Is Democracy Intrinsic to Economic Development?

Over the past three decades, debate around the trade-off between democracy and development has acquired more visibility in academic circles—more so, in light of the spectacular economic growth rates that the authoritarian regimes in East Asia witnessed since the 1970s. Indeed, the impressive success of development on aggregate scale in undemocratic countries such as South Korea, Taiwan, Singapore, and recently the Chinese leviathan has woven into a narrative suggesting that autocracies—if led by visionary autocrats—can often be more growth-inducing then democracies. The recent scholarship by development economists has made a point that rapid economic growth need not necessarily presuppose democratic institutions. As a matter of fact, visionary technocrats in authoritarian regimes can uphold growth and dynamism at a pace higher than those of their counterparts in democratic sates. The recent success of South Korea, Taiwan, and particularly China in launching an industrial transformation, which resulted in a titanic increase in the rates of manufacturing output, productivity, savings as well as a tremendous rise in standards of living—in a strikingly short span of time—is so impressive that it becomes plausible to suggest that development, given specific background conditions, may be better accomplished under autocracies than democracies.

The reason, economists argue, is that in an authoritarian setting, state-managers and policy-makers need not heed bureaucratic, legislative, judiciary, and media wrangling and constraints in advancing their agendas, and thus avoid the delays in messy democratic processes. This argument is consistent with the empirical evidence. The instances that technocrats in undemocratic countries pushed their economies onto the path of tremendous growth while instigating a sparkling economic transformation are copious: the leadership of Chiang Kai-shek in Taiwan in the 1960s, Park Chung-hee in South Korea in the 1960s-1970s, Deng Xiaoping in China in the late 1970s, and Lee Kuan Yew in Singapore in the 1990s and 2000s are just a few examples. These countries which later acquired the sobriquet of the “East Asian Tigers” witnessed the world’s most stunning growth rates under inexorably authoritarian regimes.

The titanic growth rates of the East Asian Tigers under dictatorships naturally raises an important question for economists and political scientists alike: If democratic countries are deemed to be more dynamic, transparent, and malleable to change for addressing state-inadequacies and indeed, more amicable to policy-correction through popular votes, why then did economic transformations occur at such a rapid pace and system-wide scale in these authoritarian regimes? In order words, if dictatorships—given specific circumstances—can grow way faster than democracies, what does democracy have to do with development? Is democracy intrinsic to development?

The answer to these questions has now become clear. Since the late 1980s, scholarly work on development has recognized state as an important feature in economic growth. Most prominently, “developmental state literature” posits that successful development in the form of rapid industrialization—similar to the Japanese or Chinese model—requires an autonomous, centralized and coherent bureaucracy to coordinate economic activities between the private and the public sectors. States, authoritarian or democratic, need to be autonomous from various social groups in order to advance the developmental agenda. States also need to be endowed with considerable bureaucratic coherence while implementing economic policies at both macro and micro-levels.

On the one hand, autonomy allows the state to implement policies independent of the whims and wills of various social groups who may view those policies as an impediment to their own collective interests, and may undermine them through pressuring the state. Autonomy also shields the state from being the focus of recalcitrance by powerful social forces, namely business groups. There have been many cases where the state’s economic plans were subjected to resistance by influential classes, namely and most importantly the business groups. India, Turkey, and Brazil are the conspicuous examples where state-directed planning fell prey to the evils of capitalist rent-seeking by the influential business group, and where the business groups wielded enormous, yet distortionary influence over the state’s economic policies. As development sociologist, Vivek Chibber, explained in great detail, the recalcitrance of the business community in post-independence India to state industrial planning—especially when the state wanted to embark on growth-inducing export-led development strategy—is a perfect example demonstrating how the outcome of economic policies can be stymied by influential social groups. On the other hand, bureaucratic coherence endows the state with the capacity to formulate and implement policy in a cohesive fashion. The pioneer scholars of development who laid down both theoretical and empirical foundations of developmental state literature are Chalmers Johnson and Peter Evans whose seminal books MITI and the Japanese Miracle: The Growth of Industrial Policy (1982) and Embedded Autonomy (1995) demonstrate that states without autonomy and bureaucratic coherence have little chance of success in promoting economic development, particularly in the narrow sense of industrial growth.

