CHAPTER 1
Exposing a 50-Year-Old Myth
Dictatorship is like a big proud ship—steaming away across the ocean
with a great hulk and powerful engines driving it. It’s going fast and
strong and looks like nothing could stop it. What happens? Your fine
ship strikes something—under the surface. Maybe it’s a mine or a reef,
maybe it’s a torpedo or an iceberg. And your wonderful ship sinks!
Now take democracy.It’s like riding on a raft,a rickety raft that was put
together in a hurry. We get tossed about on the waves, it’s bad going,
and our feet are always wet. But that raft doesn’t sink . . . It’s the raft
that will get to the shore at last.1
A Yankee Businesman in New Hampshire
This book makes the case that democracy does a better job raising living
standards in poor countries than does authoritarian government. At first,
you might think the claim sounds a bit trite—What decent person would
argue otherwise? The truth is that for the past half-century or so, the bulk
of academic literature, United States policymakers, and Third World leaders
have done so. While America’s support for selected dictators across
Latin America, sub-Saharan Africa, and Asia has been primarily based on
Cold War calculations, this has been further justified by the conviction that
democracy in poor countries breeds economic stagnation and civil unrest.
Today, it is politically incorrect to extol publicly the virtues of autocracies—countries
where leaders are not popularly elected nor subject to
meaningful checks and balances. Nonetheless, the view that these governments
do a better job of promoting economic growth and stability among
poor countries remains firmly entrenched in the minds of many world
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leaders, economists, national security advisors, business executives, political
scientists, and international civil servants. According to this perspective,
promoting democracy in poor countries is naïve and potentially dangerous.
Which side wins this debate matters, a lot. Acknowledging a democratic
advantage for development—that is, a nation’s social and economic
progress—opens the door to a major rethinking of political and economic
policy toward the developing world. The case for the United States and
other industrialized democracies to back unstintingly democratization
throughout the Third World becomes overwhelming. This would mark a
sharp turnaround from current, tentative measures, where meaningful
support for the emergence of democracy often falls short of the rhetoric
lofted in its name.
Many readers are no doubt wondering at this point, “What about
China?” China’s rapid growth over the past 25 years makes it the contemporary
poster child of authoritarian-led economic development. Doesn’t it
pose a major obstacle to our claim about the superiority of the democratic
over the authoritarian model? Although a complex and still unfolding phenomenon,
we will argue that, paradoxically, China’s stunning economic
performance helps make our case by highlighting the exceptional and fragile
nature of economic growth in autocratic systems. First, however, let’s
take a look at the contours of China’s economic boom.
Starting with market reforms in 1978 giving peasants incentives to boost
agricultural productivity, China has experienced a nearly uninterrupted expansion
of its economy. Income per person, adjusted for inflation, has risen
more than six-fold over the past 25 years, to $940 from $151. In just the past
decade, China has grown to the sixth from the eleventh largest economy in
the world, with a gross domestic product (GDP) of $1.2 trillion.
Like other East Asian countries, China rode an export-led development
strategy to economic stardom. Trade makes up 50 percent of its economy
and 5 percent of world exports. Lured by cheap labor and the prospect of
gaining access to a market of 1.3 billion people, international investors have
flocked to China, pouring some $40 billion a year into its economy in recent
years, or about 5 percent of GDP. Building on one of the highest savings
rates in the world—40 percent of GDP—China has upgraded its
communications technology and modernized its roads, ports, bridges,
dams, and irrigation systems. In a single generation, farmers have switched
from using donkeys to tractors. Television now reaches almost all city
dwellers and the Internet connects with more than 12 percent of them.2
To
facilitate its transition to a market economy, China established experimental
capitalist enclaves known as Special Economic Zones that were free of
many of the legal and bureaucratic restrictions that were typical of China’s
command economy and that hindered trade, foreign investment, and technology
transfers.
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As China’s economy has grown, the quality of life of its people has improved.
More than 90 percent of children attend primary school and 50
percent make it through high school. Life expectancy has reached more
than 70 years, comparable to that of the United States and Europe.
Malnutrition rates plummeted by nearly 50 percent in the 1990s, and untold
millions of people have risen above the poverty line. In short, China
has become an economic dynamo.
The Argument for Authoritarian Rule
China’s experience is refueling the long-running debate about which type
of political system is better able to boost economic development. Doesn’t
China’s performance validate the conventional assertion that autocratic
governments are better at mobilizing economic growth in poor countries?
Is our instinctive desire to see democracy flourish in the developing world
simply a projection of Western values? If we were genuinely honest with
ourselves, wouldn’t we acknowledge that there really is a “cruel choice’’ between
democracy and development?3
If so, shouldn’t we be pragmatic and
support authoritarian governments in the world’s poorest countries in
order to reduce the misery of their citizens? Then, after material needs were
addressed, as part of some Maslowian hierarchy of priorities, we could
focus on the more ethereal issues of freedom and self-governance.
In other words, after taking a good, hard look at China, shouldn’t we
adopt the view that has prevailed among foreign policy experts almost since
the end of World War II? Popularized by Seymour Martin Lipset, this perspective
holds that democracies can flourish only if they are grounded in a
literate and urbanized middle class. In poorer societies, its adherents argue,
democracies can be manipulated by opportunistic leaders who will make
populist promises to get elected but pursue their selfish priorities once in
office. Unrestrained by adequate counterweights, these unscrupulous
politicians are likely to abuse their power and rig the system to maximize
their interests. The economy stagnates. Social conditions deteriorate. Alas,
the disciples of Lipset argue, while democracy is a desirable goal, it is one
that can best be achieved after a sequence of economic development and
social maturation occurs. Democracy should be seen as the crowning
achievement of a long process of modernization.
To spur development in poor nations, they assert, authoritarian4
governments
are better able to marshal the limited resources available and direct
them toward productive activities that will increase economic output.
Because of the superior organizational abilities inherent in their hierarchal
structures, only authoritarian governments can match resources to
the urgent tasks besetting them of increasing savings and investing them
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in public works like highways and dams, building up a disciplined military,
enforcing the rule of law, and creating a functional educational system.
Authoritarian governments can undertake all of these things more efficiently
than can lumbering democracies. And, as the labor force becomes
more skilled, more sophisticated technology can be employed and productive
capacity further improved.
It was with this reasoning that Samuel Huntington, in his still influential
1968 classic Political Order in Changing Societies, touted the advantages of
one-party states for low-income countries. Dominant political parties, particularly
those backed by the military, were seen as unifying institutions.
The efficiency of authoritarian systems also supposedly lies in their
perceived longer-term planning horizon. Spared of the arbitrary deadlines
imposed by elections, they can identify long-range objectives, decide
on the best policies for achieving them and implement these policies
without deviating from the master plan. And there is no need to waste
time and energy in endless negotiations with special interest groups, as
democratic governments must do. These groups can be safely ignored,
and unhappy though they might be at their impotence at first, they will
ultimately realize they also benefit from the modernization efforts of a benign
dictatorship.
In other words, by banishing politics from its economic policymaking,
an authoritarian government is able to focus on the bigger picture. And it
will seek to find solutions that benefit the society as a whole, rather than
this or that favored group.
By dint of the same freedom from competing interest groups, the reasoning
goes, authoritarian governments are more capable of instituting a
fair, consistent rule of law, better able to establish and protect the property
rights that form the basis for investment and asset accumulation, and in a
stronger position to enforce contracts—thus assuring firms that enter into
agreements that they will be paid.
The appeal of this perspective extended beyond the Cold War mindset
in the West that the ideological battle against communism necessitated
supporting friendly authoritarian governments. The orthodoxy of this
view was captured in the World Bank’s 1993 report The East Asian Miracle5
in which the global development bank endorsed the notion that authoritarian
governments were better able to generate economic growth in the
early stages of their development. Indeed, it was the meteoric growth of the
East Asian Tigers (South Korea and Taiwan) that seamlessly bridged the
Cold War moorings of the authoritarian advantage thesis to its persistent
post-Cold War resonance. Although the East Asian financial crisis of the
late 1990s caused the buoyancy of this view to lag somewhat, the underpinnings
of the mentality remain strong. This is reflected in a 2002 report
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to the Asian Development Bank that concludes,“ . . . whereas democracies
have been slow in grappling with poverty, the authoritarian regimes in the
miracle economies achieved spectacular success . . . In a democracy with a
thriving civil society, the process of policy consultation, adoption, and execution
is much more time-consuming and involves many more procedural
formalities than under an authoritarian regime.”6
A 2003 best seller by Fareed Zakaria, The Future of Freedom: Illiberal
Democracy at Home and Abroad, picks up these themes in a contemporary
repostulation of the Lipset–Huntington argument. Coupling the perceived
superiority of the authoritarian growth record among poor countries and
the notion that democracies have never regressed to authoritarianism once
they’ve surpassed per capita income levels of $6,000, Zakaria argues that
the goal should be to support“liberal autocracies”in the developing world.
Authoritarian governments in poor countries supposedly have another
huge advantage over democracies. They are insulated from the demands of
the poor. In a system of one person, one vote, democratic governments in
developing countries are pressured to respond to the population’s desire for
costly entitlements like free schools, decent health care, minimum wage
laws, labor rights, and generous pension plans.7
Not only would caving into
these demands break the national budget, it would also discourage savings
and investment. What foreign business would want to pour serious money
into a country with so many extra costs attached, when it could move it instead
to low-wage countries like China and Vietnam? Democracy’s everlooming
electoral cycle puts great pressure on politicians to extend fiscal
commitments to particular constituencies that undermine a nation’s longterm
economic health.
The argument further claims that the firm hand of an authoritarian
government is required to maintain order and stability in backward nations
in which tribal loyalties, economic disparities, social tensions, and regional
conflicts are rife. Just look at Africa, Asia, the Middle East, and parts of
Latin America, especially the former colonies. Too often, the people living
there lack a real sense of national identity. In such places, only a strong national
government can provide the security needed for people to go about
their daily lives and safeguard the highways, bridges, and dams from insurgents.
In other words, only a monopoly of power in the early stages of a
country’s economic development can prevent anarchy.
This is the recurrent theme in Robert Kaplan’s widely read articles on democratization
in the post-Cold War era.8
An unabashed Huntington revivalist,
Kaplan challenges the West’s liberal instincts to promote democracy
in the developing world. Lacking the Western traditions of tolerance and
multiculturalism, efforts to encourage democratization in other regions of
the world are likely to be highly destabilizing. Rather than advancing
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democracy, civil conflict and the emergence of neo-autocrats is the more
likely result. A realist-based strategy of supporting authoritarian governments
that can consolidate the authority of the state is what is needed.
According to this school of thought, democracies in ethnically diverse
societies are highly vulnerable to social fragmentation. Each tribe or clan
will be reluctant to cede any authority or share power with rival groups,
leading to hair-trigger tensions and the constant threat of civil conflict.
State policymakers are left wringing their hands at the near impossibility
of coordinated action to alleviate national ills. More ominously, weak
politicians will have obvious incentives to stir up ethnic divisions in order
to cast themselves as defenders of their own cultures against the machinations
of rival groups. Such a stance might win them public office, but it can
also unleash violent passions. In fact, it is argued, the very act of staging
democratic elections in the diverse societies of much of the developing
world can trigger conflict.9
Single-party rule, by contrast, can channel a
profusion of interests into a central political apparatus that can minimize
ethnic divisions and clamp down on troublemakers who would attempt to
exploit them.
In another best-selling book from 2003, Amy Chua, in World on Fire:
How Exporting Free Market Democracy Breeds Ethnic Hatred and Global
Instability, argues that the global spread of “free-market democracy” has
been a principal cause of ethnic instability and violence throughout the
world. Her concern is that by increasing the political voice and power of the
majority, democratization has fostered the emergence of demagogues who
opportunistically whip up mass hatred against the wealthy minority elite
found in most societies. The result has been ethnic confiscation, authoritarian
backlash, and mass killing.10
In short, the tenets of the authoritarian advantage doctrine continue to
resonate in contemporary debates over prosperity and peace. This directly
factors into policy over what international actors should do in regions of
the world facing political or economic transition: the Arab world, the former
Soviet Union, Africa, Asia, and Latin America. The bottom-line policy
question remains—should the international community promote democratization
in poor countries?
The experts who favor authoritarian rule for poor nations, to be clear,
are not disavowing the goals of freedom and democracy. They are no
friends of tyranny. Rather, they say, they are realists and their pragmatism
is a surer path to economic prosperity and democracy than the principled,
though idealist notions of democracy proponents.
In their view, the key is timing. Once a society has reached some middleincome
level of development, a transition to democracy becomes viable.
Education and literacy levels will have risen to a point that political charlatans
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can less easily dupe the general population. With economic development
comes urbanization, a precondition for the formation of genuine political
parties with broad popular support.
A country that has achieved a middle-income level of development is
also more likely to have an established middle class that by its nature is a
moderating political force. If poor people are forced by necessity to strive
for short term gain, the middle class is concerned about economic stability
and the prospects for steadily improving their lot. The middle class has
more incentives to work within the political system than against it, and
greater fondness for pragmatic politicians than for fiery radicals.
As an economy develops, the attitudes of a nation’s elites also mature.
They will find common interest with the middle class on many issues. And
with the threat by populist politicians to their wealth and status receding,
they will become more amenable to sharing power. Little by little, they will
come to accept the concept of political equality, even to the point of giving
the poor a voice in the nation’s affairs.
This whole process arguably characterizes the transition to democracy
by the southern European dictatorships of Spain and Portugal and certain
of the East Asian Tigers (South Korea and Taiwan).11
In all those countries,
political participation was restricted to a single party for decades after
World War II. Sound economic policies were pursued that facilitated rapid
and stable economic development. Though Franco’s Spain and Salazar’s
Portugal had fascist features, none of these states was totalitarian, enabling
a private sector to develop and flourish. Some independent civic and associational
life was allowed, fostering a degree of popular participation, provided
it was not politically oriented. Over time and with varying degrees of
political turmoil, transitions to more pluralistic political systems were successfully
undertaken once these countries reached a fairly comfortable
range of middle-income development. For Portugal and South Korea, this
was a per capita income of roughly $6,500.12
The level was $10,500 for Spain
and Taiwan.
Democratic Disappointment in Latin America
The “development first” school also invokes Latin America to buttress its
position. Latin America began its democratization process in the late
1970s and 1980s. Virtually every country in the region took steps away
from military rule, eventually establishing competitive multi-party political
systems. The average per capita income in Latin America was roughly
$1,800, ranging from around $650 in countries like Honduras, Nicaragua,
and Guyana to just under $7,000 for Argentina when it moved to civilian
rule in 1983. The late 1980s and early 1990s were subsequently a period of
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robust, rapid growth for Latin America, raising hopes that democratization
and prosperity could grow hand-in-hand.
However, the results in a number of Latin countries have been much
more subdued since then, with growth slowing and poverty rates on the
rise.13
The region’s notorious economic disparities appear to be as acute as
ever, and corruption is widespread. Nine of the 20 countries in the region
were ranked in the bottom 30 percent of countries around the world by
Transparency International,a leading nonprofit advocacy group,in its 2003
corruption perception survey. It is little surprise therefore, that political
tensions have been boiling over. In 2003 and 2004, Venezuela, Ecuador,
Bolivia, Paraguay,Argentina, and Peru have all had political protests resulting
in violence and deaths.
