Democracy: a drag on economic development?

Quoc Anh Nguyen


September 18th, 2016

We take it as a given that democracy and wealth go hand in hand. However, is this really as much of a truism as we think? Does democracy result in inefficiency and an unwillingness on the part of elected officials to make tough decisions? Quoc Anh Nguyen examines this difficult questions.

On March 23rd, 2015 the world witnessed the passing of an unusual man: Singapore’s first Prime Minister, Lee Kuan Yew. The flood of condolences messages from Western democracies that followed Singapore might seem strange given that Mr Lee was not a huge fan of democracy. His government has been variously described as “soft authoritarian”, “paternalistic authoritarian” or just downright “autocracy”. Mr Lee’s counterargument was that the ultimate test of a political system is whether it improves the standard of living for the majority of people, and democracy is not necessary the best way to do so. Yet unlike the majority of autocrats in history, he seemed to have good evidence to back up this argument. Between 1965 and 2013, Singapore’s income grew 12-fold. The country can be found near the top of just about every international measures of material development, from educational attainment to health outcome to safety. Is Lee correct? Does democracy hinder economic development? This kind of question may be unorthodox, but to avoid it would be wrong. After all, to quote Nobel Prize winner Robert Lucas Jr., “The consequences for human welfare involved in questions like these are simply staggering: once one starts to think about them, it is hard to think about anything else”.

The institutionalized “change of guards” in democracies can foster short-termism and instability. Regular elections are meant to be “swords of Damocles” that constantly remind politicians to act in public interest – or else. Yet the prospect of being ousted after one’s term is up means one has little incentive to plan beyond one’s term. After all, why implement policies that take 10 years to bear fruits if the politician’s record is brought out for judgement after 5 years? This effect can partially explain the struggle with climate change among Western democracies: Tony Abbott’s repeal and promotion of coal production put present economic gains over future pains. Politicians who want to plan for the long term risk crashing into the system’s myopia.

Democracies also foster some levels of instability. An election may throw up a new administration or legislature that actively aim to dismantle policies already in place. For example, President Obama’s hard-won TPP negotiations may all come for naught, since neither major candidate in the 2016 US presidential election seems strongly committed to maintain this deal. In the sense that elections are contests between political parties that often hold opposing ideas, this possibility is more real than not. Moreover, in the bid to win power political candidates or parties need to out-compete others in persuasion. The result is damaging promises that must be implemented. Britain’s exit from the UK caused enormous instability to the country’s and the world’s economy as well as existential threats to the EU. Together the effects of instability and short-termism caution against adopting democracies.

These effects are probably less tolerable in developing countries than in developed ones. The former often lack a well-established industrial base and the infrastructure needed to realize it. Investment from either the state or the private sector is crucial: Paul Krugman argued that the “Asian miracle” phenomenon was heavily reliant on channeling high level of savings into infrastructure, industries and education1. Either way, investment relies on long-term vision and stability. Perhaps this can account for how China is spending more on infrastructure than the US and Europe combined: the equivalent of 8.6% of world GDP for the former compared to the latter’s combined 5%. A smaller-scale example is Singapore’s Changi Airport, which thanks to strong government attention has become one of the world’s best and remains vital to the city-state’s economic standing. Contrast this with London’s Heathrow Airport, which has been waiting for a decision on its expansion plan since 2006 despite being vital to a well-connected British economy. Democracy, then, will not be very tempting to developing countries if it cannot solve their most pressing issue of economic development.

Moreover, Lee Kuan Yew argues that public policies in democracies are easily undermined by special interest groups to the detriment of public interests. Candidates in democratic elections need money for advertisement, hire staffers, hold rallies and events – lots of money, most of the time. Hillary Clinton’s 2016 presidential campaign is a perfect example, having raised US$ 334.9 million in her race for the White House. Wealthy donors, then, are in strong positions to influence politicians by means of promises of support. Dissatisfaction with “money politics” has been a strong motivation for the anti-establishment feelings among current voters in Western democracies. Lobbyists can also target voters. For instance, see Kevin Rudd’s attempt to introduce a super profit tax on mining, which triggered an AUD$ 22.2 million advertisement campaign that led to his government’s downfall. And in Lee’s eyes, the independent press is just another group of lobbyists who promote the views of the media owners. Noam Chomsky, in his propaganda model of media with Edward Herman, would have concurred.

Yet if there is any reason for developing countries to adopt democracy, it is that the system offers hopes in fighting a transnational woe they all share: corruption. Corruption deters investment, imposes a tax on every transactions, undermines government’s legitimacy, converts parts of the public coffer into private assets and misdirects what’s left. In short, corruption exist in developing countries only to the extent that nothing can be done with it. In democracies, however, something can be done: public officials can be monitored and scrutinized during office, and ousted peacefully if found to be corrupted. Establishing accountability institutions ensure that politicians must try harder to get less if they want to grease their palms. Mr Lee’s relatively clean government is an exception rather than the norm: often autocracies produce the likes of Philippines’s Ferdinand Marcos, who accumulated US $10 billion after 21 years in office. Furthermore getting an “enlightened despot” is a matter of luck. A corrupt dictator must either be endured or removed violently and often unsuccessfully. Zimbabweans would have been better off not enduring Robert Mugabe’s 36 years of misrule, and Syrians undoubtedly wish al-Assad not ruin his nation. Developing countries should steer clear of either case.

Moreover, while autocratic may ensure smooth economic development in terms of income per capita growth, only with democracy can there be development in everyone’s interest. The Human Development Index, created by Nobel-prize winning economist Amartya Sen, consider health (life expectancy) and education (average years of education) alongside income. Beyond these there are questions of environmental sustainability, inequality, cultural changes, heritage conservation,… The “good autocrat” argument is only convincing if the autocrat in question knows perfectly the “utility function” of citizens – their exact relative valuations of those aforementioned issues. Needless to say, this task is downright impossible without channels that allow citizens to inform the states of their preference – a democratic system.

Autocrats, even well-meaning one, who refuse to embrace a more inclusive view of development and only insist on raising income should be careful: the Chinese citizen who in 1989 demands more economic opportunity may well be protesting today about China’s environmental crisis – and this time he is richer! Growth without democracy may be grudgingly accepted by poor citizens. There is no guarantees the middle class products of such growth will accept the same deal – just ask the South Koreans and Taiwanese. To borrow Marx’s expression, perhaps successful autocracies sow the seed of their own destruction.

The connection between economic development and democracy may seems natural for citizens in Western democracies. It provides a simple narrative of a “path to salvation” for struggling developing economies. Yet the success of countries like Singapore provides a serious challenge to this story and forces one to rethink about the impact of democracy on development. This is probably a good thing: with so much at stake, we should aim to come up with an answer not simply based on a comforting tale.

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.

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