By the late 1980s, the enormous success of South Korea and Taiwan in making their traversal to dynamic and efficient industrial economies under dictatorships generated a paradigm shift—a rethinking—in development studies. At around the same time, a series of impressive studies began to emerge suggesting that democracy need not necessarily be the precondition of economic growth if the state, autocratic or democratic, is developmental—that is, if the state is endowed with autonomy and bureaucratic coherence. Led most notably by Alice Amsden and Robert Wade, whose case studies of South Korea and Taiwan quickly acquired classical status, a number of scholars forcefully argued that the secret in East Asian Tigers’ success was largely due to the active role of the state in micro-investment decision making of the firms. The Japanese, Korean, and the Taiwanese states heavily relied on interventionist economic planning by ways of manipulating trade and exchange rates as well as the allocation of finance: compelling the private firms to invest in industries that the state believes are most growth-inducing: auto, steel, electronics, telecommunications and other high-tech and growth-inducing industries. These micro-level dynamics of economic planning have far less to do with democratic institutions than the state’s capacity to successfully formulate and implement them. The state’s capacity to coordinate economic activities in a coherent fashion may or may not come through democratic institutions and popular votes.

My aim is not, by any means, to suggest that autocracies can always push towards a path of economic growth and dynamism, or to insinuate that a state should be authoritarian for economic development to occur. An authoritarian setting for the purpose of economic development is in of itself a gamble: it can yield South Korea under Park or it can yield Zaire under Mobutu. Park and Mobutu are both authoritarian; the former was able to bring about a developmental bureaucracy, but the later forged a predatory state where functionaries were preoccupied in a spree of anarchical grabbing of public resources at the expense of the broader society. As NYU development economist William Easterly said, the other side of “benevolent autocrat” is malevolent autocrat: a badly misguided authoritarian state-manager who wreaks havoc in state while completely undermining economic growth.

Empirical surveys: Benign Autocracy and Economic Growth

William Easterly’s working paper is one of the latest attempts to explicate in detail the correlation between autocratic rule and economic growth. Employing modern tools of econometrics, Easterly arrives at the same conclusion: the variance of growth is strikingly higher under autocracy than under democracy. That is to say, in visionary and developmental autocracies, economic growth and dynamism can be accomplished at much higher pace. Not impervious to this argument, high rates of statistical variance under autocracies also vouch for the veracity of the claim that autocracy for the purpose of economic growth is a double-edged sword. Authoritarian states can be as developmental as South Korea, Taiwan and China, while, to the contrary, they can also be as predatory as the Republic of Congo, Pakistan and Zaire among others. The consensus amongst economists is that there is a robust statistical effect suggesting that that very high growth rates occur principally among developmental autocracies and not among democracies. Another fascinating finding is that the variance of growth is higher under autocracies than democracies, which posits that benevolent authoritarians can accomplish more than their counterparts in democracies. In what follows, I will engage the statistical findings that the plot below demonstrates.

Cross section averages of per capita growth and average Polity score from Autocracy (-10) to Democracy (10), 1960-2008

Picture1
Source: William Easterly’s working paper titled “Benevolent Autocrats”

In the plot above, the x-axis stretches from -10 to 10 as measurements of democracy amongst states in question. That is to say, -10 and 10 signify the two extremities of autocracy and democracy respectively. The y-axis demonstrates the average GDP per capita growth rate of the countries. As we can see on the plot, China, as authoritarian as it is, ranks at the top of the growth rates on the y-axis. On the contrary, the authoritarian regimes of Zaire and Liberia are placed at the bottom of the average GDP per capita growth rates axis. The recent econometric study seems to be consistent with the hypothesis that autocracy is a gamble; it can be as developmental as South Korea or, conversely, as predatory as Zaire. In short, as we can see in the plot, autocracies have greater dispersion of permanent growth rates than democracies. Measured against the annual per capita growth rates, they also have much higher standard errors supporting the hypothesis that growth can be sustained faster under autocracies than democracies.

Masoud Movahed is a Researcher in development economics at New York University. He contributes to, among others, Harvard International Review, Foreign Affairs, Yale Journal of International Affairs, the World Economic Forum and Al Jazeera English.

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