Democracy and Development

Monks in Burma.bmp 

By Nick Li


In my last post I suggested that economic development would be the key to a creating a stable democracy in Burma, and that as such attempts to cripple the country with economic sanctions would be counter-productive. In this article I will review and summarize some of the arguments that support this view, so I do not once again come across as a paid apologist for Beijing and other autocratic regimes (which I am beginning to feel like more and more, except for the paid part). Discerning the causality between political and economic factors is always difficult – just witness the argument in the US about who should take the credit or blame for the growth of the late 1990s or subsequent bubble. It is even more difficult when we are talking about regime change, since so many things change – not just taxes or spending or interest rates, but often trade regimes, labor rights, foreign investment, property rights, regulatory and legal regimes, privatization, foreign aid change simultaneously. It is a well known fact that there is a correlation between GDP per capita and a country being democratic. But does this mean that richer countries are more likely to be democratic, or that democratic countries are more likely to be rich? Or are they self-reinforcing? Time-series evidence looking at whether democracy tends to precede economic growth in time, or vice versa, suggests that the causation runs from economic growth to democracy and not vice versa but this evidence is not particularly convincing because there are so many other variables that are correlated with economic growth (for example, literacy, education, life expectancy, communications infrastructure, internal violence and war, etc.) as well as with democracy. Democracy is certainly a poorer predictor of economic growth or GDP per capita than many other variables. And there are invariably massive exceptions – India and China being the most common counter-examples, along with the wealthy and rapidly growing resource autocracies in the middle-east. The problem, of course, is that lack of experimental evidence – we cannot simply and easily impose institutions that promote democracy or economic development randomly on a group of countries and see what happens. Economists and political scientists look for "instruments" (variables that are correlated with democracy or economic development but do not directly affect the other variable) or quasi-experimental evidence. One of the most interesting findings findings is due to Adam Przeworski, a political scientist at NYU. I quote below from his article "Self-reinforcing democracy": Przeworski.jpg

The probability that a democracy survives rises steeply in per capita income. Between 1950 and 1999, the probability that a democracy would die during any year in countries with per capita income under $1,000 (1985 PPP dollars) was 0.0845, so that one in twelve died. In countries with incomes between $1,001 and $3,000, this probability was 0.0362, for one in twenty-eight. Between $3,001 and $6,055, this probability was 0.0163, one in sixty-one. And no democracy ever fell in a country with per capita income higher than that of Argentina in 1975, $6,055. This is a startling fact, given that throughout history about seventy democracies collapsed in poorer countries, while thirty-seven democracies spent over 1000 years in more developed countries and not one died.