Perhaps nowhere are these tensions more evident than inVenezuela.The
economy has been steadily contracting there since 1980, with per capita incomes
shrinking from $4,400 to $3,300. Railing against the sharp income
disparities within Venezuelan society, populist Hugo Chavez, a former junior
army officer who had led a failed coup attempt in 1992, was elected in
1999, promising to improve the lives of the country’s poor. Chavez has undertaken
high-profile programs to address poverty such as Plan Bolivar.
This mobilized military personnel to construct various infrastructure projects
including highways, schools, and hospitals as well as to provide various
social services. Conditions have only seemed to worsen, however.
Concurrently, Chavez took actions that weakened Venezuela’s longestablished
democratic institutions, including amending the constitution
so as to centralize power in the presidency,14
stacking the courts with his allies,
politicizing Venezuela’s armed forces, removing civilian checks on the
military, attacking the credibility of the country’s political institutions, and
bypassing the legislature through referendums. Despite the controversy
created by such actions, Chavez maintains widespread support among the
30 percent of the population living under the poverty line, keeping him in
power. Thumbing his nose at his political opponents who have not been
able to displace him at the polls,he boasts of his revolutionary ideology and
intention to stay in power until 2021.15
A short-lived coup against Chavez in April 2002 vividly demonstrated
the strains between social classes in Venezuelan society. While many from
the middle and upper echelons of society and even important elements of
organized labor backed it, the poor rose up in Chavez’s defense. Clashes resulted
in the deaths of at least 12 people. This resistance, the ineptitude of
the coup leaders, the uneasiness of the general population with the autocratic
nature of the coup plotters, and widespread condemnation by the international
community resulted in a sudden evaporation of support for the
coup. Chavez was returned to power within two days. A subsequent three-
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month strike in late 2002 and early 2003 again brought the country to a
standstill and exposed the depth of Venezuela’s division. To their credit,
both the government and the strikers sought to curb violence. However,
once the strike was broken, Chavez had a number of the strike leaders, led
by executives from the state oil company, arrested.16
In 2004, a referendum
to recall Chavez failed—perpetuating Venezuela’s political impasse.
All of this turmoil hurt the economy. Venezuela experienced a contraction
in real GDP per capita of 27 percent between 1998 and 2003. The social,
political, and economic cleavages of Venezuelan society appear
destined to pull the country into still deeper malaise. It thus represents the
worst of both scenarios—deteriorating economic performance and hardening
dictatorial rule. It is the prospect of such a democratic reversal that
many fear will engulf the entire region.17
The divergent experiences of China and Venezuela compel us to ask, as
the conventional school would have us do: Is supporting democracy the
right thing to do in the developing world? Doesn’t it actually hinder economic
development? In the process, are we ultimately undermining the
likelihood that these countries can establish sustainable democracies?
Defying the Predictions, Democracy Works
We answer these questions emphatically: supporting democracy in developing
countries is the right thing to do. It does not hurt their pursuit of
prosperity and peace. It helps it.
Before proceeding further, let’s take a moment to clarify what we mean
by democracy since this gets to the heart of the debate. When we refer to
democracy we mean those governance systems in which national leaders
are selected through free and fair elections, there are institutions that foster
a shared distribution of power, and citizens have extensive opportunities to
participate in political life.18
This explicitly requires a high degree of basic
political freedoms, civil liberties, and political rights. Countries that hold
flawed elections or technically fair elections where opposition political parties
cannot campaign freely or an independent press does not exist are not
democracies. The notion of an “illiberal democracy,” which some writers
have propounded, is an oxymoron that only muddies the waters.19
Clearly,
a state does not become a democracy overnight but rather reaches this
threshold only after a period of political evolution. As such, a wide spectrum
of governance systems, from the most oppressive authoritarian to the
most liberal democracy, exists. However, when we refer to democracies, we
include only those countries that have been determined to meet the robust
criteria of democratic governance (see Appendices A and B for lists).
Others that may not have reached this threshold, though are making
progress along the spectrum are considered democratizers. Those in the
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lower tier of this governance spectrum are categorized as autocracies. With
that said, let’s take a look at the evidence.
Defying the predictions of the “development first” perspective, some 70
low-income countries have made marked advancements toward democracy
over the past two decades. More than half of these countries, 43 in all,
had fully authoritarian governments before they started their transition.
According to the conventional theory, this shouldn’t have happened. Poor
countries were not supposed to be able to undertake, much less sustain,
democratic reforms. Yet, the quest for freedom and citizens’ desire to gain
greater control over their destiny has been unrelenting. In Africa, Asia,
Eastern Europe, Latin America, and the former Soviet Union—all regions
long considered resistant to democratic governance—societies have
demonstrated the universality of this aspiration.
Not only were these low-income countries supposed to be unable to democratize,
however, they were expected to stagnate economically. And yet
the opposite happened. As we examine in detail in Chapter 2, low-income
democracies and democratizing countries have outperformed their authoritarian
counterparts on a full range of development indicators. Whether we
consider life expectancy, literacy, access to clean drinking water, agricultural
productivity, or infant mortality, democracies at all income levels have typically
achieved results that are 20 percent to 40 percent superior to those of
autocracies. Moreover, contrary to the concerns of some economists, they
accomplished this without generating larger fiscal deficits than nonrepresentative
governments. These differences in development performance,
based on data for the past 40 years, have grown wider over recent decades.
Here, then, is the crux of our argument: Despite the enduring theoretical
underpinnings to the authoritarian-advantage thesis, the evidence for it
has always been weak. Not only can poor countries democratize, poor
democracies can develop quite effectively. As a leading scholar in this field,
Adam Przeworski, and his colleagues have succinctly put it, “There was
never any solid evidence that democracies were somehow inferior in generating
growth—certainly not enough to justify supporting or even condoning
dictatorships.”20
Notice that we are not saying that all democracies enjoy sterling development
experiences. In fact, some democracies have struggled in their economic
performance. Indeed the movement of more poor countries toward
democracy has sharpened the relevance and the stakes of the democracy
and development debate. Nor are we saying that certain autocratic governments
haven’t realized rapid economic growth. As the experience of China
shows, in some cases they have. What we are saying is that when one looks
at the experience of developing countries as a whole, those with more representative
and pluralistic political systems have typically developed signif-
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icantly more rapidly, broadly, and consistently than those with closed systems.
This record is persistent and striking, even for the least developed
countries. In percentage terms, two-thirds of developing country democracies
exceed the growth medians for their regions over the past 20 years.
It is the experience of this solid majority, rather than the exceptional
cases, that should guide our understanding of democracy’s role in sustaining
development. This is what is most relevant for policy guidance. The
handful of instances where authoritarian governments have overseen spectacular
growth hold important lessons. But to attempt to generalize these
cases to the entire developing world is a mistake.
Low-income democracies exhibit another feature that runs counter to
the conventional theory about how they ought to behave: resiliency. Even in
the face of economic setbacks and social unrest,the majority of countries on
the path to democracies has not backtracked into authoritarianism, but has
held onto its newfound freedoms (a phenomenon we review in Chapter 3).
And as they have stayed the course, their numbers have swelled. This momentum
continues to the present. There are more low-income democracies
and democratizing countries today than there were five or 10 years ago.
The change has been momentous.As recently as 1988, two-thirds of the
world’s states were nondemocratic. By 2002, the proportion had reversed.
Some two-thirds of all nations, accounting for 70 percent of the world’s
population, were on the democratic path.21
Indeed, the trend marks a
turning point in human history. Starting in the 1990s, for the first time a
Exposing a 50-Year-Old Myth • 11
Year
1950 1960 1970 1980 1990 2000
0
20
40
60
80
100
Based on Polity IV data
Intermediate Regimes
Democracies
Autocracies
Figure 1.1 There has been a dramatic shift toward democracy since the mid-1980s, transforming
global governance patterns.
Global Trends in Regime Categories, 1950-2002
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majority of the world’s people were living under some form of self-government
(see Figure 1.1).22
“Democratic Peace”
That might sound like a positive development, but is it? Some experts remain
skeptical. After all, poor democracies are weak democracies, inherently
unstable and fertile ground for conflict. Luckily for the world, that
truism turns out to be not so true, either (something we discuss in Chapter
4). Low-income countries undergoing political pluralization are no more
likely to be engaged in conflict than other low-income countries. And contrary
to the claims that democratization increases fragmentation in ethnically
diverse societies, the record shows that democracies do a better job of
developing broad social coalitions and balancing multiple, competing interests
in diverse cultures. In other words, global security hasn’t been
thrown into disarray since substantial numbers of new democracies have
been created. Rather, in the early years of the twenty-first century, the
gravest threat to international security is global terrorism. And the terrorist
networks undertaking these nefarious acts are virtually all based in politically
closed societies.
Counter to the expectations of the prevailing school, a great deal of research
in the 1990s on the political dimension of conflict has revealed a
powerful pattern of a “democratic peace.” Democracies rarely, if ever, go to
war with each other. This pattern has held from the establishment of the
first modern democracies in the nineteenth century to the present. As an
ever-greater share of the world’s states become democratic, the implications
for global peace are profound. Indeed, as the number of democracies
has been increasing, major conflicts around the world (including civil
wars) have declined sharply. Since 1992, they have fallen by two-thirds,23
numbering just 13 as of 2003.
Why Democracies Do a Better Job
What explains the consistently superior development outcomes of democracies?
We outline the conceptual underpinnings of democracy’s superior
developmental performance in Chapter 2. The reasons are many and varied,
but boil down to three core characteristics of representative government:
shared power, openness, and adaptability.
Although holding free elections is what commonly defines democracy,
what makes it work is the way it disperses power. Consequently, in contrast
to most autocratic governments,a broader range of interests are considered
on a more regular basis. This increases the likelihood that the priorities of
the general public will be weighed. Indeed, the argument that authoritarian
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governments can ignore special interest groups and therefore make decisions
that are for the overall good of the society is based on a series of highly
dubious assumptions. One is that the unelected leaders in these systems actually
have the interest of the public at heart. The behavior of Fidel Castro
in Cuba, Kim Jung-Il in North Korea, Alexander Lukashenko in Belarus,
and Hassan Ahmad al-Bashir in Sudan, to say nothing of former Iraqi dictator,
Saddam Hussein, would strongly suggest otherwise.
Another assumption is that authoritarian governments don’t have to
satisfy their own special-interest constituencies. In fact, most authoritarian
systems are built on the foundations of extensive patronage networks upon
which they rely to stay in power. Although typically shielded from public
view, these networks have enormous impacts on economic opportunity
and development. The separation of powers inherent in a democracy acts
as a constant reminder to the public that the central government’s powers
are limited. Thus, it encourages the expansion—and the independence—of
the private sector. This, in turn, fosters a climate of innovation and entrepreneurship,
the engines of economic growth.
The multiplicity of influences on the decision-making process in
democracies also leads to more moderate and nuanced policies. This moderating
influence contributes to one of the most distinctive qualities of
democratic development—its steadiness. The ups and downs of economic
growth in low-income countries are smaller in democracies. Rather than
experiencing alternating bouts of boom and bust, economies in democracies
are more likely to undergo a stable pattern of moderate gains and small
declines. For poor democracies, that quality of steadiness is exceedingly
important, for it means that they are more able than countries run by dictators
to avoid economic and humanitarian catastrophes. For broad segments
of their populations, this is the difference between life and death.
Consider this remarkable statistic: 95 percent of the worst economic
performances over the past 40 years were overseen by nondemocratic governments.
Similarly, virtually all contemporary refugee crises have been
wrought by autocratic governments. Although shared decision-making is
frequently slower, this process is more likely to weigh risks, thereby avoiding
calamitous policies. When something is going wrong, leaders hear
about it and are forced to take action.
Interest groups in democratic societies not only have greater influence
over decision-making, they are also better informed for the simple reason
that democracies generally guarantee basic civil liberties like freedom of
speech and association.The resulting free flow of information,including assessing
and disseminating ideas from abroad, discourages insular thinking
and stimulates vigorous debate. That in turn increases the likelihood that a
broader range of options and concerns will be taken into consideration than
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would occur in a more narrow political structure. Rather than being concealed,
society’s shortcomings are exposed and the seeds of a solution to
them are sown. The end result is better and more informed decisions.
Freewheeling discussion of a society’s problems also acts as a curb on corruption,
both public and private. Finally, it promotes efficiency, not only by
preventing the misuse of resources, but also by facilitating a more informed
allocation of investment and by deepening confidence in market systems.
Democracies also realize superior developmental performances because
they tend to be more adaptable. Our catch phrase to characterize this is
“democracies are learning organizations.’’ That is, people who live in them
are continually engaged in gathering more information, making adjustments
to their positions, and reassessing progress. The mindset is: If something
isn’t working, you change it, and if something is working, you do
more of it. Thus, through trial and error, democracies find the most suitable
route forward. Typically, the policy adopted is a nuanced, middle-ofthe-road
one, reflecting numerous, and sometimes conflicting, points of
view. The right course will vary from country to country, depending on its
economic, political, and cultural circumstances. In other words, democracy
does not guarantee that you will get the policy decision right. However, it
does guarantee you the right to change it when you’ve got it wrong.
Structurally, democracies’ “horizontal networking”—that is, the flow of
ideas back and forth between the public, private, and civic sectors—allows
for greater versatility, timeliness, and capacity for adjustment in the adoption
and implementation of a policy than the hierarchal structures typical
of authoritarian systems.
Finally,democracies’adaptability allows them to get rid of corrupt or ineffective
leaders. This reduces the amount of long-term damage they can
inflict. It also provides a process of perpetual renewal. New actors with different
ideas and priorities can come into power. Problems can be approached
from fresh perspectives. In such a climate, innovation flourishes
and deadwood—whether in people or systems—that builds up in public
bureaucracies shrivels.
That a process for removing leaders is built into the structure of democracy
provides a systematic mechanism for succession that minimizes political
crises. This feature of democratic politics lessens the likelihood of civil
conflict stemming from challenges to political legitimacy. Thus, the disruptions
of war are avoided and the energies that would be spent in conflict
are preserved for economic development. The resulting political stability in
democracies, esteemed economist Mancur Olson observed, contributes to
greater investor confidence,facilitating economic continuity and incentives
for long-term asset accumulation.24
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Our point is that the type of political system a country has in place affects
its rate and type of economic development. To many readers this may
seem like common sense. However, international development agencies
have been designed to ignore a country’s political orientation when making
funding decisions. The rationale is that this would detract from making
these allocations on hardheaded, technical economic criteria. By overlooking
democracy’s developmental contributions,however,the effectiveness of
many internationally funded development initiatives is muted. Worse yet,
ignoring the political dimension can at times cause international development
efforts to inadvertently undermine nascent democratization efforts—
a subject we focus on in Chapter 5.
Accounting for Democracy’s Shortcomings
None of this is to say that the mere establishment of a democracy is going
to solve all of a nation’s problems—far from it. The process of democratization
is rarely smooth and straightforward. And even in the established
democracies, there are competing and conflicting interests. A number of
low-income democracies maintain growth rates that are below the median
for their regions. Often, the slower pace is a legacy of their authoritarian
pasts. For instance, after inheriting societies torn by acute inequality and
corruption, a number of new democracies in Latin America have struggled
to find the right path forward. Similarly, while elections have been held
throughout Africa over the past decade, in far too many cases strongman
regimes are reemerging with no accountability to the people. In parts of the
former Soviet Union, democracy has been stillborn. In others, elected leaders
have used the powers of the state to suffocate free speech or any public
criticism of their rule. Whatever the cause, slow growth is demoralizing for
citizens of an emerging democracy who had pinned their hopes for a better
life on their new freedoms.
