By Tommy Gale
The relationship between representative democracy and lasting material prosperity has long been a subject that starkly divides political scientists. Whilst few would contest that countries with democratically elected governments have, on the whole, tended to be more materially prosperous than those countries with undemocratic governments, the idea that representative democracy is the only system through which material prosperity can be achieved is far more controversial. Some, most prominently Acemoglu and Robinson (2013), regard democracy – what they term an ‘inclusive’ institution – as a contingent factor of significant economic growth, whilst others, for example Przeworski et al. (2009), argue that there is no statistically relevant difference between the material successes of democratic as compared to non-democratic countries. Countries such as Singapore, for example, would seem to corroborate this interpretation. I will argue, however, that instead of advocating one particular system of government as a ‘necessary’ condition – whether it be democratically or non-democratically elected – a subtler approach should be used (resembling that of Fukuyama (2014), for example) that takes into account the context in which the country is attempting to achieve material prosperity and also other factors such as the legitimacy of governments and the rule of law. Ultimately, though, I will argue that although it is possible to achieve material prosperity through both democratic and non-democratic systems, lasting material prosperity is best achieved under a democratically elected government as material prosperity and democracy become intertwined in what Niall Ferguson (2002) calls the ‘double helix’ model.
I will first turn to the idea that democracy is a contingent factor of lasting material prosperity. One of the most convincing accounts of this theory is propounded by Acemoglu and Robinson (2013). They apply a ‘Theory of Institutions’ to the question and argue that there is a clear distinction between what they term ‘extractive’ and ‘inclusive’ institutions in both the political and economic spheres. Extractive political institutions, they argue, are typically absolutist governments where power is concentrated in the hands of a few elite politicians without constraints, checks and balances or the rule of law to limit how they exercise it. On this extractive political basis, they go on to argue that given the lack of law and order and insecure property rights combined with high entry barriers and dysfunctional market regulation, material growth is far less likely. Furthermore, this situation is argued to be perpetuated by both businessmen (who will lose their incomes if, for example, changes in institutions mean they lose their monopoly power) and politicians (who will lose their politically privileged position of power) who are reluctant to facilitate change. This is not to say, however, that Acemoglu and Robinson deny the possibility of growth under extractive institutions outright. In fact, they give examples of two types of growth under these regimes. First, when extractive economic institutions allocate resources to high productivity activities controlled by the elites (such as in Barbados and the Soviet Union) and second, when elites who have established their position relatively securely they may wish to allow the emergence of relatively inclusive economic institutions under their control (as was the case, for instance, under General Park in South Korea and as is the case in China today). Ultimately, though, without forces such as creative destruction which are fostered far more by inclusive institutions, they view growth under extractive institutions as unsustainable. Whilst their argument that growth is unsustainable under extractive institutions holds for the first of their points (clearly the Soviet Union’s growth, for example, was not sustainable), I argue that it does not hold so well for the second. South Korea, for example, has gone on to become one of the world’s most developed economies from ‘extractive’ beginnings (albeit through a transition to more ‘inclusive’ institutions). I will later argue, therefore, that in some cases undemocratically elected leaders such as General Park may be the best way to catalyse high-paced material expansion that can be later stabilised on more democratic terms in order to attain ‘lasting’ material prosperity.
