Democracy is the best ingredient for economic growth
(TNS)As China and Russia have surged in power during the past 15 years, more and more people have started to wonder if democracy is really the best economic system. For example, consider Hungarian President Viktor Orbans comments last July:
The global financial crisis in 2008 showed that liberal democratic states cant remain globally competitive, Orban said. He listed Russia, Turkey and China as examples of successful nations, none of which is liberal and some of which arent even democracies.
Hes not alone. Countries such as Turkey and Thailand are also questioning democracys usefulness. And a few business leaders have been challenging the concept as well. To cite just one example, venture capitalist Tom Perkins suggested that votes should be based on how much tax people pay, not on one person, one vote. Some have also argued that democracy is the reason Indias growth has been slower than Chinas.
Supporters of democracy often reply that it helps countries get rich. After all, theres an obvious correlation between wealth and democracy note that Europe, Japan, and the U.S. are all wealthy democracies. Sure, China has experienced great growth, but thats because it started out poor and is huge in size.
But is it correlation, or causation? Does democracy actually make countries richer, or is democracy merely a luxury in which rich countries can indulge?
This question is hard to answer. For one thing, countries only get rich once, and democracies usually only become democratic once or twice. Also, there are lots of other things about countries that might cause wealth, democracy or both. Although we will never know the answer for sure, a top team of economists has done what is just about the most careful study that is humanly possible.
MIT economist Daron Acemoglu and James Robinson of Harvard, famous for the idea that inclusive institutions are the key to national development, teamed up with Suresh Naidu and Pascual Restrepo to tackle the problem. They use a large number of different statistical techniques to examine the effect of democratizations. They also use an alternate technique, where they look at waves of democratization.
All of the methods give the same answer: Democracy increases gross domestic product by about 20 percent in the long run.
That isnt a huge number almost certainly less than democracys proponents would like. But its not nothing, either. It turns out that Viktor Orban is wrong; authoritarianism probably wont help his country get rich, though it wont doom Hungary either.
Acemoglu and company also examine the question of how democracy boosts growth. They find that countries with democracy have better government they pursue more economic reforms, provide more schooling, provide more public goods and reduce social unrest. They also find, contrary to many who have been following Chinas story, that business investment is higher in democracies.
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Democracy is the best ingredient for economic growth