These are all serious problems and require concerted attention. Meeting
the material aspirations of newly democratic societies is crucial to consolidating
democratic gains across the world—the achievement of which remains
uncertain. It is important to place the struggles of these newly
democratic regions in context, however. Economic growth in both Latin
America and Africa in the 1990s exceeded their respective performances
during the 1980s, when most still had autocratic governments. Similarly,
the median proportion of Latin American populations living on less than
$1 a day (in inflation-adjusted terms) has declined steadily under democratic
governance (dropping to 11 percent in 2001).25
And the increased
attention given to corruption in these regions does not necessarily indicate
that corruption has become more prevalent. More likely, it reflects the
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increased willingness of people in these societies to talk about it. And despite
the economic and political struggles in a number of Latin American
and African countries, public support for democracy remains robust.26
We contend, therefore, that shortcomings in a country’s economic development
are often explained by too narrow, rather than too much democracy.
And yes, there are degrees of democracy, because democracy is about
more than elections.As we have already pointed out, democracy’s contribution
to economic development comes through its creation of structures of
shared power. Putting checks on the power of the chief executive, separating
the party from state decision-making, establishing a merit-based civil service,fostering
an independent private sector,facilitating the free flow of ideas,
and creating expectations that a country’s leadership will adhere to the rule
of law—all of these are hallmarks of a democratic political structure that
augments the prospects for social and economic development.Democracies
at every income level that have established stronger mechanisms of checks
and balances grow more rapidly than those that have not. To address the
shortcomings of economically struggling democracies, therefore, requires
broadening these structures of shared power.
It is possible, of course, for dictatorships to create checks on power. A
number of the East Asian dynamos did so. Fearing the emergence of communist
insurgencies like those that ultimately seized power in China,North
Korea, and Vietnam, they certainly had a powerful incentive to spur broadbased
economic development.27
They also began their drive to develop with
relatively egalitarian societies, diminishing the pitched social battles encountered
in other regions.And they did a good job of it, reinvesting the assets
created from their initial economic gains in education, health care, and
job training. But the fact remains that, unlike democracies, dictatorships
have no built-in inclination to create a system of restraints on government.
The Flaws of the Authoritarian Growth Model
The two overarching views we have described—authoritarian advantage
versus democratic development—portend dramatically divergent visions
of the way forward for low-income countries. We have already discussed
some of the risks if the democratic-development position is misguided.
Indeed, concerns over the anticipated political instability that would accompany
“premature democratization” have been folded into the development-first
argument. But let’s examine the downside implications if the
authoritarian-led development theory is off the mark.
They assert that the chances for poor countries to make the transition to
democracy improve once they reach some middle level of development.
Until then, they say, authoritarian governments are best suited to lift up
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these countries’economies. But why is this? A strong case can be made that
they are the worst suited. Since they are narrowly based, the economic
growth that is realized is likely to be confined to a sliver of the population.
Lacking transparency, autocratic governments tend to encourage patronage
and corruption. Their repressive nature also makes them susceptible
to internal conflict. Far from nudging their economies to that magical
middle-income threshold, autocratic government may actually impede
the process. We believe that a policy strategy dependent on autocratic-led
economic development is thus perpetually caught in a vicious circle. Since
these societies rarely develop, they are never considered “ready” for
democracy.
It is a sort of “catch-22” of economic development: A poor society can’t
go democratic until it becomes relatively prosperous, but it can’t become
relatively prosperous until it goes democratic. The contradiction highlights
another conspicuous flaw in the authoritarian thesis first noted by political
scientist Guillermo O’Donnell: It does not specify at just what level of economic
development an autocracy becomes ready to make the big leap to
democracy.28
In fact, we see that among the handful of authoritarian governments
that have grown steadily over an extended period of time (such
as Singapore, China, Soeharto’s Indonesia, Tunisia, and Egypt), most have
been no more willing to share power after decades of growth than they were
at early stages of development.
Furthermore, this transition theory does not take into consideration the
social and cultural dimensions involved. As one observer noted, it treats
political systems like coats. It assumes that a society can just take an autocratic
system off and put a democracy on.29
The reality,of course,is that political
systems affect the culture, values, incentive structure, and economy
of a society. Nations that have lived with authoritarian rule undergo a persistent
deterioration of societal values and cohesion.30
The breakdown in
order following the toppling of Saddam Hussein in Iraq and the lawlessness
and perceived moral vacuum in Russia after decades of communism are
contemporary manifestations of the decay that builds up under the shell of
autocratic stability. The further down an autocratic path a society has gone,
the longer and bumpier is the road to democracy.
And the greater is the risk, by far, of human misery, even catastrophe.
Over the past 40 years, autocracies have been twice as likely to experience
economic collapse as democracies.31
When that happens, the danger of
mass starvation looms. In contrast, Nobel laureate Amartya Sen has observed,
there has never been a democracy with a free press that has experienced
a famine.32
Autocracies are also more prone to conflict. Eighty
percent of all interstate conflicts are instigated by autocracies.33
Furthermore, they are more vulnerable to civil wars. And since civil wars
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have a 30 percent chance of spilling over into neighboring countries, the
consequences of this instability must be considered in the context of the
broader region.34
In short, a development strategy based on supporting autocracy
is akin to picking one’s way through a minefield.
A review of the weak empirical support for an authoritarian growth advantage,
coupled with the high probability of risk, prompts us to revisit the
question of why this conceptual framework has had such resonance. The
fact that this thesis gained currency during the Cold War certainly had
some bearing on the outcome. The West was obsessed with the communist
threat. Cooperation from anticommunist authoritarian allies was highly
valued.Moreover,at the time the groundwork for this theory was laid in the
1950s and 1960s, there weren’t many low-income democracies in existence;
70 percent of the world’s states were nondemocratic. Most of the new states
of this era were rightly seen as possessing limited levels of human, financial,
and infrastructure capacity. Concerns over how they could be held together
shaped an acceptance of the need for hierarchal political structures.
Moreover, the superpower alliances that divided the world and propped up
many of these authoritarian governments seemed highly durable.
Therefore, for scholars writing during this period to imagine successful
democratic transitions, much less a wholesale shift toward democratic governance,
would have required exceptional vision. Finally, development
thinking at this juncture was still dominated by the belief that purely technocratic
solutions could address poverty and stimulate economic growth
around the world. Many of the prevailing theories (for example, industrialization,
investment to fill the finance gap, forced savings, and importsubstitution)
focused on top-down approaches. These strategies were well
suited to hierarchal political structures. The belief was that if the correct
technocratic development formula could be found and adopted by the
leadership in the developing world, then rapid development would result.
In other words, the appeal of the authoritarian-led approach has always
had at least something to do with its expediency, in comparison to the
messy and time-consuming procedures typical of democracy.
It is really no surprise, then, that the authoritarian advantage thesis enjoyed
such support in the decades following World War II. However, revivalist
supporters of this view in the post-Cold War era—when the
numbers of democracies around the world have been increasing—are in a
much more awkward position. From our perspective, they have seized on
specific cases of supposed economic successes in dictatorships, compared
these to selected democratic failures, and used them to justify the original
theory. To sustain this view, they have had to rely on idealized versions of
autocratic success. Over the last 20 years, there have only been a handful of
cases of sustained growth under authoritarian regimes: Bhutan, China,
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Egypt, South Korea, Singapore, Taiwan, Tunisia, and Vietnam.35
However,
to hold these up as a model for other developing countries requires ignoring
the 60 or so other dictatorships that had sustained sub-par growth
during this period. In other words, seven times as many authoritarian
regimes had poor growth as had superlative growth. Moreover, 43 had at
least one episode of a disastrous economic experience—which we define
as an annual contraction per capita GDP of 10 percent or more—during
this time. To cling to the notion that autocratic government is required for
development among poor countries requires an exceptional degree of selective
thinking.
Succinctly put, the autocratic growth model is terribly narrow. The
number of countries that have followed it with success is few. Those that
have gone on to become democracies are even fewer. Proponents of this
model, therefore, are hinging their claims on a few exceptional cases: South
Korea, Taiwan, Portugal, and Spain (all of which did move into the democratic
camp). How valid are these cases as a template for today’s developing
countries in Latin America, Africa, Asia, and the former Soviet Union? The
political cultures in these regions are generally characterized as personalistic,
elitist, and patronage-based—traits that are inimical to promoting economic
development. Yet these are the very characteristics that an
authoritarian growth model reinforces. Furthermore, the deepening monopolization
of political and economic power typical of autocratic government
makes the proposition that they are better suited to improving and
sustaining living conditions in developing countries even less credible.
For historical perspective, let’s consider some of the one-party states of
the 1960s touted by Huntington and others as models for development: the
Soviet Union, Yugoslavia, Mexico, North Korea, and North Vietnam.
Several enjoyed periods of rapid growth over an extended period. In some
years, they set the pace for growth globally. However, in none was the early
growth sustained into subsequent decades. On the contrary, they all went
through disastrous economic ordeals between growth spurts. This volatility
is characteristic of growth in authoritarian economies. To repeat an important
point: While a small number of countries with closed governments
post the most rapid growth rates in the world, a much larger group of them
clogs the ranks of the worst performers. In many cases the same country
can occupy both positions in a period of a few years. The poor track record
of even the historically star performers of the autocratic-growth thesis reveals
the sandy ground upon which this model is built.
China vs. India
This brings us back to China. Will it continue on its torrid pace of growth
and make a smooth transition to democracy? Or will it begin to shudder
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and eventually endure economic collapse as so many other autocratic governments
have before it? In other words, is China more likely to be the next
South Korea or the next Indonesia? We are hoping for the former. This
would be in the best interests of the Chinese people and the world at large.
However, economists point to economic flaws—ranging from insolvent
banks, environmental destruction, and soaring unemployment to swooning
returns on foreign investments—that could undermine China’s future
performance.
Whatever the strengths and weaknesses of China’s economy, we rivet on
two points. First, China’s rapid growth began only after it adopted marketbased
reforms—economic performance flowed from economic policies
rather than its form of government. In the previous three decades under an
authoritarian government and a planned economy,the economy stagnated.
Clearly, authoritarian rule paved no road to prosperity. To the contrary,
prosperity came as the dictatorship, copying the example of Japan and the
East Asian Tigers, moved away from micromanaging the economy and toward
a market system.Second,China faces profound challenges in the years
ahead, not the least of which is the task of absorbing workers rendered unemployed
by the closure of moribund state-controlled enterprises.
As the Communist Party moves away from its ideological roots, it increasingly
becomes primarily a mechanism to maintain power. Its rural
base has dwindled, suggesting that its social base is narrowing sharply.
While some have applauded the move to accept entrepreneurs into the
party as a means of broadening this base, in fact, this is really an elaborate
means of consolidating patronage relationships.36
Rather than creating an
independent middle class that will serve as a counterweight to the party, the
party is co-opting the wealthy entrepreneurs to ensure that it remains the
sole power center in society. Entrepreneurs that join the party have privileged
access to public contracts and bank loans. Unsurprisingly, levels of
corruption are on the rise.37
Even if the Chinese economy continues to grow, it faces daunting challenges.
Will the Communist Party allow for a genuine transition to democracy?
Or is it racing toward the edge of an economic cliff like so many other
autocratic countries in the past that had seemed to be performing economic
miracles? The latter is an unsettling—and real—possibility. For Beijing’s
only claim to political legitimacy today is its ability to deliver economic
growth. If it is no longer able to do so, its governance structure will be exposed
not only as closed and inflexible but unworkable—and will crumble
under its own weight. Should that happen, the consequences for the
Chinese people will be severe and foreign investors will be left with the sad
realization that their dreams of a big payout blinded them to the economic
realities of an opaque system built on a weak adherence to a rule of law.
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Whatever happens, China faces a period of great transition in the years
ahead. Despite the successful transfer of power to new leadership in the sixteenth
Party Congress in late 2002, the lack of a legitimizing process leaves
its political structures unstable. The Communist Party’s narrowing political
base, which now represents a scant 5 percent of the population, only
magnifies its alienation from the population. Indeed, a survey of migrant
laborers indicates that the prevailing image of the party is that of a selfserving
elite.38
Ultimately, therefore, Chinese authorities retain power by
their capacity for repression. As Minxin Pei has noted,“the preservation of
a one-party state and the implementation of the rule of law are fundamentally
incompatible.”39
In short, China must establish a legitimate, stable political
structure. Until it does, the sustainability of its economic progress
remains uncertain.
The performance of democratic India, the other Asian behemoth, has
frequently been compared to China’s as a barometer of the superiority of
authoritarian governance to that of democracy. By most measures, over the
last two decades, China has dominated. For while India’s achievement has
been impressive, its doubling of per capital incomes from $239 to $496 between
1982 and 2002 falls far short of China’s quadrupling of incomes from
$189 to $940 in the same period.40
And yet, the comparison is not as clear-cut as it might seem. While both
China and India established their political structures in the aftermath of
World War II, it was arguably China that first adopted a capitalist economy.
Starting with its economic reforms in the late 1970s, it pursued more liberalized
pricing, labor, export, and capital policies than India (at least until
1993 when India seriously undertook economic reforms). In contrast,
India borrowed heavily from the Soviet economic model. Consequently, it
maintained a significant degree of central planning in its economy into the
1990s (the over-regulated legacy of which, many argue, remains a problem
today). India’s public sector share of GDP growth increased to 26 percent
in the 1980s from 10 percent in 1960.41
Furthermore, drawing on the development
theories that prevailed from the 1950s well into the 1970s, India
largely adhered to the import-substitution and industrialization models of
development even as China was embracing market-based reform. But as
India has adopted a more liberal economic posture, its growth too has accelerated,
averaging annual per capita gains of more than five percent in
the 1990s.
In short, the China–India economic rivalry is still playing out. And already,
India is exhibiting the corrective traits of democratic governance. Its
growth is robust, though not exceptional. Nonetheless, it has avoided economic
crises and humanitarian catastrophes, something China has not.42
India has been more willing to reduce subsidies to state-owned enterprises
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and allow foreign ownership.43
Moreover, India has demonstrated an ability
to innovate—as seen by the originality of the high-technology products
that have been generated in Bangalore—products that China cannot match,
despite the massive state subsidies it lavishes on its technology sector.
As it has moved into an era of competitive party politics, the Indian ship
of state is also benefiting from a long-overdue “scraping of the barnacles”
—the breaking up of some of the entrenched formal and informal patronage
networks that had come to characterize Indian economic life. China,
while enjoying the exhilaration of rapid growth—as have other authoritarian
systems before it—still has some treacherous shoals to navigate.The encrustation
of its one-party monopoly is increasingly burdensome, as seen
by the growing levels of corruption. Public outrage and violence against
state officials have been on the rise, especially in rural areas. Most seriously,
China must yet address how it will negotiate a transition to a more representative
form of government, something India has already done. Until
then, China’s economic gains are inherently unstable.
The Way Forward
We’ve put forth the argument that democracies perform consistently better
on a range of social and economic development indicators than authoritarian
governments do. They respond more readily to people’s needs,
they are adaptable, and they create checks and balances on government
power that discourage reckless policies.
Why is it important to delve into this debate? Because ideas matter—they
have consequences. If the “development first” view holds, the international
community will pursue one set of policies to spur economic development
in poor countries. If instead democracy’s developmental and security advantages
are recognized, major shifts in policy would be required.