Acemoglu and Robinson then contrast these ‘extractive institutions’ to ‘inclusive institutions’ which they see as being far more effective mediums for sustained growth. For this they provide a number of reasons, including that well-enforced property rights facilitate high levels of investment, better allocation of resources and ease of access to secure finance for businesses allows the power of the markets to be harnessed, and education, low barriers to market entry and broad-based property rights generate widespread participation. Most importantly investment and creative destruction (the phrase coined by Joseph Schumpeter (1942) to describe the incessant product and process innovation mechanism by which new production units replace outdated ones – something he called ‘the essential fact about capitalism’) fuel sustained economic growth as opposed to the unsustainable growth seen, for example, as a result of the five-year plans in Soviet Russia. As an example of the importance of inclusive democratic institutions in spurring material prosperity, they cite the example of Nogales, a city which lies half in Arizona and half in Mexico. In the half that lies in Arizona, the average income is $30,000, the majority of adults have graduated from high school, there is a good public infrastructure and clear system of law and order, and most adults live until they are over 65. In the Mexican half, the average income is three times less and everything else is similarly worse. Acemoglu and Robinson argue that given the proximity of the two halves of the city to one another, many factors that are usually used to explain differences in economic development are rendered redundant. They discount geographical reasons such as that tropical countries tend to be less developed due to unfavourable working conditions, that the spread of disease in certain areas causes a decrease in productivity (instead arguing that disease is caused by poverty and poor government health measures), that disparities in soil quality cause subsequent disparities in farming success (instead postulating that insecure property rights is the real problem), and finally Jared Diamond’s theory that differing levels of access to species that can be domesticated and crops that can be farmed causes economic division (arguing that on this basis not only would the Southern parts of America be at an advantage – something clearly not mirrored in their levels of economic development – but also that varying rates of economic change cannot be explained). Cultural reasons, such as Weber’s Protestant work ethic theory and the idea that some national cultures are better suited to economic development are also discounted, as are what they call ‘ignorance’ reasons which argue that some countries struggle economically because they do not know any better (instead arguing that it is actually conscious decisions by extractive governments to enact ‘bad’ policies for their own personal benefit).
Having discounted these factors outright, they deduce that the only possible explanation for the variation is found in the sixteenth- and seventeenth-century Colonial roots of the two countries. Mexico was the first to be colonised by the Spaniards who exploited pre-existing slavery structures for their own benefit in order to extract huge volumes of gold and silver. Conversely, when the Virginia Company attempted to colonise Jamestown in the early seventeenth-century by installing an authoritarian and ‘extractive’ regime they failed miserably as they were unable to force the English settlers into gang labour and low wages and nor were there the valuable raw materials that there were in Mexico for them to extract. Thus the Company changed its approach and adopted the ‘headright system’ under which all settlers were given fifty acres of land in return for their services as well as, in 1619, some political rights in the form of the General Assembly. Similar events subsequently unfolded in Pennsylvania, Maryland and the Carolinas; a chain of events that ultimately lead to the Declaration of Independence and the U.S. Constitution. It is these fundamental differences that Acemoglu and Robinson argue lie at the heart of the differences in the respective levels of prosperity of the two countries (and thus the two halves of Nogales). For instance, many Latin American countries have banking monopolies given to friends by corrupt politicians which in turn leads to higher interest rates. This makes credit unaffordable and only the rich are able to innovate and start businesses. In the USA, on the other hand, a competitive banking structure remains competitive as politicians would be voted out if they were seen to be granting nepotistic monopolies, and thus there is a relatively equal level of access to credit which spurs evenly-spread economic development. As Acemoglu and Robinson (2013, 42) summarise, ‘[e]conomic institutions shape economic incentives’ such as getting a good education and working hard. ‘It is the political process that determines what economic institutions people live under, and it is the political institutions that determine how this process works.’ Thus, the type of government is seen to be the key factor influencing the level of material prosperity in a country, and in this case the favoured mode of government is clearly representative democracy.
Whilst in some ways a convincing theory, I argue that the authors often place to much emphasis on their broad categories of ‘extractive’ and ‘inclusive’ institutions and downplay factors which play equally important roles in the lasting material prosperity of a country. This is especially evident in their description of how the colonial institutions (that they claim lie at the heart of the division between Latin America and the USA) came to differ in the first place. For instance, in their explanation of why the Virginia Company abandoned their plans for extractive rule and instead introduced a more inclusive system, Acemoglu and Robinson (2013, 23) write that there was ‘no possibility of a get-rich-quick exploitation of Virginia along the lines of Mexico and Peru’ because there was ‘no gold or precious metals, and the indigenous people could not be forced to work or provide food.’ In other words, there were clearly differences between the two places both geographically (in terms of gold and precious metals) and also culturally (in terms of the reluctance of the indigenous people to work). I would argue, therefore, that ironically some of the very factors Acemoglu and Robinson try to dispel lie at the heart of the differences between the institutions they claim form the basis of economic disparity.
