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Economic Development: Democracies Versus Autocracies

From 1990 to 2014, China’s economy grew at an annual rate of at least 7% each year. This astounding economic growth has been accompanied by unprecedented achievements in the sphere of economic development: the literacy rate increased from 77.79% in 1982 to 96.94% in 2018, the average life expectancy increased from 44.5 years to 77.13 years, and the number of people living in extreme poverty fell from over 750 million in 1990 to 7.2 million in 2016. All these accomplishments have materialized while China has been governed by its only political party - the Chinese Communist Party. These extraordinary achievements have challenged the conventional wisdom that democracies are the most effective mechanism for economic development.

In recent times, the development of China has ignited debate on whether autocracies are more effective when it comes to stimulating long term economic development. It is argued that autocracies can effectively engender economic development because they insulate public officials from societal and political pressures, and eliminate legislative, judicial, and media constraints. Thus, public officials can pursue their economic agenda without hurdles, and they can make unpopular yet necessary policy decisions that may cause long-term development but have short-term political consequences. For instance, such a nation’s government may choose to suppress wages, which would indubitably be unpopular, in an attempt to augment international competitiveness, which may be necessary to stimulate economic growth.

On the other hand, democracies are governed by democratically elected public officials. Therefore, those in power may engage in political opportunism, and make populist policy decisions to garner political support, while disregarding the long-term ramifications of their decisions. Quintessential examples of this would be progressive politicians advocating expanding social welfare programs while ignoring the detrimental fiscal consequences of their proposals, or rightist politicians ignoring the instability induced by their deregulatory policies. Politicians in democracies have political incentives to issue such policy decrees because they are likely to please their voter bases.

Democracies often pride themselves on their bipartisanship and political diversity. They argue that these characteristics ensure that they make the most effective policy decisions. However, in practice, a strong political opposition may often be a hurdle in economic growth. This is because the presence of opposition may delay the passage of policies and bills because the opposition is likely to oppose any policies proposed by those in power, which may result in months being spent debating on projects and policies. Furthermore, intense rivalry amongst political parties often results in the opposition opposing any projects proposed by the administration, regardless of their ability to improve the nation. Therefore, economically advantageous projects may be delayed, or not taken up at all, which would slow down economic growth. For instance, China is globally renowned for its ability to rapidly execute infrastructural programs; whereas, in India, the world’s largest democracy, it is not uncommon for projects to face several political hurdles, which may eventually result in the projects being abandoned. Lastly, autocracies do not have democratic elections. Therefore, administration change is infrequent, which eliminates the instability induced by changes in political power. Lastly, autocracies are likely to mandate savings that can fuel investments, which in turn can drive economic growth.

Autocracies can provide a degree of stability and predictability which is necessary for short term economic growth, especially in the early stages of development. However, historical examples, including Venezuela in the 1960s, Iran in the 1970s, and Syria in the 1980s, show us that economic prosperity in autocracies is typically short-lived and volatile. This is because, even though autocracies may provide a conducive environment for economic growth, they have low levels of political freedom, high levels of environmental degradation, and inequity. Therefore, economic growth in autocracies is unsustainable in the long run. Additionally, economic development is a function of several variables other than economic growth, including economic and political freedom, which autocratic systems may be unable to provide a nation with. Democratic systems’ emphasis on transparency considerably reduces the probability that they implement unconstitutional or tyrannical laws.

This increases investor confidence, which eventually results in increased investment. Furthermore, democracies have higher levels of economic freedom, which may make the nation an appealing investment destination. Thus, democratic systems help attract investment. This investment can help spur economic growth and development. Furthermore, democracies typically have higher levels of human capital formation because they are significantly more likely to allocate higher proportions of their resources towards education and healthcare. This results in a productive workforce, which can translate into higher incomes and better standards of living, as well as economic growth. Therefore, evidence from a study of 184 countries from the 1960 to 2010 by MIT’s Daron Acemoglu and other economists found that “countries switching to democratic rule experience a 20 percent increase in GDP over a 25-year period, compared to what would have happened had they remained authoritarian states”.

Democracies are defined by their democratic election process, which enables voters to elect leaders of their choice. Empirical research published by the Council on Foreign Relations (CFR) reveals that democracies typically vote out ineffective leaders, while electing those who adopt moderate policies which are capable of stimulating development. An archetypal example of this mechanism at work comes from the 2019 Maharashtra Legislative Assembly elections, in which the ruling Bharatya Janta Party (BJP) faced an upsetting electoral loss largely attributed to its inability to deliver on its economic promises. The ability of the public to vote out ineffective leaders contributes to a political pressure on policymakers, which incentivizes them to make policy decisions based on public interest and benefit. This may result in an increase in the provision of merit goods and the adoption of policies which engender long term development.

Therefore, the same CFR report concluded that “democracies typically outperform authoritarian governments on a range of social and economic development indicators''. To determine whether an autocracy or democracy will be most effective at stimulating economic development in a nation, it is important to consider which stage of development has the nation reached. At the initial stages of development (the ‘preconditions for take-off’ or ‘take-off ‘stages) nations tend to focus on economic growth, as opposed to improving standards of living. This is because this growth can form the stepping stone for future economic development. However, as nations transition into the later stages of development (‘the drive to maturity' and ‘age of mass consumption’ stages) they begin to focus on ameliorating standards of living in their nation. Autocracies are likely to be more effective at stimulating economic growth in the short run because they ensure that the nation takes the painful yet necessary steps to put itself on the path to rapid growth. However, they are unlikely to be able to foster long term economic development as effectively as democracies because, as previously argued, they have low levels of economic and political freedom which result in lower standards of living, and economic development is the function of several variables other than economic growth, which autocracies are unable to provide a nation with.

Pratham Dave
DY Patil International School, Worli

Refrences

1. https://www.valueresearchonline.com/stories/34294/autocracy-and-economic-growth/
2. https://www.macrotrends.net/countries/CHN/china/population
3. https://www.unrisd.org/80256B3C005BCCF9/(httpAuxPages)/EE2D4DF653F6077BC1257A5D004C7E5E/$file/Leftwichweb.pdf
4.https://scholar.harvard.edu/jrobinson/publications/why-nations-fail-origins-power-prosperity-and-poverty
5. https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=2544420&fileOId=2544421
6. https://news.mit.edu/2019/study-democracy-fosters-economic-growth-acemoglu-0307
7. https://ejes.uaic.ro/articles/EJES2018_0902_LIO.pdf
8. https://gsdrc.org/document-library/the-democracy-advantage-how-democracies-promote-prosperity-and-peace/

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