Highlighting some of these changes is the focus of Chapters 6 and 7.
Indeed, frustrated with a long string of development failures, the World
Bank, the United Nations Development Program (UNDP), and other development
organizations began to focus more explicitly on governance issues
starting in the 1990s. Poor governance and its draining by-product,
corruption, were identified as root causes to chronic underdevelopment.
This led to many new projects aimed at enhancing governance effectiveness
by strengthening the capacity of the civil service, judiciary, and anticorruption
agencies. Similar efforts were undertaken to establish and
implement more consistent property rights and contract enforcement legislation
to make emerging market economies more attractive to private investment.
In parallel to these changes, many bilateral donors, led by the
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United States Agency for International Development (USAID), established
democracy promotion units that focused on a wide range of activities including
electoral and constitutional reform, capacity-building for legislators,
encouraging civil society, and promoting norms for civil-military
relations. Despite this increased attention, the focus on “good governance”
has, by and large, not translated into linking development assistance to
democracy. Low-income autocracies continue to receive the same level of
official development assistance, on average, as democracies. Reorienting
United States and other industrialized democracies’ development policies,
therefore, would at the very least require gauging how far down the path of
democracy a given country has gone before allocating development assistance
to it. That may sound like a simple exercise, but in fact it would require
major changes in the way countries and multinational organizations
divide up the economic-aid pie. At present, certain agencies are legally required
to ignore political characteristics of a government to which funding
is provided. If a democracy-led development thesis gains acceptance, that
mandate would have to be revised.
Policy adjustments in timing and approach are also in order. To accept
the role of democracy in triggering economic development compels recognition
of the role of coalition building in democratic societies. There are, of
course, the broad social compacts between labor and management, rich
and poor, rural and urban that establish the norms and parameters that
guide a democratic society’s politics. However, democracies also thrive on
engaged citizens acting through private associations. They provide an active
brake on repressive government, forcing authorities to take proper
heed of legitimate interests. Think of the essential role in the West played
by coalitions of consumers, small businesses, tax opponents, labor, and
human rights groups. Such coalitions take time to build—a process that
varies by country. If international donors try to force poor countries into a
standardized prescription of economic reforms without taking this into account,
they could undercut incipient democratization efforts.
Changes in U.S. national security policy are also required. National security
concerns have regularly been invoked to trump democracy considerations
in U.S. foreign policy decisions. This Cold War tendency has
persisted long after the fall of the Berlin Wall. As American foreign policy
leaders come to recognize the nexus between autocracy, poverty, and conflict,
they will be obliged to revisit the wisdom of this approach. The longterm
downside costs are frequently greater than is recognized when these
relationships are initiated. Indeed, the expanding threat of international
terrorism is in certain respects a direct outgrowth of earlier instances of
U.S.-supported autocratic governance.
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The tensions between the short-term goal of gaining the support of
strategically important authoritarian governments and the long-term
damage to American policy that such a policy might have are likely to intensify
in the coming years. Viewing the issue in this way is a departure in
strategic thinking from the often-accepted formula that giving military assistance
to dictatorships is a tradeoff between our partiality for democracy
and our need for security. In fact, the United States’ experience since World
War II, made vivid by the September 11, 2001 terrorist attacks, has shown
that America’s vital foreign-policy interests of promoting democracy and
safeguarding national security are not only compatible, they are comple-
mentary.
For the past half-century, the United States and much of the industrialized
world have supported a strategy of relations with low-income countries
built on a mix of false assumptions. In this book, we will hold those
suppositions up to the light. In the process, we demonstrate the superiority
of democracy over dictatorship in spurring economic development and
preserving social stability.We invite readers to walk with us as we review the
record and to contemplate the policy dimensions of a democracy-centered
foreign policy.Such an approach,we believe,greatly improves the prospects
for a safer and more prosperous world.
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CHAPTER 2
Setting the Record Right
I believe what a country needs to develop is discipline more than
democracy. The exuberance of democracy leads to indiscipline and
disorderly conduct, which are inimical to development.
Lee Kuan Yew
former President of Singapore
Democracy is the answer. Not because democracy is perfect. It is precisely
because it is imperfect.We are not looking for another utopia; we
are looking for an optimal solution based on the systems available to us.
By that standard, there is no contest . . . and there is no justification for
further delay. For decades after independence, many of our populist
regimes told us that democracy had to be suspended until“national liberation;”until
Palestine had been liberated; until we have economic development;
until we have true social justice; and so on. As it turns out
now, after 50 years of depriving ourselves of democracy, we find ourselves
with none of these things! And we’re no closer to democracy.
Saad Eddin Ibrahim
Egyptian Democracy Activist
The belief that authoritarian1
government is better suited to propel economic
growth in low-income societies draws on a storied intellectual tradition.
Aristotle believed that only in a wealthy society in which assets were
equitably distributed could ordinary citizens develop the self-restraint to
participate in politics without succumbing to the irresponsible appeals of
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demagogues. This idea built on the view of his mentor, Plato, that matters
of state were so serious and complex that only a specially trained technocratic
elite was equipped to manage the day-to-day responsibilities of
governance.
In the twentieth century, the notion of an authoritarian advantage
among low-income countries was popularized by the work of Seymour
Lipset, who contended that only with elevated levels of income, education,
and urbanization could political pluralism take hold.2
Conceived at the
height of the Cold War when there were relatively few democracies, Lipset’s
thesis viewed democracy as the crowning achievement of a country’s de-
velopment.3
At early stages of development, by extension, authoritarian
governments were considered more capable catalysts of economic progress.
That development,in turn,would create the conditions—industrialization,
literacy, and a substantial middle class—that would eventually lead to stable
democracy.
There were social, political, economic, and security dimensions to this
argument. Higher incomes helped the poor to develop longer time horizons
and a more gradualist view of politics. Meanwhile, widespread attainment
of basic material needs and literacy made the concept of power
sharing with commoners more conceivable to the wealthy. In contrast, if
democracy were attempted prematurely in a society still mired in poverty,
illiteracy, and weak social institutions, the likely result would be irresponsible
government leading to social instability or domination by an elite class
that was unaccountable to the general public.
The validity of this theory was widely accepted in academic and policy
circles.4
The reasoning was that in a society with limited resources and capacity,
the iron fist of an authoritarian regime was better suited to mobilizing
the nation’s limited financial and human resources. The evidence
seemed to support this logic: communist Soviet Union, Yugoslavia, and
Romania were among the fastest growing economies in the world in the
1950s and 1960s. In his 1968 classic, Political Order in Changing Societies,
Samuel Huntington touted the invaluable organizing role that a strong single
political party could bring to a poor society: “The great utility and the
great appeal of the single-party system in modernizing countries is that it
is an institution that, in large measure, promotes both concentration (and
hence innovation) and also expansion (and hence group assimilation).’’“In
various ways the established one-party systems in Mexico, Tunisia, North
Korea, and North Vietnam have all demonstrated both these capacities.”
Liberal, pluralistic, democratic governments lacked the political power to
bring about fundamental change.5
Authoritarian governments were also assumed to be better equipped
than democracies to overcome cultural and legal obstacles to development
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and plunge into the nation-building tasks of educating the masses, creating
a national transportation system, and exploiting natural resources. And,
crucial to reducing disparities in wealth and income, they had the wherewithal
to force through land reform, as South Korea, Taiwan, Japan,6
Mexico, Turkey, Egypt, Pakistan, Syria, and numerous systems had all
amply demonstrated.7
Huntington and Nelson neatly summed up the
harsh necessity: “Political participation must be held down, at least temporarily,
in order to promote economic development.”8
It was a view that
gave moral support to the West’s Cold War policy of supporting authoritarian
governments that disavowed communism.
Even with the end of the Cold War and the movement toward democracy
by numerous developing countries, the notion of an authoritarian advantage
remains embedded in the worldviews of many international actors.
Some have cited the need to face a “cruel choice” between democracy and
development9
and the destabilizing effects arising from unmet expectations
created by simultaneously supporting both.10
In its 1993 report, The East
Asian Miracle: Economic Growth and Public Policy, the World Bank endorsed
the technocratic and efficiency-enhancing advantages of authoritarian
systems for generating development—a view echoed in 2002 by the
Asian Development Bank.11
Some leading growth economists continue to
warn against the dangers democracy poses to economic growth. Robert
Barro, for example, has urged Western policymakers to support efficient
authoritarian regimes that provide political stability and improve economic
conditions in poor countries.12
Although rarely voicing open support
for this view, many diplomats and multilateral agency representatives
quietly endorse it.13
The attractions for them are more than intellectual.
Dealing with one individual or a small number of powerful bureaucrats in
an authoritarian system is a lot easier for diplomats than maintaining a
broad network of relations in a democracy.
It goes without saying that authoritarian leaders are big fans of the authoritarian
advantage theory.14
At a private presentation of the path-breaking
Arab Human Development Report to Arab League foreign ministers in August
2002, all but two of the 19 ministers in attendance were reported to have dismissed
the report’s recommendation to address the region’s “freedom
deficit.” Their ostensible rationale was that this would hurt prospects for development
in the region.
Proponents of authoritarian-led development also based their position
on the perceived weaknesses that democracies bring to the task.
Democratic leaders, they say, are too quick to cave into the demands of the
masses for budget-busting welfare programs, too willing to cater to special
interests, too indecisive to take the bold steps necessary to build strong state
institutions, and just plain too weak to stave off political instability.
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The first of these major failings is “macroeconomic populism,” the inevitable
surrender by democratic leaders to the electorate’s demands for
higher wages and social service entitlements that will satisfy poor people’s
short-term needs but breed long-term macroeconomic instability.15
Invariably, taxes will go up, public-sector deficits will widen, private entrepreneurs
will be starved of capital, innovation will be stifled, and productivity
will decline.
A second often-stated drawback of democracy in spurring economic development
is the vulnerability of politicians to the influences of wealthy individuals,
resource-rich monopolies, or powerful labor unions that can
mobilize funding, publicity, and popular support on their behalf. As a result,
policies are skewed to benefit these special interests at the expense of
the general public and worsen rather than alleviate economic inefficiencies.
By contrast, dictators can resist such pressures and forge policies that will
serve the nation’s long-term interests.
A third perceived deficiency of democracies, deriving from their need to
placate competing coalitions of power, is their inherent messiness and
slowness to act. Stalemates are common, and when compromises are
reached, they often have little practical effect. Furthermore, decisions are
never final.16
Rather, they are regularly open to review, renegotiation, and
reversal, particularly if a new leadership comes to power. Even in the prosperous
and politically mature United States, this dynamic can be seen at
work in the never-ending debates and legislative maneuvering over abortion,
campaign finance reform, and affirmative action. Elections, from this
perspective, are a perpetual source of uncertainty and, therefore, a disincentive
to investment. Consider the case of a major international energy
firm that in the late 1990s invested several billion dollars in a number of
emerging democracies in Latin America that had adopted free-market systems.
The understanding of the firm was that electricity would be supplied
on a cost basis, allowing it to recoup its investment over a designated period.
The flow of revenue in turn would provide the company with an incentive
to sustain and expand its services. Alas, before long, populist
candidates in some of those countries were declaring that essentials like
electricity should be provided to the public for free, or at least at reduced
cost. The proposals threw the company’s planning into disarray and discouraged
further investment, not just by the energy provider but any foreign
company. Advocates of authoritarian governments as the surest route
to economic development say they offer greater security to outside investors
because a smaller number of people in power reach decisions more
quickly and more certainly.
A fourth disadvantage cited by critics of democracies is their tendency
to precipitate political instability.17
This view holds that elections in poor
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countries populated by fractious ethnic, regional, religious, and economic
groupings have a polarizing effect.18
In such a context, there is a great temptation
for politicians to fan factional conflicts to gain the support of this
group or that. This is particularly the case in winner-take-all societies that
lack established checks on public authority,a tradition of professional journalism,
norms of compromise, and transparency. Low-income countries
are considered particularly susceptible because their very poverty limits the
potential for economic trade-offs that can lead to compromise among the
competing factions. Authoritarian governments can avoid that trap by
using their power to keep factional rivalries in check.
Empirical Experience
However many scholars have studied the relationship between democracy
and development, they have been hard put to find a causal relationship between
them.19
There is always the possibility that none exists. But assuming
one does, it is difficult to measure. So many factors come into play both in
a country’s political evolution and in its economic progression that separating
them all out, quantifying and analyzing them and the connections
among them are practically impossible. Seemingly straightforward matters,
like defining democracy, can be daunting. For example, does a country
merit the name just because it holds elections? It depends on how the
elections are held, of course. But then, how do you evaluate that process?
For clarity’s sake, when we say democracy we mean political systems characterized
by popular participation, genuine competition for executive office,
and institutional checks on power. This is operationalized using the
Polity IV democracy index, which assigns a 0 to 10 democracy rating annually
for every country with populations greater than 500,000.20
(For a list
of countries and their democracy scores, see appendices A & B.) We set a
high bar in our designation of democracies so as to avoid introducing bias
from countries that may demonstrate certain trappings of self-governance,
though eschew meaningful mechanisms of shared power.
Similarly, economic growth is a crude measure of development—it
doesn’t capture distributional questions or the extent to which citizens are
meeting basic needs. Furthermore, economic data, particularly among
poorer countries, are often missing. Compounding the complexity, many
analyses have drawn heavily from the Cold War era when relatively few lowincome
democracies existed and much development aid was used to solidify
superpower alliances rather than address poverty.
Given all those difficulties, we have approached the empirical questions
surrounding democracy and development differently. Rather than looking
for a causal link between them, we aim to study the extent to which they
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coexist in low-income countries—in other words, whether they are compatible
with each other. This, after all, is the central issue to the overarching
policy question to this debate: Should the international community support
democratization in developing countries? The common wisdom asserts
that democracy hinders economic progress in the early stages of
development. If, however, it can be shown that the two phenomena occur
simultaneously, then the empirical basis for the authoritarian-led development
model largely dissolves.
Toward that end, we examine as large a sample of countries as possible
—covering the period from 1960 to 2001—the most inclusive and recent
years for which reliable cross-country data is available. Recognizing that
there is a spectrum of governance types, we compare countries that qualify
as democracies versus autocracies (i.e., at the top and bottom tiers of the
Polity IV democracy ratings). This allows for the sharpest comparison of
how governance type may affect development outcomes—and is most directly
relevant to the question of whether or not an authoritarian advantage
exists for developing countries.
We find that despite the wide acceptance of the prevailing wisdom,
democracies have, on average,21
out-performed autocracies on virtually
every aspect of development considered.When a full sample of countries is
considered, democracies have realized consistently higher levels of economic
growth than autocracies during the past four decades (Figure 2.1).
This translates into a 30 percent advantage in annual per capita economic
growth rates (2.3 percent versus 1.6 percent).22
Since these figures include
countries that are better off, this difference in itself is not startling. It has
long been recognized by all sides that most prosperous states in the world
are well-established democracies. These democracies have an impressive
record of improving productivity, asset creation, and superior economic
growth.23
The real debate, therefore, is whether low-income democracies24
are capable of growing at a clip comparable to low-income authoritarian
governments. (We categorize countries with per capita incomes below
$2,000 as low-income.) In other words, can countries such as the
Dominican Republic,Bulgaria,India,and the Philippines keep up? The disagreement
is not on the goal (prosperous democracies) but on the path and
the timing to get there.