Many other factors, too, seem to show their theory to be rather narrow. Religion, for example, was shown by Max Weber in The Protestant Work Ethic and the Spirit of Capitalism (1905) to have a key role in spurring economic growth, and although disputed by many Ferguson (2002, 366) argues that his model ‘has never been wholly discredited.’ Similarly, Fukuyama (2011, 432-33) has argued that the Reformation in Denmark facilitated significant social and economic mobilisation, especially through increased literacy rates. Furthermore, the success of England (something drawn on heavily by Acemoglu and Robinson in their discussion of post-Glorious Revolution industrial development) is postulated by Fukuyama (2011, 410) to have rested largely upon successful foundations that were already in place before the introduction of any form of representative democracy was introduced such as respect for Common Law and acceptance of self-governing institutions.
Other examples drawn on by Fukuyama further this idea that there are a wide range of factors that are important conditions for the creation of lasting material prosperity, many of which are not only compatible with, but in some cases positively reinforced by, forms of undemocratic government. One example he draws on, for example, is that of how the challenging geographical situation in Russia was especially well handled by the unelected monarchy. Given the importance of the feudal system of peasantry to the Russian economy in the sixteenth- and seventeenth-centuries it was important that they were put to work effectively. The huge Russian landscape has relatively few natural barriers (such as impassable mountains or extremely wide rivers) and there were huge financial incentives for serfs to escape in order to find more lucrative work. Thus, containing the peasants was incredibly difficult. It order to sustain the institution of serfdom, therefore, Fukuyama (2011, 397) notes that there had to be ‘strong agreement among serf owners to restrict their movement, to return runaways, and to severely punish not only serfs but also other landowners who violated the rules.’ This was something that had to be enforced through ‘strong status privileges and binding commitments to enforce rules against the peasant movement.’ In a perfect position to provide this support was the Russian absolutist monarchy which was ‘founded on the alliance that emerged between the monarch and both the upper and lower nobility.’ Out of necessity for maintaining this self-owning cartel, the government therefore heavily increased restrictions on the peasants leading Fukuyama (2011, 398) to conclude that, given the importance of the institution of serfdom to the economy, the ‘capitalist economic development in Russia was spearheaded by the nobles rather than an independent bourgeoisie.’ In this case, an undemocratic government with strong links to the upper and lower nobility was perhaps the best way to deal with an extremely difficult situation. Clearly, though, any material prosperity gained was not evenly spread and nor was it long-lasting. In the short-term, the death of Peter the Great (who showed exceptional leadership and spurred huge economic development) led to significant economic decline. This shows that although the overreliance on one absolutist ruler may occasionally be good in the short-term, given the lack of meritocracy in the system of monarchical succession, it is an extremely inconsistent system of rule and consequently the economic results it yields are equally erratic. In the long-term, the subversion of the peasants by the ruling elite and the unequally allocated material prosperity clearly created a volatile relationship between the two main segments of society; one that eventually spilled over in the form of the Russian Revolution that toppled the whole institution of the Russian aristocracy. Whilst in the short-term, therefore, Russian absolutism proved a highly effective catalyst for economic development, it clearly does not fulfil a function as a medium of ‘lasting material prosperity.’
Fukuyama’s more generalist view of what he terms ‘good government’ also incorporates factors such as the legitimacy of a government, again not a factor necessarily synonymous with democracy. Both he (2011) and Micklethwait and Wooldridge (2014) note the example of Singapore which – through the generation of high levels of sustained economic growth – has extremely high approval ratings and is widely supported despite its lack of liberal democratic processes. Its economy has been ranked as the most open in the world (WTO), the seventh least corrupt (Transparency International) and the most pro-business (World Bank). It has the third highest GDP per capita in the world (a good indicator of material prosperity, if not inequality and quality of life) at Purchasing Power Parity. This exceptional economic system has been achieved through the technocratic rule of Lee Kuan Yew with the aid of a highly-paid and well-qualified civil service – a ‘paradise as designed by McKinsey’, as Micklethwait and Wooldridge (2014, 135) wryly note. Similarly, China has been the most successful economy in the world for at least a quarter of a century under far more oppressive rule than Singapore.
