[Paleopsych] Guido Tabellini: Democracy Comes Second
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Mon Oct 10 23:43:21 UTC 2005
Guido Tabellini: Democracy Comes Second
Democracy is slowly spreading around the world. From the Middle East
to Latin America and Asia, many autocracies are taking gradual steps
towards more democratic and accountable forms of government, or have
become fully-fledged and well functioning democracies. The US
administration is determined to consolidate political freedoms in many
developing countries under its sphere of influence; indeed, expansion
of democracy has become a cornerstone of American foreign policy.
There are many reasons to celebrate the current democratic wave.
Democracy is associated with less injustice and abuse, with basic
civic and political freedoms, and with greater sensitivity by
governments for the true priorities of its citizens. But how important
is democracy for economic success?
Not much, the empirical evidence suggests. This might appear
surprising. After all, is it not true that virtually all rich
countries have democratic forms of government, while the poorest
countries (mainly in Africa) are non-democracies? Indeed, throughout
the world, democracy is strongly correlated with higher per capita
But this correlation goes missing when one looks at the dimension of
time rather than space. Countries that become democracies do not, on
average, achieve faster economic growth after their political
transition; and, vice versa, democracies that fail and relapse into
autocracy do not, on average, do worse than before.
The positive correlation between income and democracy that one sees
across countries could be due to reverse causation: democracy is more
likely to persist as a country grows richer. It could also be due to
special historical or cultural circumstances: some societies are just
more successful than others, both in terms of economic development and
with regard to their ability to develop and maintain democratic
Whatever the reason for the observed positive cross-country
correlation between income and democracy, it should not be confused
with causality. Being democratic does not seem important in securing
Of course, there are many different kinds of democratic transitions,
and lumping them all together might be misleading.
An important distinction in practice concerns the interaction between
the economic and the political system. A democracy born in an open
economic environment, with a well functioning market system,
widespread foreign direct investment, and sizeable international
trade, is likely to consolidate economic liberalism, stabilize
expectations, and hence lead to more investment and faster growth.
Conversely, if an economy is tightly controlled by the state, has
protectionist barriers against foreign imports and capital movements,
or relies on rents from exhaustible resources to obtain foreign
currency, transition to democracy can be plagued by populism and
struggles for redistribution, hurting economic growth.
Empirical evidence supports the idea that the success of a democracy
depends on the openness of the underlying economic system at the time
of political transition. In the post-WWII period, the more successful
episodes of democratic transitions have been preceded by widespread
economic reforms that extended the scope of the market and facilitated
international integration. Examples include Chile and South Korea in
the late 1980's and Mexico in the mid-1990's.
Conversely, when democratic transition was attempted in a fragile and
closed economic environment, the outcome was much worse. This applies
to the episodes of democratization in Latin America and the
Philippines in the mid-1980's, but also to Turkey in the early 1980's
and Nepal in 1990. The contrast between China and Russia also fits
this pattern very well.
China first opened its economic system to the rest of the world, and
only now is it thinking (a bit too slowly) about political reform.
Russia instead jumped into democracy, and only then worried about
replacing socialism with a market system. There was probably no other
way to do it in Russia, but the Chinese path seems much more likely to
lead to lasting economic success.
This does not mean that democracy is unimportant. But the sequence of
reforms is critical for successful economic development, with economic
reforms coming first. When an open and well functioning market system
is in place, democracy has a much better chance to lead to lasting
An important reason for this is that, in order to create a successful
market system, the state must respect basic individual rights: the
rule of law, private property, and the enforcement of justice. These
fundamental rights are part and parcel of democratic government. But
when it comes to economic development, these fundamental rights are
more important than other purely political aspects of democracy, such
as universal suffrage and genuine political competition.
This is how the Western world became democratic in the nineteenth and
twentieth centuries. Economic liberalism came first, political
liberalism later. But today's young democracies have to do everything
much faster. They don't have the luxury of restricting suffrage to
property owners, or to more educated citizens.
Nevertheless, we should remember the lessons of history. Political
reforms are more likely to be successful if they are preceded by
economic reforms. We should insist that Egypt or Pakistan improve
their market system, apply the rule of law, and open their economies
to international trade and capital movements. Allowing free elections
and true political competition is also critically important, but this
should follow economic reforms, not precede them.
Guido Tabellini is Professor of Economics at Bocconi University,
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