Limiting our review to low-income countries, we find little discernible
difference in per capita growth rates between democracies and autocracies
from 1960 to 2001 (see Figure 2.2). The median growth levels for each
decade considered are very comparable. The clear-cut democratic dominance
seen in the full sample does not hold among low-income countries.
Nevertheless, we do not see any evidence of an authoritarian advantage—
as long argued by the conventional wisdom—even during the early decades
of this period when this thesis was first put forward. For the entire 40-year
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Setting the Record Right • 31
0
0.5
1
1.5
2
2.5
3
3.5
4
1960's 1970's 1980's 1990's
AnnualGDP/CapitaGrowth(%)
Democracy Autocracy
Based on data fromWorld Development Indicators 2003; Polity IV.
Figure 2.1 Over the decades democracies have consistently outpaced autocracies in their
rates of economic growth.
0
0.5
1
1.5
2
2.5
3
1960's 1970's 1980's 1990's
AnnualGDP/CapitaGrowth(%)
Democracy Autocracy
Based on data derived fromWorld Development Indicators 2003; Polity IV.
Figure 2.2 Low-income democracies have grown just as rapidly as low-income autocracies
over the four decades since 1960.
Median GDP/Capita Growth for Democracies and Autocracies
Median GDP/Capita Growth Rates for Democracies and Autocracies with
Per Capita Incomes Below $2,000
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period, the median growth rate among low-income countries is roughly
equivalent: 1.5 percent for democracies versus 1.3 percent for autocracies.
There is more to this story, however. The phenomenal growth experience
of the East Asian Tigers skews the overall growth rate of authoritarian
countries. When East Asia is removed from the low-income sample,
the median authoritarian rate drops markedly while the democratic rate
holds steady (see Figure 2.3). This reveals a pattern of democratic growth
rates 50 percent superior to that of autocracies for the rest of the world
over the 40-year sample period. The differential since 1970 has widened
with low-income democracies outside of East Asia outpacing their autocratic
counterparts in their average rates of growth by 1.6 percent versus 0.9
percent. Even stronger 40-year divergences emerge for countries with per
capita incomes below $1,000 (1.75 percent versus 0.75 percent) and $500
per year (1.6 percent versus 0.6 percent). Some of the faster growing lowincome
democracies that are reflected in these results include Botswana,
Costa Rica, Dominican Republic, India, Lithuania, Mauritius, Nicaragua,
and Trinidad and Tobago.
This gap in growth rates between democracies and autocracies might be
larger except for a simple, though frequently overlooked, recording problem:
32 • The Democracy Advantage
0
0.5
1
1.5
2
2.5
1960's 1970's 1980's 1990's
AnnualGDP/CapitaGrowth(%)
Democracy Autocracy
Based on data derived fromWorld Development Indicators 2003; Polity IV.
Figure 2.3 Outside of East Asia, low-income democracies have dramatically outpaced low-income
autocracies in their rate of economic growth—a divergence that widened since 1970.
Median GDP/Capita Growth Rates for Democracies and Autocracies with
Per Capita Income Levels Below $2,000, Excluding East Asia
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many authoritarian governments do not make their economic statistics
publicly available. Consequently, these data points are not included in the
comparative growth rates we examine. If they were, the level of autocratic
growth would likely be even lower than what we document. Specifically,
from 1960 to 2001, a full one-fourth of economic growth data for autocratic
countries is missing. For the same period, just under five percent of
the data from democracies are missing.25
Thus, growth data for 38 authoritarian
countries during parts or all of this period are not considered. This
includes states such as Afghanistan, Cambodia, Cuba, Djibouti, Iraq, North
Korea, Somalia, and numerous Middle Eastern and Eastern Bloc states. In
contrast, only five democratic countries have missing data. The availability
of data does improve in the 1990s but sharp differences between the two
categories of countries remain evident. Eleven percent of authoritarian developing-country
growth data points are missing compared with 1 percent
for democracies. To fill in some of these data gaps, the creators of the World
Bank’s World Development Indicators, considered the most comprehensive
dataset available, have estimated the per capita GDP growth rates for
certain autocratic countries even when they do not have a credible base
level of income from which to gauge growth. Although these figures are included
in our comparisons, the compilers of the indicators acknowledge
that these estimates do not have the same degree of reliability as other
growth figures that are listed.26
In short, a distinguishing feature of regime
types—degree of openness—directly affects even our ability to conduct reliable
economic comparisons.
Another distinguishing characteristic of democratic growth is its relative
stability. Even among low-income countries, democracies have demonstrated
less volatility in their growth rates than autocracies (a pattern reflected
in Figures 2.1 to 2.3). Therefore, the strength of democracies’
economic performance is as much their ability to maintain steady growth
over time as it is to achieve relatively rapid progress.27
To a large extent, this reflects democracies’ tendency to avoid disastrous
economic outcomes. If we consider the 20 worst per capita economicgrowth
rates for each of the past four decades,we find that only five of these
80 “worst performers” have been democracies—Mauritius in 1968,
Bangladesh in 1972, Nigeria in 1981, and Latvia and Lithuania in 1992. The
same pattern holds up in proportionate terms. The probability of any
country experiencing an “economic disaster” (defined as a 10 percent decline
in annual per capita GDP) during the 1960 to 2001 period is 3.4 percent.
For democracies, it is less than 1 percent. As might be expected, the
tendency for disastrous decline is greater among less wealthy countries.
Countries with per capita GDP’s below $4,000 had a 3.7 percent probability
of experiencing a 10 percent contraction. The rate for democracies in
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this income category was 2.3 percent.28
In short, democracies, regardless of
income level, rarely allow the bottom to fall out of their economies. These
figures are particularly noteworthy in that the 1990s were a period of great
economic volatility among democracies. Of the 15 instances since 1960 in
which a democracy experienced a contraction of more than 10 percent of
GDP, 11 occurred in the 1990s. Ten of these 11—all but Thailand in 1998—
were transitioning from a communist economic system. Nonetheless, even
during the 1990s among countries with per capita GDP’s under $4,000,
democracies experienced economic disasters at roughly half the rate of
states below the democratic threshold (3 percent versus 6 percent).
Volatility can also be measured by looking at the coefficient of varia-
tion.29
This is simply a statistical measure of variance. Larger coefficients of
variation represent more volatility. By assessing the coefficients of variation,
we can gauge the level of stability associated with the respective rates
of growth. A review of the 1980 to 2001 period reinforces the assessment
that growth in democracies is markedly more consistent than autocratic
governance systems (see Table 2.1). At every income level, the coefficient of
variation is smaller for democracies than autocracies.30
As would be expected,
the volatility in growth rates generally declines as income levels increase.
This is particularly the case among the prosperous democracies,
whose growth rates tend to hover within a relatively narrow band.
In sum, the experience of the last four decades of the twentieth century
shows that democracies, even low-income democracies, outperform autocracies
in economic growth, in part because that growth is steadier and less
prone to sudden, sharp dips. Their superior track record spares the poor
much suffering, both present and future, for the poor have no choice in
times of economic emergency but to sell what few assets they have to stay
alive. Reacquiring these assets afterwards typically costs them anywhere
from 50 percent to 300 percent of the price they got for them.31
Thus,
democracies’ability to mitigate against disaster—whether economic or humanitarian—provides
protection against catastrophic material loss, which
in turn facilitates the acquisition and maintenance of assets over time. This
34 • The Democracy Advantage
Table 2.1 Coefficient of Variation for Democracies and Autocracies 1980 to 2001
GDP per Capita Democracy Autocracy
$0—$500 3.49 23.1
$500—$1,000 5.24 24.2
$1—$2,000 4.29 8.93
$2—$5,000 3.69 5.37
$5,000+ 1.21 10.6
Based on data from World Development Indicators 2003; Polity IV.
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is consistent with the observation by economist Mancur Olson that only established
democracies have been able to consistently create assets over multiple
generations.32
Although economic growth is the most commonly cited way to compare
one country’s economic development against another’s, it is in many ways
an inadequate indicator of socio-economic progress. Taken alone, it does
not reveal the extent to which economic output is shared among households
or concentrated in a few sectors like oil or minerals. It does not necessarily
take account of gains or declines in productivity.It does not capture
improvements in living conditions like health care and education.
Although levels of well being generally mirror improvements in national
income, this is not always the case. A number of Middle Eastern countries
enjoy substantial wealth but have lagged in their level of social welfare.33
Similarly, there is considerable variation between countries with comparable
income levels. For example, the Republic of Congo and Sri Lanka had
comparable levels of per capita GDP in 2000 ($841 versus $860, respectively),
but exhibited a gap of more than 20 years in life expectancy (51
years versus 73 years).
In other words, in addition to GDP, one must look at how well an economy
satisfies people’s basic needs, like access to food and clean drinking
water. These social-welfare indicators are an important gauge of how efficiently
the benefits of a growing economy are distributed to the general
population. Whatever the size of GDP, equally important measures of national
welfare lay in statistics like death rates, school enrollment, and cereal
yields.
And comparisons of social welfare by regime type do reveal distinct differences.
Citizens of democracies live longer, healthier, and more productive
lives, on average, than those in autocracies. Moreover, they have done
so consistently for the past four decades—a gap that grew wider in the
1980s and 1990s (see Figure 2.4a to Figure 2.4d).Specifically,people in low-
income34
democracies have had life expectancies that are eight to 12 years
longer than those in autocracies, on average (see Figure 2.4a). To cite a few
examples, Ghanaians born in the 1990s were expected to live a decade
longer than their West African counterparts in Guinea—even though they
have comparable levels of per capita income. Similarly, the 63-year life expectancy
in India is seven years longer than that found in Burma, despite
the latter having double the per capita income. Although there are numerous
country-specific factors that can help explain these differences, like resource
availability, regional location, and colonial history, on average
low-income democracies distinguish themselves by posting consistently
superior levels of social welfare across various measures of development
progress.Consider secondary school enrollment (Figure 2.4b); low-income
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36 • The Democracy Advantage
0
10
20
30
40
50
60
70
Years
1960's 1970's 1980's 1990's
Low-income Democracy Low-income Autocracy
Based on data from World Development Indicators 2002; Polity IV.
Figure 2.4a Citizens in low-income democracies live up to a decade longer than individuals in
low-income autocracies.
0
10
20
30
40
50
60
%ofSchool-AgePopulation
1970's 1980's 1990's
Low-income Democracy Low-income Autocracy
Based on data from World Development Indicators 2002; Polity IV.
Figure 2.4b Secondary school attendance levels in low-income democracies are nearly double
those of autocracies.
Median Levels of Life Expectancy
Median Levels of Secondary School Enrollment
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Setting the Record Right • 37
democracies have typically realized enrollment levels nearly double to
those of autocracies. To give a conservative illustration, in 2000, 77 percent
of school-aged Filipino children were attending secondary school, compared
with the 57 percent enrollment rate in (until recently) autocratic
Indonesia—despite having nearly identical levels of per capita income.
Agricultural productivity is a vital measure of social well being in many
low-income societies in which the vast majority of people live off the land.
Higher yields mean not only more food but increased employment.
Indeed, the assets generated from improved agricultural productivity were
the principal source of capital for savings and investment for many of
today’s industrialized countries at the early stages of their development.
Figure 2.4c shows how democracies have been consistently better able to
generate superior yields. For example, from 1995 to 2001, both pluralistic
Malawi and autocratic Cameroon averaged agricultural yields of 1,450
kilograms per hectare. This was the case even though Malawi had less than
one-third of the per capita wealth of Cameroon, ($165 versus $650) and
possessed significantly fewer natural resources.
Figure 2.4d measures the progress made on levels of childhood mortality.
This chart demonstrates the dramatic advances that have been made in reducing
the rate of childhood deaths over the past four decades—approximately a
0
200
400
600
800
1000
1200
1400
1600
1800
2000
kilogramsperhectare
1960's 1970's 1980's 1990's
Low-income Democracy Low-income Autocracy
Based on data fromWorld Development Indicators 2002; Polity IV.
Figure 2.4c Cereal yields in low-income democracies are typically a third higher than in low-income
autocracies.
Median Levels of Cereal Yields
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two-thirds decline from the 1960s. But, decade after decade the mortality
rate of democracies was roughly half that in autocracies. Illustrative of this
is the contrasting experiences of autocratic Belarus and its democratic
neighbor, Lithuania. At the break up of the Soviet Union, Lithuania had a
slightly higher incidence of child mortality—20 as opposed to 16 deaths
per 1,000 live births. By 2001, reflecting their divergent political trajectories,
Belarus’rate had increased to 20 whereas Lithuania had cut its levels in
half—to nine. Similarly, while authoritarian Bhutan had a per capita GDP
30 percent larger than pluralistic Bangladesh ($550 as opposed to $400),
Bangladesh had a lower child mortality rate, 77 per 1,000 births versus 95.
Many development experts believe a nation’s infant mortality rate is the
most reliable barometer of its overall economic and social health because it
embraces such a multitude of social and economic conditions, from access
to food, health care, and housing to the availability of schooling for girls. So
they pay particular heed to it.35
Again, as shown in Table 2.2, democracies
attain consistently superior results across income levels. For example,
democracies with per capita incomes below $500 have averaged 104 infant
deaths per 1,000 live births. This compares to a rate of 117 for autocracies.
In the lower-middle income category (those with per capita incomes
38 • The Democracy Advantage
0
50
100
150
200
250
Childhooddeaths/1,000livebirths
1960's 1970's 1980's 1990's
Low-income Democracy Low-income Autocracy
Based on data from World Development Indicators 2002; Polity IV.
Figure 2.4d The global decline in levels of childhood mortality has been characterized by lowincome
democracies posting child mortality rates that are typically nearly half those of lowincome
autocracies.
Median Levels of Childhood Mortality
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Setting the Record Right • 39
Table2.2MedianLevelsofVariousSocialWelfareIndicesbyPoliticalCategory(1960-2001)
InfantMortalityRate(deaths/1000births)ChildhoodMortalityRate(deaths/1000births)LifeExpectancy(years)
GDP/CapitaDemocracyAutocracyDemocracyAutocracyDemocracyAutocracy
$0-$5001041171071725347
$0-$1,0001
931121021595549
$1,000-$2,000396440516764
$2,000-$5,000273923397067
$5,000+10249187571
PrimarySchoolEnrollment(%)AdultIlliteracy(%)FemaleYouth(15-24)Illiteracy(%)
GDP/CapitaDemocracyAutocracyDemocracyAutocracyDemocracyAutocracy
$0-$50077.256.156.560.751.556.7
$0-$1,00077.260.547.355.341.549.5
$1,000-$2,00092.085.914.536.36.021.6
$2,000-$5,00091.292.611.012.93.86.0
$5,000+97.378.24.825.00.59.1
(continued)
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40 • The Democracy Advantage
Table2.2(continued)
FemaleSec.SchoolEnrollment(%)AccesstoCleanWater(%)BirthsAttendedbyHealthStaff(%)
GDP/CapitaDemocracyAutocracyDemocracyAutocracyDemocracyAutocracy
$0-$50020.59.954404832
$0-$1,00019.212.154454437
$1,000-$2,00058.539.071716957
$2,000-$5,00061.956.089709286
$5,000+93.361.31009810097
CerealYields(kg/ha)CrudeDeathRate(per1,000people)PopulationGrowth(Annual%)
GDP/CapitaDemocracyAutocracyDemocracyAutocracyDemocracyAutocracy
$0-$5001,1971,05211.917.22.342.51
$0-$1,0001,3681,06711.815.82.392.56
$1,000-$2,0002,1261,3237.210.02.082.54
$2,000-$5,0002,3021,6836.710.01.491.83
$5,000+3,7701,9389.45.11.303.14
Democracy-Democracies(8-10onPolityscores);Autocracy-Autocracies(0-3onPolityscores)
Sources:WorldBank,WorldDevelopmentIndicators2003;PolityIVDemocracyScores;Observationsbasedoncountry-year;
1
Astherearerelativelyfewcasesinthe$500-$1,000GDP/capitarange,the$0-$1,000categoryisincludedtorepresentthisincomeiteration.
