Do democracies promote prosperity?
The ranking of Democracy Ranking indicates that of the 30 most democratic states in the world, 26 are members of the OECD, the club of the rich countries.Democracy would therefore be indispensable to economic prosperity ... but not sufficient. Explanations.
Democracy can be defined as a political system in which sovereignty emanates from the people. However, it is not enough to equate democracy with the mere establishment of democratic institutions and the practice of voting, it is more necessary to conceive of it in terms of "public reasoning".
By this term is meant the right that an individual acquires to express himself and to debate publicly, at all levels of society. Freedom of the press is also an essential component of a democracy. It allows access for all to information, freedom of expression and opposition.
The role of education in the democratization process of a country is also essential. Education contributes to the country's human capital, which allows for public reasoning about the merits of a democracy, and is also a vehicle for economic growth through human capital and the ability to innovate and undertake. It would seem that a more educated country is more democratic.
However, the relationship between education and democracy is not so obvious. During the Cold War, despite a population educated in the former USSR, this bloc of countries did not become a democracy - at least until the fall of the USSR (although this point is still debatable) . It would seem that education is very important in a democracy, but it would not be a major factor in the advent of a democratic regime. The example of Botswana is perfectly speaking. Acemoglu writes, "The main barrier to democracy is not the low level of education, but the social and economic inequalities that create conflict."
How to measure democracy?
The main measure of democracy is the indicator of Gastil (1982) published by Freedom House. This indicator measures political rights and civil liberties. It can be understood between 1 - the country is a total democracy -, 7 - the country is an autocratic regime instituting a severe repression on the population.
The organization democracyranking.org measures the quality of democracy in countries with a democratic regime. Each year, it ranks according to an indicator of democracy. According to the organization, Norway leads, followed by Switzerland and Sweden; France ranks 15th. Of the 30 most democratic countries in the world according to democracyrating.org, 26 are members of the OECD.
What is the link between democracy and growth?
In recent years, several countries (notably in Asia) have maintained a high rate of economic growth without being considered as democracies. Non-democratic regimes (which may be described as authoritarian or semi-authoritarian) would focus more on maintaining a sustained rate of growth at the expense of other structural policies that would foster development in order to avoid The popular discontent and thus ensure the stability of the regime.
The case of China is particularly interesting and regularly cited as an example. The Chinese government succeeded in maintaining a single party (the Chinese Communist Party) not only by its limitations on freedoms, but also by sustained economic growth for several years. Thus, the average salary in China increased by more than 18% in 2011 and by more than 17% in 2012 according to data from the National Bureau of Statistics. Over the period 2011-2015, the minimum wage is expected to increase by 13% per year on average, based on the last five-year plan.
The government bases its single-party model on a continuous increase in wages of the population. A smaller increase in activity could lead to an increase in social tensions, destabilizing the power in place. This can also be true in a democracy where citizens could re-elect the existing political party if the country registers sustained economic growth (recently observed in the United Kingdom despite a significant increase in inequality).
Conversely, in a democratic model, the executive may not be able to make economically optimal decisions under the influence of public opinion or pressure groups. The theory of politico-economic cycles teaches us that elected officials maximize their probability of being re-elected by pursuing private interests. This theory of the public choice school shows that elected officials tend to increase certain public expenditure (housing subsidies, unemployment, etc.) or certain revenues (by reducing taxes for modest households, for example) with a view to Election in order to promote their re-election.
Several authors (we can cite Acemoglu and Sen) consider that democracy would promote economic growth through the redistributive system allowing the provision of public goods and the development of an education system for all. Thus, economic growth would lead to an increase in government revenue, which should lead to increased redistribution towards the most disadvantaged. Redistribution makes it possible, in theory, to correct in part certain inequalities (of income, between regions, etc.).
After redistribution, wealthy households will have a primary income lower than their disposable income, and reciprocally for modest households. A democratic regime will therefore be more likely to redistribute to smaller individuals and regions in order to ensure a certain homogenization of society while ensuring a more just and equitable society. On the other hand, it may be thought that an authoritarian regime will tend to take over the wealth produced rather than redistribute it.
Positive effects
The relationship between thet democraization of a country and economic growth has been tested empirically and is still subject to debate. Kurzman (2002) studied 106 countries over the period 1951-1980. He concludes that a democratic regime does not significantly impede economic growth, and under many circumstances stimulates it slightly (notably through investment and public spending).
More recently, Acemoglu et al (2014) observed 164 countries between 1960 and 2010 and showed that the shift from an undemocratic to a democratic system would lead to an increase in GDP of 20% per capita over the next 30 years. However, democratization is preceded by a temporary fall in GDP. The 20% increase estimated by
Acemoglu et al. May thus appear to emanate from the advent of democracy, but also from a process of catching up with the economy following the fall in GDP that precedes the democratic transition (situation of instability and social tensions leading to a deterioration of the economy, economic activity). Acemoglu et al. Also find that the democratization of a country is transmitted to the neighboring countries, or even the same region. Democratization tends to occur in regional waves, as does the establishment of dictatorships.
Negative effects
Unlike the two studies cited above, Barro (1996) observes 100 countries between 1960 and 1990 and shows that democracy has a weak negative effect on economic growth, unlike Acemoglu and Al (2014). Barro believes that Western countries should help non-democratic countries by exporting their economic system, including property rights, free market and human capital, rather than their political system.
According to him, economic development requires the liberalization of the market, which will initiate the democratic process in the country and not the other way around, namely, the establishment of a democratic regime that will promote economic growth. Barro concludes that more democracy would not necessarily lead to a surplus of growth, but could have a weak positive effect in an undemocratic country.
Based on the latest study on the link between democracy and economic growth (to our knowledge), the establishment of a democratic regime would have a positive effect on economic growth. However, economic growth is not a sufficient condition for reducing country risk. Democracy (independent and stable institutions) and economic development - and not just economic growth - (through the provision of infrastructure, a health system, etc.) seem to be the two main components of the reduction Of the country risk. This issue could be the subject of a forthcoming publication.
Edouard Durand
published 02/09/2015
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