[Paleopsych] Guido Tabellini: Democracy Comes Second

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Guido Tabellini: Democracy Comes Second
http://www.project-syndicate.org/print_commentary/tabellini8/English

    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
    income.

    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
    political institutions.

    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
    economic success.

    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
    prosperity.

    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,
    Milan.

References

    2. http://www.project-syndicate.org/commentary/tabellini8
    3. http://www.project-syndicate.org/contributor/199