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Setting the Record Right • 41
between $1,000 and $2,000), democracies have experienced some 40 percent
fewer infant deaths—39 versus 64—than autocracies.36
Similarly, female
youth illiteracy is closely monitored since women play such a critical
role at the household level in promoting other aspects of development—
from health and education to maintaining the environment and starting
small businesses. Table 2.2 demonstrates a rapid decline in female youth illiteracy
as per capita income levels rise in democracies.Among democracies
at the $1,000 to $2,000 interval, typically only 6 percent of young women
are illiterate. In autocracies, the female illiteracy rate remains at nearly 22
percent. Perhaps most importantly, Table 2.2 reveals the breadth of socialwelfare
differences that emerge along regime-type categorizations.Access to
basic levels of health, education, and food production define living standards
for many developing countries. In 57 of the 60 categories compared,
democracies demonstrate an advantage over autoocracies—differences that
are, for the most part, statistically significant. Meanwhile, mixed political
systems, those governments with certain, though limited institutional
checks on power, generate results that are typically in between those of the
more distinctive democracy and autocracy categories.
In certain respects, these results are even more noteworthy since they
cover a period when a number of communist autocracies (for example, the
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
$0-$500 $0-$1,000 $0-$2,000 $0-$4,000
HDI(0-1)
Democracy Autocracy
Based on data fromUNDP Human Development Report 2002; Polity; WDI 2002.
Figure 2.5 Democracies score consistently higher on UNDP’s Human Development Index for
each income category considered.
Median Levels of Human Development Index (1975-2000)
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42 • The Democracy Advantage
Soviet Union, Cuba, China, and Mongolia) established commendable public
health and education systems.
In an attempt to create an alternative to raw economic growth as a measure
of national well being, the UNDP has published a Human Development
Index annually since 1990 that covers three basic dimensions of
human development: a long and healthy life, knowledge (as determined by
adult literacy and by secondary and tertiary educational enrollment), and a
decent standard of living (as measured by per capita GDP). A country’s
level of attainment on each of these dimensions is scaled on a 0 to 1 basis
relative to the performance of other countries in a given year. The three
scaled scores are then averaged to determine a country’s overall rating for
that year. Sweden and Norway have typically achieved the highest Human
Development Index scores, roughly 0.94, whereas Sierra Leone and Niger
have generated the lowest, 0.27. In 2003, scores for 175 countries were tabulated.
Using this methodology, the UNDP has calculated index scores for
all countries from which sufficient data are available for five-year intervals
from 1975 to 2000. The results show a strong association between democracy
and well being among developing countries (see Figure 2.5). At each
income category considered, democracies generate higher median levels of
the Human Development Index than autocracies.
A similar pattern is apparently evolving with regards to HIV and AIDS.
Although the lack of reliable data makes firm comparisons premature,a snapshot
of the spread of this disease suggests a continuation of the pattern of
democratic responsiveness to human needs among developing countries (see
Table 2.3). In every income category considered, democracies post substantially
lower estimated percentages of adults who are HIV positive. Given the
singular importance of public awareness for the slowing of this highly contagious
virus,this result is not surprising.(And these figures do not factor in the
presumed greater accuracy of reporting in democracies.) Although certain
democracies have been seriously challenged by HIV/AIDS (for example,
Botswana), the openness that is encouraged under democratic governments
is a distinct advantage for public health efforts.
Table 2.3 Median Percentage of Adult Population with HIV/AIDS (2000/2001)
GDP per Capita Democracies Autocracies
$0—$500 0.20% 3.2%
$500—$1,000 0.15% 2.8%
$1,000—$2,000 0.20% 1.6%
$2,000—$4,000 0.45% 0.95%
Sources: World Health Organization; UNAIDS; Polity IV.
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Setting the Record Right • 43
As a result of the poor quality of cross-national data on income inequality,
we refrain from making any direct comparisons of this gap based
on governance type. Nonetheless, as mentioned earlier, the extent to which
a greater percentage of a population has access to basic services and opportunities
for a healthy life implies such a relationship. Consistent with this
observation, the percentage of a population living on $1 a day (according
to UNDP figures) is larger in autocracies than in democracies for every income
category considered. For example, in countries with per capita GDPs
below $1,000 in the late 1990s (the latest period for which data are available),
26 percent of the population of the average democracy subsists on
less than $1 a day, compared with 36 percent in autocracies. Therefore,
while the difficulty of measuring income inequality in a manner reliable
enough for cross-national comparisons limits generalities, indications suggest
that the disparities in democracies are less acute.
In short, the historical record shows that low-income democracies have
demonstrated a strikingly superior performance of democracies across a
broad range of development indicators. The consistency of this pattern underlines
the robustness of this association. Democratic governance matters
for development. Of course, democracies, autocracies, and regimes that are
somewhere in between all exhibit wide ranges in their development performances.
Being a democracy does not ensure rapid development
progress. Nonetheless, at every income level considered, democracies on
the whole have consistently generated superior levels of social welfare. This
pattern holds even at the lowest income category (below $500 per capita
GDP), in which democracies outperform other governance types in all 12
measures considered in Table 2.2.
A Growing Differential in the Post-Cold War Period
Figures 2.4a through 2.4d also suggest a growing divergence in the standards
of living between democracies and autocracies over the course of recent
decades.There are many possible explanations for this.The quality and
coverage of development data in developing countries has improved dramatically
over the past 20 years. This has made measuring differences in development
performance more reliable. Moreover, for a variety of reasons,
the 1980s and 1990s were a time of great economic volatility for many developing
countries. Autocratic governments have, by and large, fared particularly
poorly during this period. The growing discrepancy in
development performance may also reflect the curtailment of subsidies
from both sides of the superpower rivalry that propped up autocratic governments.
As this external revenue stream has dried up and with it the distorting
effects on development have diminished, democracy’s distinctive
developmental advantages may be coming more sharply into focus. The
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44 • The Democracy Advantage
performance differentials may also reflect the decline in the number of autocratic
governments that were communist (and that invested relatively more
heavily in health and education than other authoritarian governments).
There may be other global phenomena that are contributing to the growing
gap in development performance. It may be that there is greater relative
compatibility between democracies and the widespread adoption of market-based
economic systems. With a growing reliance on trade to stimulate
economic performance, democratic societies may be demonstrating a
greater ability to absorb and adapt to new information in a way that enhances
their competitiveness.Similarly,recent decades have seen a dramatic
increase in the accessibility of telecommunications, transport, and air
travel. Societies that are relatively more open are likely to benefit from these
features of the emerging global economy. Regardless of cause, recent patterns
of development performance suggest that these global trends are accentuating
the relative developmental strengths of democracies.
Social Welfare Expenditures
Perhaps one reason that low-income democracies have achieved a development
advantage is that they pour more money into social services than do
autocracies. This is not true. Public spending on education differs relatively
little between democracies and authoritarian systems over the 1960 to 2001
time period (see Table 2.4). Low-income countries, regardless of political
type, have typically spent between 2.5 percent and 3.5 percent of their GDP
Table 2.4 Median Levels of Social Spending Among Low-Income Countries
Variable Regime 1960s 1970s 1980s 1990s Overall
Public Spending on Democracies 2.27 2.75 3.15 3.22 3.17
Education Autocracies 2.42 3.49 3.31 3.94 3.47
(% of GDP)
Spend/Primary Democracies 10.2 17.6 10.5 11.4 11.0
Student Autocracies 12.5 12.7 11.7 12.5 11.9
(% of GDP per
Capita)
Public Spending Democracies — — — 2.39 2.39
on Health Autocracies — — — 1.90 1.90
(% of GDP)
Based on data from World Development Indicators 2003; Polity IV.
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on public education—with autocracies spending more overall—3.5 versus
3.2 percent. On a per-student basis, autocracies have spent nearly a full percentage
point more of per capita GDP on primary school students than
democracies over this four-decade period.
As extensive cross-national health expenditure data are only available
for the 1990s, we are limited in our ability to generalize for this sector. As
per the data available, low-income democracies did spend a slightly greater
share on public health as a percentage of GDP than autocracies—2.4 percent
versus 1.9 percent. This observation is matched by low-income
democracies’ relatively greater per capita health expenditures ($37 versus
$18), though again this data is limited to the 1990s. Therefore, the superior
health-related outcomes among democracies may be due to their relatively
greater commitment of resources to the health sector.
To the extent that democracies are spending greater shares of their public
resources on health activities, however, this does not translate into larger
fiscal deficits. Both democracies and other governance systems have averaged
deficits of between 3.0 percent and 4.5 percent of GDP in the years
1970 to 2001 (see Table 2.5). Differences in aggregate averages are negligible.
Nor do low-income democratic governments exhibit disproportionate
levels of government spending. The overall share of government expenditures
as a part of the economy is comparable for low-income democracies
and autocracies—12.7 percent versus 13.1 percent from 1960 to 2001.
Consequently, given the breadth of democracies’ superior developmental
track record, factors other than lopsided funding of the social sector must
be responsible.
In summary, the historical patterns of democratic development imply
that even low-income democracies are better able to marshal the resources
at their disposal into services that contribute to improved standards of living.
That is, contrary to the conventional hypothesis, democracies are capable
of creating administrative structures that are both efficient and effective.
They typically generate higher levels of social welfare and (possibly)
Setting the Record Right • 45
Table 2.5 Median Levels of Public Expenditure Among Low-Income Countries
Variable Regime 1960s 1970s 1980s 1990s Overall
Gov’t. Expenditures Democracies 11.5 11.6 12.8 13.1 12.7
(% of GDP) Autocracies 10.8 12.5 14.7 13.7 13.1
Budget Deficit Democracies n/a 3.20 4.41 3.02 3.46
(% of GDP) Autocracies n/a 2.70 4.76 2.27 3.24
Based on data from World Development Indicators 2003; Polity IV.
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economic growth for a greater share of their populations than autocracies
do. Considering the importance of human capital to improved economic
productivity, the tendency of low-income democracies to more effectively
build the health and education capacities of their societies suggests that
democratic policies also indirectly contribute to long-term economic de-
velopment.
Democratic Advantages
The track record of the past 40 years compels us to alter how we frame the
debate about democratic or authoritarian advantage. The question is no
longer whether authoritarian regimes have a development advantage. The
evidence we’ve reviewed makes it clear they do not. Nor is the question
whether low-income democracies are capable of developing at comparable
levels to autocracies.They are.The pressing question becomes,how do lowincome
democracies spur development? Specifically, why do low-income
democracies generate higher standards of living than autocracies? On an
intuitive level, the superior development track record of democracies
should come as little surprise. In instances where history has created recent
“natural experiments’’ (pairs of countries with similar cultural, economic,
and geographic origins), states that pursued relatively more open and democratic
forms of government have developed much more rapidly. In East
Germany versus West Germany,North Korea versus South Korea,Haiti versus
the Dominican Republic, and China versus Hong Kong and Taiwan, the
advantage of countries with more open governance structures has been
self-evident.Robert Putnam observed a parallel pattern in his seminal work
comparing southern and northern Italy.37
Putnam argues in great detail
that the stronger democratic and civic culture of northern Italy has fostered
its relative prosperity compared to the south. Clearly multiple factors contribute
to the divergences; nonetheless, these cases are instructive.
There are a lot of reasons why democracies are better suited than authoritarian
forms of government to promote economic and social development.
Some have to do with the way they are structured, others with the
manner in which they operate. Below, we have organized those explanations
around three core characteristics of democracy: shared power, openness,
and adaptability.
Shared Power
1. Vertical Accountability.At its core, government is the mechanism created
by societies to determine “the public interest” from among
many competing alternatives. Through governments, priorities are
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identified and resources allocated. The type of government in place
is thus critical to the way these decisions are made. Democracies are
designed so that this decision-making process is more representative.
In an effort to gain the support of a majority of voters either directly
or through governing coalitions, politicians in democracies have incentives
to act in accordance with the political center of a society
(that is, according to “the median voter”). In other words, by requiring
the support of a broad segment of the population to earn their
right to govern, democratic structures encourage public officials to
serve the interests of ordinary citizens in government spending and
policymaking. Structurally, this enhances the likelihood that a
broader percentage of the population benefits from the public goods
and services provided. Democracies are thus based on the premise
that the electorate will hold leaders accountable for their actions
(vertical accountability).
It isn’t just the need to win elections that prods a democratic government
to respond to the priorities of its citizens. Civic groups that
champion ordinary people’s interests also hold elected officials accountable
for their actions. These groups, furthermore, foster the
public participation that has long been the decisive factor in the effectiveness
of development projects. A World Bank study examining
levels of participation in Tanzania found that villages in which adults
belonged to two or more civic associations had income levels that
were 40 percent higher than comparable villages with less participa-
tion.38
These qualities are also important at the national level. In a
cross-national assessment of projects financed by the World Bank,
the economic rate of return was 8 percent to 22 percent higher in
countries with the strongest civil liberties than in countries with the
weakest civil liberties.39
2. Horizontal Accountability. Democracies are conceived on the notion
of shared power, especially the horizontal checks and balances stemming
from multiple branches of government. This creates a self-reinforcing
mechanism for curtailing abuses of power by any one
individual or entity, notably the chief executive. The moderating influences
of such a system avoid the devastating consequences of radical
policy choices made by an exclusive set of individuals, thereby
providing better protection from economic or political disasters. The
debilitating outcomes resulting from unchecked autocratic rule are
evident in the reckless actions of Kim Jong-Il in North Korea, Robert
Mugabe in Zimbabwe,Alexander Lukashenko in Belarus,and former
Iraqi leader Saddam Hussein, to note just a few. In the developing
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world, the moderating influences frequently spell the difference between
life and death. Amartya Sen recognizes this association with
his observation that contemporary democracies with a free press
have never experienced a major famine.40
The “quiet’’ famine of the
late 1990s in North Korea that is estimated to have killed 10 percent
of the population is a horrific illustration of unchecked power.
3. Greater Allocation of Opportunity. Government power in democracies
is not only separated among various branches and levels,it is also
limited. And the recognition of the distinction between the public
and private spheres fosters a separation between political authority
and economic opportunity. That in turn underpins the creation of
private property rights and government adherence to the rule of law,
innovation, economic productivity and asset creation. In such a society,
individuals are able to pursue prosperity without belonging to
a dominant political party. Merit, not political allegiance, is the relatively
more decisive factor in their access to education, jobs, business
licenses, credit, and other opportunities for improving their lot.
In other words, democracy is more efficient than dictatorship at
tapping people’s talent and unleashing their energies to pursue their
dreams. It would seem self-evident then, that breaking up the nexus
of entrenched political and economic interests that thrive in dictatorships
is often a prerequisite for economic development in poor
countries.
