easy, when you go up to one of those workers and tell them they’ve lost their job and for some, the place they feel to belong to. That is to say, we shouldn’t be so cynical when judging government. as seems to be the social norm these days.

  • David Haines

    Hi Lolimar,

    Firstly I’d like to thank you for your comment. Creating a discussion is what we are all about at ESSA.

    You are without a doubt right that economic restructuring is a highly emotive issue and that the anxiety and distress that it causes workers and their families should not be taken lightly.

    However there is no way in which we can hide from the fact of the economic reality that industries do for one reason or another become unviable and that protecting such an industry is a waste of finite resources that could be better allocated elsewhere. NB: A distinction has to be made here between long term protection of unviable industries as opposed to short term assistance to deal with a transitory economic crisis facing an industry.

    As you said the reality of this situation for the government is unenviable and  complex, but that doesn’t mitigate their responsibility to act in the best interests of the country and workers in the long term.

    Of course there is a right and a wrong way to go about such changes. Restructuring does not have to involve letting industries die in an uncontrolled way, leaving bewildered workers to fend for themselves. Aside from the obvious moral responsibility of government to assist workers through such a process, it is also good public policy from an economic point of view to ensure that workers don’t join the ranks of the long term unemployed or become discouraged and stop looking for a job altogether – at a large cost to the welfare system. Governments should therefore focus resources on assisting workers in retraining and locating alternative employment.

    I hope that better explains my position for you. Thanks again for your comment

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