Przeworski argues that democracy endures only if it is self-reinforcing – it is not a contract because there is not third party to enforce it (unless you think that the US carries out this function, notwithstanding Guatemala, Chile, Venezuela, Pakistan, etc.). He argues democracy functions when there are values in conflict (otherwise a benevolent dictator would be equivalent), usually related to distribution (of income, opportunities, etc.). If there is not enough income redistribution for the poor or too much redistribution from the point of view of the wealthy, they have an incentive to turn against democracy. Thus countries with a high income per capita are the countries where democracy is likely to survive (since the poor are not THAT poor and the wealthy still make enough that they will not rebel against a 15% capital gains tax or 50% tax on their marginal income). Of course, this finding is more about the stability of democracies than their emergence. Here the evidence is more mixed – democracy is most likely to emerge in middle-income countries. If a country is poor democracy is unlikely to emerge. If a country makes it to high income status without undergoing transition to democracy, it is likely to remain a dictatorship. Some countries have transitioned to democracy after long periods of economic growth while others have transitioned after an economic collapse or slump. Nonetheless, Przeworski’s point is still important since many of the countries today that are not democratic were so at one point in their existence, and with talk of imposing democracy on countries militarily it is important to understand whether these institutions are transient and only likely to survive under the barrel of a US gun, like in Iraq or Afghanistan. If the evidence is clear that (1) economic development and high GDP per capita promotes stable democracies, and (2) middle-income countries (Latin America, the Asian tigers, Eastern Europe) are more likely to transition into democracy than dirt-poor countries like Burma, the weight of the evidence suggests that democracy has no real impact on economic growth itself. There are many factors often associated with democracy that seem to have positive effects on growth – political stability, rule of law and strong property rights, openness to foreign trade and investment, low inflation policies – but these variables are themselves only loosely correlated with democracy. China and Singapore have had all of these but no democracy, while Argentina has lacked all of them at various points in time when it was a democracy. Of course, Democracy could be good for many reasons, even if it does not have a strong impact on economic growth. In Development as Freedom Amartya Sen argues that democracy and political rights do not conflict economic development – the two are both important elements of freedom ("giving people the capacity to do the things that they value") and it is false to present a trade-off. Sen argues that democracy is particularly good at preventing the worst disasters and catastrophes – famines were prevalent under British rule, killing millions, but no major famine has taken place in India since democratic rule was instituted. Important work by Timothy Besley and Robin Burgess of the LSE has shown that measures of democratic accountability (including a free press, newspapers published in local minority languages, and the strength of political opposition in local elections) have a strong impact on ameliorating the impact of floods and droughts. On the flipside, many democratic governments, especially in poor countries, have engaged in shot-termism. Sen was honest enough to point out that while India was better at preventing disasters and catastrophes, China during the postwar period was able to invest in a more sustained manner in long-term goals, like universal primary education and improved healthcare. Taiwan and South Korea also achieved impressive social progress, including land redistribution, under dictatorial regimes, that facilitated economic growth. I don’t think Sen would accept that there was necessarily a trade-off – the Great Leap Forward and Cultural Revolution were not required to increase literacy in rural China, and elections in India did not necessarily have to result in underinvestment in education or health. And to some extent, he has been proven right as India has begun to adopt more growth-oriented, long-term policies on several fronts, though primary education remains a major problem. And yet, there are plenty of examples of democratic governments that engaged in redistribution and highly visible, short-term solutions to poverty – see Hugo Chavez – and dictatorial regimes that were able to achieve impressive growth (e.g. Pinochet). Ultimately, all of us here at 1948 blog surely believe that democracy is important in its own right, regardless of whether it promotes other goals like economic growth and redistribution for which we may not agree. The question is, how best to promote it when dealing with poor, dysfunctional countries like Burma? Will China go the way of South Korea and Taiwan, or the way of Singapore (and when will Singapore become a real multi-party democracy)? And perhaps most importantly, do people in these countries really want democracy? They do not necessarily share our liberal idealism, and for many of them it may be low down on the list of priorities. We have to ask ourselves what can we do? It seems clear that we can do a lot to promote economic development all around the world, but that our efforts to bring democracy have had very mixed results. Perhaps this is because Przeworski is right, and democracy has to be self-sustaining and self-reinforcing, not imposed or sparked by external forces. I think the way to go is promoting economic development, integration with the world, and encouragement of local democratic forces (though we need to be subtle about this – witness the nationalist rhetoric of the Putin camp in the face of Kasparov, who has moved to the US, as well as many instances throughout world history where externally supported governments in exile and political parties have been defeated by the nationalist card). The idea that we can build democracy through force or external coercion (like economic sanctions) is, in this view, chimerical. – Nick

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2 thoughts on “Democracy and Development

  1. Nice discussion!Like Burma which military dictatorship rules country for so many years and inside people couldn’t tolerated by self-sustaining and self-reinforcing even DASSK lead & tried her best. The world saw what happened Military Junta’s actions in Sept,2007,UN couldn’t involved,what can we do for those poor inside Burma?Any ideas or suggestion?? We( outside Burma people) really like to help to change. We’re still hoping to change system which fair economic for everyone more or less!Any suggestions???

  2. Hi Nick

    Nice post! It is entertaining how we much we sweat over our democratic values. Just for fun, we might ask why we think of democracy as a value at all? You noted (and I would agree) that any government, democratic or not, that consistently makes correct policy choices and implements them through strong institutions over time, improves social welfare. Should such a government be punished because it does not regularly conduct elections (or manipulates elections to maintain power)?`Of course not.

    I think that we might better understand our love affair with democracy, if we focus on why we need it (instead of just assuming that we like it). I don’t think we will find this in trying to correlate GDP with frequency of elections. The answer more easily pops out if we assume for a moment that there is no such thing as a single set of ?correct policy choices”. In this setting, society needs a tool to verbalize the various effects of policy choices, and to learn from its choices over time in order to maximize the value of the choices that it makes. Only a democratic system is likely to remain accountable to this learning process over time because it remains open to change. Thus, Marx probably thought democracy was a joke. The Pope may wonder from time to time about the need for democracy in contrast with the need for more faith in Jesus. Bin Laden certainly aint no democrat. Nor (I would argue) is Putin The common thread is that all of the above think there are right answers, and that they know them. Discussion then is just a matter of conversion of the great unwashed to the ?truth”. And George Bush et al? Maybe they aren’t either (from this perspective).

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