Clearly, then, undemocratic regimes can be highly effective in terms of creating high levels of material prosperity, but perhaps their downfall is their struggle to maintain this growth. Micklethwait and Wooldridge note that the Chinese SOEs are not trusted by investors and fared particularly badly in 2008, whilst figures released in early 2016 show that China grew at the slowest rate in twenty-five years in 2015. Chinese rapid growth based on enormous extraction of raw materials and the mobilisation of the biggest population in the world was effectively facilitated by the Chinese government, but by definition, these resources are finite and so too, perhaps, is the government that suits that style of economy so well. Even Singapore, which has managed to sustain its material prosperity more consistently, cannot be held as an example of a purely undemocratic regime given that it is now a parliamentary representative democratic republic based closely on the Westminster Model (albeit with stronger executive power).
Ultimately, I argue that both democratic and undemocratic government are capable of fostering material prosperity, and that – as has been seen above in the case of Russia, for example – different contexts better suit different types of government in order to spur this growth. South Korea is a perfect example of this concept within one country (Fukuyama 2011, 474-75). After the Korean War, General Park Chung-Hee instigated an aggressive industrial policy to promote rapid economic growth and, within the space of just one generation, he transformed the country from a primitive agricultural society into a major industrial power. This rapid economic growth led to the mobilisation of completely new social forces that had not existed in traditional Korea such as trade unions and campaigning university students. This widespread social mobilisation led to increasing calls for a democratically elected government and, in 1987, the first democratic presidential elections were announced. South Korea’s rapid economic growth (spurred initially by an undemocratic regime) and its new democratic regime helped it to survive the Asian financial crisis of 1997-1998 relatively unscathed and also to strengthen its rule of law. In diagrammatic form, Fukuyama (2011, 474) shows how democracy, through being seen as legitimate and adhering to the rule of law, allowed South Korea to enter into a cycle of lasting material prosperity having initially been spurred by an undemocratic regime.
This supports the idea that perhaps the best way to look at the question is to look at it in from two different directions. That is, not only is representative democracy in many cases a condition of lasting material prosperity, but lasting material prosperity is also a condition of representative democracy. The latter part of this statement is perhaps clearer-cut and less controversial than the former, and there are many examples throughout history of where this has been the case. The Glorious Revolution in England, for instance, is argued by Fukuyama (2011, 418-19) to be far more ‘a consequence of the strong, credible property rights than a cause of them’, and similarly he argues that the introduction of a democratic government in Denmark came out of the increased economic freedom and success instigated by the monarch. When looked at in this way, a perpetual cycle can be seen where economic growth supports democracy and democracy supports economic growth. Given its cyclical nature (what Ferguson called the ‘double helix’), I argue that this model is the best way of sustaining ‘lasting material prosperity’ when compared to the more linear and unsustainable growth of undemocratic societies (which are simply unable to spur this cycle by their very nature as divided entities). Whilst material prosperity can be achieved through both democratic and undemocratic models (and indeed some of the most effective growth has been achieved when these two have been combined), it is only the democratic model that can support truly lasting material prosperity.
Acemoglu, D., and J. Robinson. Democracy: what is it good for? 2014. http://whynationsfail.com/blog/2014/3/25/democracy-what-is-it-good-for.html (accessed January 17, 2016).
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Ferguson, N. The cash nexus: money and power in the modern world 1700-2000. Harmondsworth: Penguin, 2002.
Fukuyama, F. The origins of political order: from prehuman times to the French Revolution. London: Profile, 2011.
Micklethwait, J., and A. Wooldridge. The fourth revolution: the global race to invent the state. Harmondsworth: Penguin, 2014.
Przeworski, A., M. Alvarez, J. Cheibub, and F. Limongi. Democracy and Development: Political Institutions and Well-Being in the World, 1950-1990. New York: Cambridge University Press, 2009.