In his pioneering work on this subject, Donald Wittman contends
that the competitive nature of democratic political markets, as with
economic markets, make them inherently efficient. The structures of
both markets, he argues, are organized to promote wealth-maximizing
outcomes. The parallels are striking. Politicians can be thought of
as political entrepreneurs who, like their economic counterparts, are
rewarded for efficient behavior. The populace is allowed to judge
their accomplishments, just as the market judges products and services,
and voters can reject them, just as consumers have the freedom
to reject whatever is offered for sale. Rival politicians can profit by
exposing their shortcomings, just as companies can publicize their
competitors’ flaws. Wittman writes: “(Only) a model that assumes
that voters are constantly fooled and that there are no alternate political
entrepreneurs to clear up their confusion will predict that the
decision-making process leads to inefficient results . . . Theories of
elite control of democratic politics tend to leave out the democratic
part entirely: either policies are formed and conducted outside the
democratic domain or the elites lull the mass of voters to sleep.”41
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Openness
4. Information Access. Many of democracy’s development advantages
revolve around its support for freedom of speech. In a freewheeling
public debate, a greater range of ideas is considered than would otherwise
be the case. Given the greater accessibility of information to
the public,the quality of analysis is higher.Government officials contemplating
a new policy must face a higher level of scrutiny that they
would in a dictatorship. Journalists, scholars, and business and civic
leaders will offer their opinions and counterproposals. In a democracy,
policymakers will be compelled to take into account these views
and any new information they provide. In contrast, the absence of
this information, analysis, and dialogue in autocracies increases the
likelihood that a new policy will fail because government officials
won’t have considered all the possible negative consequences.42
In
democracies,the deliberative decision-making process not only leads
to more informed choices, it also generally results in greater public
support for decisions once they are made.
Democracies’ horizontal linkages allow them to better absorb and
disseminate information throughout their bureaucratic structures
and society at large than autocracies do, especially autocracies with
hierarchal structures. Janus Kornai documented the deleterious effects
of poor information flow in hierarchal organizations in his
study of Eastern bloc state-owned enterprises.43
Although authoritarian
governments have succeeded in mobilizing production in
large, repetitive-function sectors like manufacturing, energy, and
mining, they have had a harder time sustaining those industries’economic
performance because that requires improving efficiency
through innovation and productivity gains. This inherent weakness
isn’t always apparent. Controlled economies can grow rapidly for
years or even decades without developing the mechanisms necessary
for improving efficiency.
Democracies’ superior capacity for disseminating information
and adapting to changing circumstances is especially crucial in
today’s fast-paced and highly competitive global economy. The free
flow of information that characterizes democracies spurs innovation
and productivity gains, reduces the risk and lowers the transaction
costs of financial transactions, fosters investment, and improves economic
efficiency.44
In a similar vein, Joseph Schumpeter, writing at
the end of World War II, recognized that the innovation central to
the dynamism of capitalism lay in the creativity of the individual. He
worried that as economic power became centralized in monopolies
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(and information flow was curtailed), individual initiative and thus
innovation would be suffocated. It followed that maintaining the capacity
for innovation in capitalism was contingent on maintaining
competition.45
5. Greater Transparency.The relative openness of democracies also contributes
to greater levels of transparency in the use of public resources.
Although this is insufficient to prevent corruption, it does
increase the probability that such illegal activity will be exposed.
Democracies in the late 1990s are perceived, on average, to exhibit
levels of corruption that are nearly half that of autocracies, according
to annual surveys by Transparency International, a nonprofit organization
that aims to raise awareness about and expose corruption.
Its 2003 survey involved 133 countries. Similarly, data from the
International Country Risk Guide (ICRG), a monthly survey produced
since 1982 mainly for corporate investors by the for-profit
firm Political Risk Services, finds that the level of corruption in
democracies is typically 15 percent to 25 percent lower that that in
autocracies, no matter how rich or how poor the country. The ICRG
assessed 139 countries in 2003.A separate World Bank study of 4,000
firms in 22 East Bloc countries found an inverse relationship between
the level of corruption46
and the extent of civil liberties, regardless
of the pace of economic reform. The study also showed that
higher levels of corruption were accompanied by greater concentrations
of political power, fewer checks and balances to counter that
power, more restraints on political competition, and greater influence
over the government by big corporations.
Along with fostering corruption, economic monopolies impede
transparency and hamper economic development. In general, the
more open the society and the freer the flow of information within
it, the greater the likelihood that corporate-governance standards
will emerge. Conventions such as accounting principles, external audits,
standardized financial reporting, shareholder protections, external
boards, and disclosures of conflict of interest are the
preconditions of a healthy and competitive marketplace.
Adaptability
6. Political Stability. An established mechanism for replacing leaders
augments democracies’ political stability. The recognized legitimacy
of this succession process serves as a deterrent to those who
would contemplate unconstitutional seizures of power. Periodic
elections allow for the peaceful replacement of ineffectual leaders,
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Setting the Record Right • 51
limiting the damage they can do, mitigating the disastrous effects of
their unchallenged policy assumptions and preventing the institutional
sclerosis endemic to governments that remain in power for
prolonged periods or are beholden to special interests. By contrast,
in authoritarian systems, the very narrowness of their claim on
power carries with it the ever-present risk that leaders in these systems
will be deposed through unconstitutional means. As Mancur
Olson noted, the stability of even durable autocrats is limited to a
single lifetime.47
Even if a leader isn’t overthrown but dies or retires,
the succession process must be reinvented every time. And the absence
of a legal mechanism for a transition practically guarantees
unscrupulous behavior on the part of potential successors.
7. Democracies as “Learning Organizations.” Just as the process leading
up to a decision in democracies is likely to be more open and deliberative,
so too, is the post-decision period. Ineffective policies are apt
to come under greater scrutiny and criticism, hastening adjustments.
In fact, democracies are systems of constant self-surveillance and
adaptation. They govern through a process of trial and error. When
something is working, that approach is expanded. If a policy is ineffective,
it is discarded.And a range of interests that are represented in
the legislature, judiciary, press, and civil society act as early warning
signals of such ineffectiveness. They thus help facilitate the adoption
of a nuanced course forward in what are often uncharted waters. In
short, while democratic governance does not guarantee coming up
with the “right” policy, it does guarantee the option of changing a
policy if it is “wrong.”
The adaptive capacity of democracies was demonstrated in the aftermath
of the East Asian financial crisis from which democracies rebounded
more quickly than autocracies.48
The comparative
approaches of South Korea and Indonesia are particularly illustrative.
South Korea was able to use elections in December 1997 to restore
confidence in government and generate credibility for
structural reforms. The reform-minded Kim Dae Jung administration
came into office undertaking significant policy reforms that revitalized
the economy. In Indonesia, meanwhile, the crisis exposed
the structural weaknesses of the authoritarian system, ultimately
leading to the collapse of the Soeharto regime.49
Indonesia has yet to
recover economically from this precipitous fall.
These structural and procedural features of democracies create
conditions that are conducive to economic and social development.
They may also partly explain the paradox that while private investors
often express leeriness about democratization, in fact, foreign direct
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investment has gravitated to low-income democracies to a greater
extent than less representative governments since the mid-1980s (see
Figure 2.6).50
Notably, the accelerating swing in favor of investment
in low-income democratic countries occurred during a period of
rapidly increasing global economic integration and democratization.
Indicative of this trend, India is ranked higher than China on
the Economist Intelligence Unit survey of the best places in Asia to
do business.51
What About East Asia?
Although the record of democratic development is compelling, the rapid
economic growth of a number of East Asian authoritarian nations presents
conceptual and empirical challenges to the notion of the developmental superiority
of democracies. South Korea, Taiwan, Indonesia, Singapore,
Vietnam, and China have all realized rapid rates of economic growth over
extended periods under autocratic systems.
So too did Chile under Pinochet, many would say. In reality, though, this
experience is more ambiguous. Pinochet took over a country with wellestablished
democratic institutions that provided the civil, legal, and administrative
structures on which subsequent economic development was
52 • The Democracy Advantage
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
1970's 1980's 1990's
FDI,NetInflows(%ofGDP)
Low-income Democracy Low-income Autocracy
Based on data fromWorld Development Indicators 2003; Polity IV.
Figure 2.6 Median levels of foreign direct investment in emerging markets have shifted toward
democracies, as a percentage of GDP, since the mid-1980s.
Median Levels of FDI (% of GDP) in Low-Income Countries
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built. Moreover, economic growth fluctuated wildly during his years in
power, fitting the pattern of volatility that we have described for dictatorships.
Seizing power from Allende in 1973 in the midst of an economic crisis
in which the economy contracted by 6.5 percent, Pinochet oversaw per
capita economic declines of 13 percent in 1975 and 17 percent in the years
1982 to 1983. Although Chile realized positive growth in 14 of Pinochet’s
17 years of rule, it took until the mid 1980s for the country to surpass for
good the $2,300 of per capita output it had in 1973. Unemployment remained
in the double digits until 1986. For all these reasons, it must be said
that Chile under Pinochet does not fit the autocratic growth model. This is
not to dismiss the importance of certain economic policies adopted by the
Pinochet regime. Pinochet pioneered the use of an export-oriented liberal
economic model in Latin America at a time when import substitution was
the norm. Moreover, his administration distinguished itself from other autocratic
governments by refraining from predatory behavior and practicing
fiscal discipline.
The rapid growth of the East Asian authoritarians demonstrates that
democracy is not indispensable for development. The relationship between
regime type and economic performance is not ironclad. Although
the trend is clear, exceptions exist and overarching generalizations should
be avoided. It works both ways: for all the talk of the East Asian Tigers,52
there have been a number of cases of East Asian development disasters
under authoritarian rule, notably the Philippines (under Marcos),
Cambodia, Burma, and North Korea. Reflecting their exceptionalism, the
East Asian authoritarian dynamos experienced growth rates in the years
1960 to 2001 that were on average triple those of other authoritarian-run
nations. Yet they made up less than 5 percent of such regimes during this
time period. Thus, their authoritarianism was not a decisive factor in their
extraordinary economic performance. Other distinguishing characteristics
have to be considered, including the following:
1. Good Economic Policies. The high-performance East Asian economies
all made choices to pursue market-oriented economic systems
at a time when central economic planning was still in vogue. They
managed to uphold a system of property rights that created the foundation
for a vibrant private sector. Moreover, government policies in
these countries were distinguished by their macroeconomic stability.
They typically posted fiscal surpluses, established a stable exchange
rate, and maintained a disciplined monetary policy that held inflation
in check. Building on their populations’tradition of saving, they
were able to funnel domestic capital into a reliable engine for growth.
At the early stages of their development,with between 60 percent and
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90 percent of their populations engaged in agriculture,the East Asian
Tigers also strategically invested in agricultural technology to increase
the production of rubber, palm oil, silk, rice, and the like, improving
their nations’ competitiveness and increasing both their
export income and jobs.53
2. Chinese Businessmen. The East Asian dynamos did not develop in a
vacuum. Rather, they benefited from the synergy of the broader regional
dynamism. A particularly important element of this regional
network was the expertise and capital mobility of ethnic Chinese
businessmen based in many of the key East Asian economies.54
Working through these informal channels with established mechanisms
for assessing credit worthiness and penalties for default, firms
in the East Asian Tigers were able to expand relatively rapidly to take
advantage of neighboring markets. This network of Chinese traders
acted as a proxy for the contracting culture that Douglass North
identified as integral for economic development.55
3. Japanese Capital. The East Asian dynamos also benefited from the
ready availability of Japanese capital. Having become major international
creditors by the 1970s, Japanese banks recognized the potential
of the emerging East Asian economies and invested heavily in
them. By the mid 1990s, roughly 40 percent of East Asia’s asset liabilities
were to Japanese banks.56
There was a downside to this. During
the East Asian crisis of 1997—1998, the Tigers’ reliance on a single
creditor contributed to a regional financial meltdown. Nonetheless,
between the Japanese banks and the Chinese business networks,
fledging firms were not constrained by lack of capital.
4. Access to Markets. Following Japan, the East Asian authoritarian
growers pursued aggressive export-oriented growth strategies. They
thus avoided the constraints to growth imposed by small domestic
markets typically encountered by developing countries. The West’s
willingness to maintain large trade deficits with East Asia without
pressing for an immediate reciprocal opening of markets was another
fortunate, though historically exceptional, circumstance.
Meanwhile, the East Asian dynamos benefited greatly from their
close proximity to China as it became an economic force.
5. Collective Interests. Before their take-off, the high-performance East
Asian economies exhibited a high degree of income equality compared
with Latin America and the Middle East. In addition to removing
a common source of friction, this characteristic contributed
to a strong sense of national solidarity. This translated into relatively
wide access to health services and educational opportunities as these
countries grew economically. Improved human capital, in turn, has
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contributed to higher levels of economic productivity and investment.
Cultural norms57
that placed a high value on equality may also
partly explain why East Asian leaders, unlike other authoritarians,
kept patronage and graft under control. Campos and Root also argue
that leaders in East Asia had incentives to pursue strategies of shared
growth lest they face communist insurgencies such as those that crippled
China, Vietnam, North Korea, and Cambodia.58
In a number of
important cases (South Korea, Taiwan, and Hong Kong), the East
Asian dynamos were also relatively ethnically homogeneous. This
characteristic may have contributed to their political stability as authoritarian
governments are particularly susceptible to conflict in
ethnically divided societies.59
6. Capital Mobilization.As with most authoritarian growth historically,
much of the East Asian “miracle” can be explained by high rates of
investment, transfer of labor from agriculture to manufacturing, and
higher labor participation rates.60
However, the extent to which they
have been able to make the transition to productivity-enhancing,
sustained development has varied considerably. Notably, this transition
is something democratic South Korea and Taiwan were able to
make, whereas authoritarian Indonesia was not.
7. External Influence. The economic exceptionalism of East Asia has
also dovetailed with geopolitical developments. During the Cold
War, the United States was committed to providing support to countries
resisting communism. This translated into the transfer of substantial
political, economic, and military resources from the United
States for each of the East Asian authoritarian growers. Moreover, the
United States and the United Kingdom helped shape key legal and
economic institutions in South Korea, Taiwan, Singapore, Hong
Kong, Thailand, and Malaysia, and by extension their property rights
laws, land reforms, business and accounting codes, and financial institutions.
Similarly, many of the post-independence institutions
that contributed to subsequent economic dynamism in Malaysia and
to a lesser extent, Singapore and Indonesia, were established under
democratic governments. Malaysia had a democratic government
from 1957 to 1968 and Singapore for most of the 1959 to 1964 period.
In Indonesia, a robust parliament capable of mediating political
conflict, independent courts, a free press, and fair elections also
existed before Sukarno seized power.61
Therefore, while often overlooked,
the East Asian dynamos have their own democratic imprints
that have shaped their subsequent economic gains.
8. Strong Institutions. In addition to strong legal and economic institutions,
the dynamic performers in East Asia have developed relatively
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competent and efficient civil structures that provided public goods
and services, enforcement of government regulations, revenue collection,
and policy guidance. In comparison with other regions, notably
Latin America, whose median GDP in 1960 was more than 50
percent higher,East Asia has had substantially lower corruption.This
illustrates the high-performing East Asian’s ability to restrain governments’
predatory behavior with a measure of independent over-
sight.62
Reflecting the comparative efficiency of the East Asian
growers’ public institutions, these advances in living conditions relative
to Latin America have been realized without incurring correspondingly
greater levels of government spending.
