Society and Culture
Democracy: Luxury or Necessity for Growth?
In yet another book criticizing foreign aid as being useless and couterproductive, Dambisa Moyo makes the controversial suggestion that what Africa actually needs is a “decisive benevolent dictator to push through the reforms required to get the economy moving.”
Much of Moyo’s argument in the book Dead Aid, including her statement that aid is “no longer part of the potential solution, it’s part of the problem” follows from other books such as The White Man’s Burden by William Easterly. But I find her suggestion that democracy is a luxury for growth personally offensive. It is misguided at so many levels, I don’t know where to begin.
First, the benevolent dictator is an oxymoron. Yes, China and Singapore may have grown through dictatorial regimes but China also had the Cultural Revolution. If anything, the list of countries that have suffered under dictators is far longer. It is disingenous of Ms. Moyo to suggest that dictators can be benevolent, without acknowleding the very real and more likely downside of such a system.
Second, how likely is it that a dictator would cede power to a democratic system once economic growth had taken off? More likely, he will milk that economic growth for personal gain and prevent the creation of strong, independent, institutions – critical to long-term stability and growth. Few, if any, examples exist of a peaceful and successful transfer of power from dictator to democracy.
Finally, Ms. Moyo is particularly wrong in using a study “showing that democratic governments survive longer as per-capita income increases” to bolster her case. The suggestion that any correlation between the two variables (income and democracy) is actually a causation from the former to the latter is not only simplistic but wrong. In a 2005 paper “Income and Democracy,” Acemoglu et. al (from MIT and Harvard) find that “the long-run evolution of income and democracy is related to historical factors. Consistent with this, the positive correlation between income and democracy disappears, even without fixed effects, when we control for the historical determinants of economic and political development in a sample of former European colonies.”
The belief that democracy can only exist in rich countries is a myth. A similar argument was made in 1947 on the prospects of India’s democracy surviving. India’s political system survived, despite low economic growth rates. Indeed, India’s one experiment with dictatorship in 1975 was a huge failure – rejected by the populace despite promises of a better quality of life.
If anything entrepreneurship – a key element for increasing incomes – is more likely to thrive in a society that values free-thinking, freedom of expression, and has institutions for disemminating knowledge to the majority rather than a small elite. Dictatorships, by contrast, are likely to have none of this, suggesting that in the long-run autocracy will inhibit growth.
People can choose to have a free political system even when their economic choices are limited. And in times when the economy suffers, as is inevitable in a cyclical, globalized world, it is political freedom that helps prevent conflict. To suggest the relation is inverted is flat out ridiculous.
Discussion
6 comments for “Democracy: Luxury or Necessity for Growth?”
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Thank you for outlining you opinion why democracy is good for growth. it might all be true that previous cases show that for those countries democracy was the best way to achieve economic growth, however, some current poor countries (e.g Rwanda) might need a different recipe for development.
According to Lipset a society first needs the “necessary” ingredients for democracy, which are supported by education and a strong middle class. These things are missing in African countries, where corruption is the rule, informal employment thrives and people do not trust others in general. How much harm can a dictator do if he can encourage economic growth, after which democracy will follow by itself anyway? For example, Gleaser and others (2004) conclude that “economic growth and human capital accumulation cause institutional improvement, rather than the other way around.”
Martijn,
Thanks for your comment. You are right that African countries lack the necessary ingredients for democracy or economic growth (lets treat the two independently).
But why do you think a dictator would do any better at creating those prerequisites? Would a dictator really create institutions for democracy that essentially make him redundant? And is he not more likely to exploit economic resources for his own short-term gain, than for long-term benefit of his population?
Yes, African countries may require a different recipe for development. But what they really need is good leadership, not good dictatorship.
Martijn,
Regarding your last point that growth causes institutional improvement, I am not familiar with the study by Gleaser. However, any attempt to suggest causation from growth to institution building must be treated with some skepticism.
There is good reason to believe that both growth and institutional strength might be linked to colonial history (particularly relevant to Africa). See for instance Acemoglu et. al (2001, 2002, 2005) and Luis Angels (Income Inequality & Colonialism, 2005).
quote=dweep:
“But why do you think a dictator would do any better at creating those prerequisites [the necessary ingredients for democracy]?
there certainly are multiple equilibria: a dictator certainly will try to maximize his gains, were I refer to agency theory; either the agent’s optimization can come at the cost of the principles (voters). However, if institutions are weak, the principle’s uncertainty will not foster a good democracy. Dicators sometimes take so much, the people lose. Yet, under different circumstances, the principle is so uncertainy that the consequences of democracy can be worse than under a dictator. If the agent (dictator) cares only about his gains, in the short run principles can be hurt, yet might gain in the future. For example, the dictator benefits from growth in output, such that he can reap more. At the same time, people benefit from output gains, more than when they are active in a chaotic democracy (can the chinese show initiatives if the government does not determine investment)
And is he not more likely to exploit economic resources for his own short-term gain, than for long-term benefit of his population?”
As you say, I agree that good leadership is better, but this is a tautology, not an argument. Given that we have dictators (China? Russia? CR Congo?), can it be true that this is better than democratic society? I belief under circumstances, the answer is a definte yes. fortunately, I argue this is a transition path to good democracy, not a way of good dictatorship.
quote=dwwp
“growth causes institutional improvement, I am not familiar with the study by Gleaser. However, any attempt to suggest causation from growth to institution building must be treated with some skepticism.”
Actually, the nice thing about instruments (such as applied by Acemoglu to which you refer) is that we can determine granger-causality, which comes very close to our concept of causality (e.g. see my study on FDI determinants in China
http://iaes.confex.com/iaes/Boston68/webprogram/Paper3526.html
)
again: under circumstances, growth causes institutional improvement, as in Glaeser. Actually, the colonial history of Africa is not so hopeful when it comes to democracy, therefore again, dictators can be good (Mugabe vs Bonga, Congo?)
please also see my blog:
dutcheconomist
http://dutcheconomist.blogspot.com/2009/08/article-democracy-and-growth.html
I think the conclusion is faulty because all your deduction is based on a observation that a dictator is self-serving. All his agenda is to serve and congrete his hold of power.
How, history has produced both benigh dictators and self-serving democratical leaders.
Many heroic figure in backward nation are dictators in nation. Such as Peter the Great of russia. Deng Xiaoping of china. William I of prussia, Meiji emperor of Japan. They are dictator by you definition, albeit their top agenda is to push forward reformationm or modernization which leads to the renaissance of their people and nation.
Democracy, in nature is rule by public consensus, therefore it rule will dutyfully reflect the general quality of the people. In developed nation, with higher education rate, reasonable mass-media and liberal culture, the public decision will certain be of higher quality.
But in many devoloping nation, where the racial bias and religion confliction rampant, some democratic party leader will certainly exploit these weakness and amplify the emotion.
And also in many developing nation, a democratic government is relatively weak in power and easy to succumb to some traditional consensus such as sex-discrimination or even class discrimination. They have to comply with people’s ‘tradition’ or ‘culture’, whether it is enlightened or not.
Thus like the paradoxes we find in india and other developing nation, albeit their people are freer in theory, but their social equality is a way worse than country like cuba or china because democratic government can not interfere people’s opionion on sex, religion and castes.
Think back on Peter the Great and Meiji emperor, you will find the main enemy of a reformer is often his own people and culture. In many great country, its modernization procedure is actually a battle between the enlightend idea and the nation’s tradition and the vested interests of the old regional lords. A democratic government is just too weak in such a transitional period.