9. Information Flow. Finally, while not bastions of civil liberty, the fastgrowing
East Asian authoritarian nations allowed some scope for
free expression. In South Korea, student protests were tolerated
throughout the 1960s and 1970s.And the authoritarian governments
of East Asia allowed press freedoms at levels comparable with the
global median over the past three decades.63
This permitted the flow
of both information and technology, increasing the efficiency of financial
transactions and spurring economic development.
China is the largest and most frequently cited contemporary authoritarian
economic dynamo. Its experience parallels those of the earlier East
Asian growers. It has maintained a strong macroeconomic environment of
low inflation, fiscal prudence, and a strong savings rate—the second highest
in the world in the 1990s.64
Like the other East Asian dynamos, and contrary
to pure liberal economic models, it has retained certain capital
controls, including a nonconvertible currency, and limits to foreign ownership
of its privatized enterprises. China started its economic development
by lifting the constraints on its agricultural sector in the late 1970s.65
This liberalization led to increases in food output, employment and personal
income, and wealth that together acted as a springboard to modernization.
China also has enjoyed ready access to capital from Taiwan, Hong
Kong, and Japan, absorbing 1
/3 of all foreign direct investment in the developing
world in the 1990s. It was able to sell its goods to western markets
with few barriers, racking up massive trade surpluses with the United
States. In addition, China began its economic growth spurt on a social
foundation of general income equality. Healthcare services and educational
opportunities were unusually extensive for a low-income country.
Moreover, unlike the Soviet Union, communist China opted for a more
decentralized administrative structure, including the retention of local
taxes within respective jurisdictions for the provision of public services.
This augmented the accountability demanded of local officials by the gen-
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eral population.66
China has also gradually instituted certain political and
legal reforms reducing the scope for arbitrary behavior on the part of government
officials.67
Simultaneously, China has eased access to certain types
of media and information technology, facilitating economic growth.
However, it retains tight control over content so as to stifle criticism of the
government.
Although China’s economic performance over the past 20 years has been
phenomenal, certain qualifications apply. China was starting from a low
base; its economy had been stagnating for decades, reaching per capita
GDP of only $128 in 1970 (in 1995 U.S. dollars). The result was a huge,
pent-up demand for goods and services. Meanwhile, systematic understatement
of inflation by firms accounts for 2.5 percent of growth per year
in China’s nonagricultural economy from 1978 to 1998.69
Some economists
explain much of China’s remaining growth as a result of one-time adjustments
in the economy such as the reallocation of labor from rural to urban
centers and rising participation of women in the workforce.70
This would
be the typical authoritarian phenomenon of capital mobilization. Others
note that what productivity gains have been seen are among private firms
(while productivity has been declining in state-owned enterprises).71
Productivity differences are also observed by sector. Agriculture, transport,
and telecommunications do seem to show improvements in efficiency. In
contrast, growth in the manufacturing, construction, and service sectors
relies on the increased mobilization of resources (rather than productivity
increasing investment).72
In other words, the sustainability of China’s rapid
growth remains in doubt.
In summary, the economic development of the East Asian autocratic
growers has been highly exceptional. It has been closely linked to their pursuit
of market economics, access to formal and informal capital markets,
constraints against predatory leaders, relative social equality, and geopolitical
factors, including the openness of Western markets to East Asia’s
goods and to the political, economic, and military support of Western governments
eager to provide a bulwark against communism in the Cold War
years.Therefore,while the East Asian experience demonstrates that democracy
is not indispensable for development, the distinctiveness of the conditions
that have fostered economic growth in its absence need to be
recognized. This, in turn, tempers propositions that the East Asian experience
can be easily replicated in other autocratic-led developing countries.
In the words of Nobel laureate Amartya Sen, the policies that led to
growth in the East Asian authoritarian-run nations included “openness to
competition,the use of international markets,a high level of literacy and education,
successful land reforms and public provisions of incentives for investment,
exporting, and industrialization . . . There is nothing whatsoever
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to indicate that any of these policies is inconsistent with greater democracy,
that any one of them had to be sustained by the elements of authoritarianism.
What is needed for generating faster economic growth is a friendlier
economic climate rather than a harsher political system . . . To concentrate
only on economic incentives (which the market provides) while ignoring
political incentives (which democratic systems provide) is to opt for a deeply
unbalanced set of ground rules.”73
Institutions That Contribute to Development
Since the mid-1990s there has been a growing consensus among economists,
political scientists, and international investors over the vital importance
to development of strong social institutions.74
Institutions are social
values and norms that characterize how people in a society relate to one another.
Some of these conventions may become formalized in a country’s
legal code, like freedom of the press or restrictions on the sale of alcohol,
while others are not written down but are embedded in the nation’s psychology,
like respect for traffic laws, the extent to which police officers expect
bribes, the inclination to resolve private disputes through litigation,
the tolerance of sky-high pay packages for corporate executives, the willingness
to question authority, and the readiness to participate in civic activities.
Whether they take the form of law or custom, these institutions
shape the behavior and interactions of public and private individuals and
organizations and have a profound influence over the rate and manner in
which a society develops.
The economist Douglass C. North has championed the focus on institutions.
His view is that institutions, particularly those that contribute to
more predictable behavior in the marketplace, explain much of the historical
differences in levels of development around the world.75
Consequently,
though a number of Latin American countries may have adopted constitutions
based on the U.S. model, the ways that they interpret and apply the
rule of law can be starkly different from that in the United States. These institutional
disparities go a long way toward explaining the divergence in incentives
for investment, innovation, and asset accumulation. In fact, he
contends that they are a more decisive force than technology in economic
development. After all, once technology has been developed, it becomes
readily accessible throughout the world, but societies vary widely in their
openness to adopting it. North attributes this to the diversity of incentives
created by a society’s institutional structures.
Our analysis shows that democracies are better able to generate the institutions
that foster efficient economic outcomes. Democratic institutions
of shared power, adherence to the rule of law, and a free press, for example,
contribute to more informed policy, greater transparency and financial
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Setting the Record Right • 59
analysis for investors, enhanced responsiveness of leaders to the interests of
their constituents, and stronger incentives to expose special interests.
Institutions that promote a separation of political and economic authority
in a society provide checks and balances that mitigate against a monopolization
of power that lead to economic distortions. Other examples
of institutions that serve to strengthen democracy and the economy include
checks on the executive branch, an impartial legal system, apolitical
access to the market and credit,a merit-based civil service,autonomous anticorruption
bodies, a transparent and systematic budgeting and disbursement
process, accounting and auditing standards, and campaign finance
regulations buffering candidates from private sector capture.
Although economists and investors often speak of the importance of the
rule of law for economic growth, there is a political dimension to ensuring
that the rule of law is established, enforced, and amended when necessary.
As Ibrahim Shihata, the longtime General Counsel of the World Bank,
noted: “Laws are not self-enforcing.”76
How laws are enforced depends on
who is enforcing them. Inevitably, then, the basis for a society’s rule of law
is its system for selecting its leaders. The more rules-based, participatory,
and transparent this process, the greater legitimacy and incentives an executive
branch will have to enforce regulations in a manner that is fair and in the
public interest.The institutions that foster stronger democratic processes reinforce
those that improve the application of the rule of law.
Most research on the institutional dimension of economic development
has emphasized the importance of “economic rights’’ like contract enforcement,
property rights, protection from expropriation, and capital mobility,
all of which can be classified under the rubric of rule of law.77
Such analysis
indicates that these institutions account for as much as 47 percent of economic
growth. This equates to a difference in growth of up to two percentage
points per year of GDP.78
Over 20 years, this difference results in income
levels that are 50 percent superior to that of a country with a flat rate of
growth. The establishment of these economic institutions has been identified
as a distinguishing factor of the relatively few developing countries (for
example, Botswana, Chile, Costa Rica, Mauritius, Singapore, South Korea,
and Thailand) that have been able to narrow the prosperity gap with the industrialized
world.79
Some researchers have expanded the analysis of institutions beyond a
focus on economic rights to cover civil liberties, the autonomy of the civil
service, the independence of the media, and constraints on the executive
branch as part of a more comprehensive network of checks and balance
that represent good governance. This research finds that each of these additional
institutional categories is also an important explanatory factor for
more rapid growth.80
Moreover, in a study of contemporary democratizing
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60 • The Democracy Advantage
countries, press freedom was the institutional factor most consistently associated
with predicting higher levels of growth across all regions.81
These
findings demonstrate that more than just economic institutions are central
to explaining developmental performance.
Understanding the importance of institutions also provides insight into
why not all democracies attain superior development outcomes: democracies
have dissimilar levels of institutional strength. On one 50-point scale of
accountability institutions, democracies’scores range from 20 to 50.82
Those
that distinguished themselves by the strength of their accountability institutions
have typically enjoyed relatively more rapid economic development
(see Figure 2.7). From 1980 to 2000, low-income democracies with above
median levels of accountability grew at an annual per capita GDP rate of 2.0
percent, compared with 1.3 percent for those with below average accountability
scores. Similar growth-accountability distinctions emerge when considering
a sample of autocracies or countries with mixed governance
features.Autocracies with above-average levels of accountability institutions
posted a median grow rate of 1.2 percent, compared with 0.9 percent for
those with sub-par levels; for regimes with mixed features the difference was
1.5 percent versus 1.0 percent. In short, countries with stronger accountability
institutions typically grew between 30 percent and 60 percent faster
than politically similar countries that had relatively weaker institutions.
0
0.5
1
1.5
2
2.5
Autocracies Mixed Polities Democracies
AnnualGDP/CapitaGrowth(%))
Above Avg. Accountability Below Avg. Accountability
Based on data from World Development Indicators 2002; Polity IV; Siegle, 2001.
Figure 2.7 Within each governance category, countries that exhibited stronger machanisms of
accountability tended to grow more rapidly than those with weaker institutions of accountability.
Divergence in Growth Rates by Accountability Level
(Low-Income Countries), 1980-2000
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The importance of institutions83
to economic growth helps explain why
elections, in isolation, do not contribute to improved development. Nations
that hold elections, yet have weak institutions, display significantly lower
economic growth and social welfare than democracies with strong institutions.
Given the regularity of sham elections, this is unsurprising. An election
in Zimbabwe or Belarus is far less meaningful than one in Costa Rica,
Senegal, or Estonia. This underlines the point that elections by themselves
are poor mechanisms for defining democracy. However, even when legitimate,
elections, in their most functional form, are simply mechanisms for
selecting political leaders. They do not have direct economic or development
linkages. Rather, democracies’ development advantage is tied to their
ability to establish institutional checks and balances. These mechanisms
moderate the pursuit of radical policies, ensure greater accountability of
leaders to the general population, create incentives for responsiveness, encourage
transparency, and foster adherence to the rule of law.
Said another way, democracies embrace stronger institutions of accountability
than do other systems of governance. This is so even among
low-income countries—marked by their distinctively superior levels of accountability
ratings over time (see Figure 2.8). Adoption of stronger accountability
structures, in turn, has a strongly positive effect on
development. Correspondingly, low-income democracies score 10 percent
to 20 percent higher on the International Country Risk Guide’s indices of
rule of law, bureaucratic efficiency, and (anti)corruption than do autocracies
over the 1982 to 2000 period. Similar patterns emerge when assessing
Kaufmann et al.’s index of governance indicators, including measures of
.
Figure 2.8 Low-income democracies have consistently exhibited stronger institutions of accountability
compared to autocracies.
Accountability Levels of Low-Income Deocracies and Autocracies
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rule of law and government effectiveness. Whereas democracies typically
rank demonstrably above the governance medians for low-income countries,
autocracies consistently score below average. Advances in civil liberties,
press freedom, and checks on executive power generally move in the
same direction as improvements in the levels of rule of law, bureaucratic
quality, and autonomy of the private sector.84
Societies that enhance their
institutional checks and balances in one area generally enhance them in
others as well. Strengthening democratic structures enhances the accountability
mechanisms that contribute to growth.
The East Asian Tigers have also distinguished themselves by the accountability
structures that they have established. Although of a different
nature and not as robust as democracies,these accountability structures are
clearly more evident than those typical of autocratic governments (see
Figure 2.9). Early on, this was largely realized by their superior standing in
the areas of bureaucratic efficiency, rule of law, and space for the private
sector.As several of the East Asian Tigers democratized—augmenting their
institutional checks on the chief executive and civil liberties—accountability
scores mirrored those of democracies.
Although often overlooked because of the global nature of the democracy
and development debate, the importance of institutions to growth
varies widely by country. There is no magic institutional bullet. Different
combinations of institutional checks and balances appear to have been influential
for different countries. All bring some value. In addition to the
unique qualities that we have already discussed of the East Asian dynamos,
other regional variations warrant notice. Take, for example, sub-Saharan
Africa, where the relationship between levels of accountability and democ-
.
Figure 2.9 The East Asian Tigers distinguished themselves from other autocracies by their relatively
stronger accountability institutions.
Comparison of Accountability Levels—Democracies, Autocracies, and East
Asian Tigers— of All Income Levels
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racy is weaker than any other region—pointing to the shallowness of democratic
processes on this continent. Those institutions most consistently
linked to economic growth in Africa are a free press, rule of law, and a reliable
civil service. In other words, it is the substance of creating systems of
shared power rather than solely the holding of elections that matters for
development. Stated bluntly, the neo-patrimonial structures that continue
to characterize many African political systems are diametrically opposite to
the institutions of accountability that are vital for development. In Latin
America and central Europe, the move toward political pluralism has been
closely associated with improved economic performance. Within these regions,
however, countries that have demonstrated greater autonomy in
their judiciary and private sectors have grown relatively more rapidly.
South Asia is the region of the world with the least developed rule of law—
posing a significant handicap to sustained economic growth. South Asian
states that grew most rapidly established relatively autonomous private sectors,
bureaucratic transparency, and a free press. In the Arab world, countries
that have realized the most consistent economic performance have
had comparatively greater levels of press freedom and executive constraints.
In the former Soviet Union, the rule of law, a free press, and lower
levels of corruption stood out as the institutional qualities that distinguished
nations that realized the most growth during the 1990s.
Summary
Four decades of experience show that low-income democracies consistently
outpace their autocratic counterparts on a wide range of development
indicators. This can be attributed to democracies’ relatively greater
propensity for establishing institutions of shared power,information openness,
and adaptability. Key to this performance, and critically important for
developing countries, is democracies’ ability to mitigate disaster. In addition
to avoiding the human costs of such catastrophes, progress in democracies
can be incrementally accumulated rather than constantly committed
to making up lost ground. Economic concerns over supporting democratization
in low-income countries—macroeconomic populism, inability to
build human capacity, fractiousness, vulnerability to special interests, and
so on—are not borne out in relative comparisons with autocracies or
mixed systems.
Nonetheless, the relationship between regime type and economic performance
is not universal. A select number of autocratic countries, particularly
in East Asia, have grown rapidly. This group of strong performers,
however, is highly exceptional on a number of fronts, especially in comparison
to other autocratic states. Although held up as model, the robust economic
performance of the East Asian Tigers is more than offset by the poor
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(and oftentimes catastrophic) economic experiences of other authoritarian
governments. Given this, perhaps the most compelling feature of the strikingly
positive democracy–development relationship is its breadth. It does
not rely on a select group of super performers.Rather,it is when considered
on aggregate terms that democracies’ more rapid and consistent development
performance relative to autocratic states shines through most clearly.
It is this consistently superior developmental performance of democracies
that provides the surest basis for policy guidance. Contrary to wellentrenched
views established by the development-first perspective, the
track record clearly shows that development in low-income democracies is
not only possible but also far more reliable.
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