Democratic and Authoritarian Regimes: Relation to Economic Growth – Uniresearchers

Democratic and Authoritarian Regimes and Its Relation to Economic Growth:

This is a long cherished presumption that democracies flourish only in those countries, where education and economic development are high. The well-established democratic countries of Western Europe and particularly U.S., are a prime example of this (Sen, 2013). A contrast to this assumption can be presented by China. China can’t be said to an absolutely communist country, and a democracy neither. Various scholars have tried to establish a linkage between democracy and economic performance of a country. For example, Lipset (1960) argues that all the various aspects of economic development – industrialization, urbanization, wealth, and education – are so closely interrelated as to form one major factor which has the political correlate of democracy”. However, he further argues that list of economic factors can be not necessarily attributed to causes for democratic regime (Lewis, 2013). As per this assumption, for a democratic regime to survive, the economy should keep progressing. Critics argue that Lipset’s theory was based on economically developed countries of Western Europe, neglecting developing world, including powerful nations such as India and the emerging economies such as the African countries (Frank,1969). On the other hand, Prezeworski (2003), argues that political regimes don’t transit to democracy as per capita incomes rise, rather democratic transition occur randomly, but once achieved, countries with higher levels of GDP per capita remain democratic. It means that more the economic conditions are sustainable of a country, more chances that countries would remain democratic (Gassebner, Lamla & Vreeland, 2013). So, it can be argued that developed economic conditions forge the way to a successful democratic transition as per the modernization theory, and Prezeworski’s argument that democracies occur randomly - not relying solely on favourable economic conditions. The question remains unsolved, as to why some democracies such as US, Canada, and Germany, are performing well in terms of economic growth, and why some countries such as Pakistan, Bangladesh, and Eastern Europe are unable to emulate this model. It is true that democracies differ from each other - for example Russia recently adopted the democratic system in choosing their government. A recent study conducted by Princeton University Prof Martin Gilens and Northwestern University Prof Benjamin concluded that “Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts of US government policy, while average citizens and mass-based interest groups have little or no independent influence”. (Study: US is an oligarchy, not a democracy, 2014). This statement indicates that theories are based on the empirical data choosing countries who are economically developed, if they state that democratic regimes are the causes of economic prosperity. Thus, almost all the developed countries are democratic, but an accurate explanation for the economic well-being of a country is still not clear. There are a number of countries such as Russia, Egypt, and Cuba, which have emerged from an authoritarian regime. Authoritarian countries also achieved significant economic success, take for instance Egypt; and under Putin, Russia also recovered comparatively well after the economic devastation during the 1990s. They contend to have democracy, a country should be rich enough to afford it (Sylvia, 2002). In this contrasting view, it can be argued that different regimes have different impacts on the development and economic growth.

Many of the scholars assume that economic growth is a direct outcome of democracy. However, this is debatable. Any country’s economic well-being has been built upon the decades of historical development which has helped countries to reach, what we see today. For example, Germany, before adopting constitutional democracy in 1949, was either authoritarian regime or under dictatorship. Democratic or authoritarian regimes are constructed over a long period, and there are other social and cultural inputs that contribute (O'donnell & Schmitter, 2013). However, our focus would be on the economic performance of a country and its relationship with regime type of a country.

Thus, it can be argued that democracy helps countries in providing both greater stability and public say in policy making, but whether this actually leads to any economic prosperity, is still debatable. To understand this nuance, one has to look more keenly into the differences between presidential from of democracy and parliamentary democracy in policy making. This difference changes from one country to another, as no country's polity may be identical to another's (Schumpeter, 2013). To elucidate, let us take the instance of the USA. The US constitution is hard wired to promote free market economy and capitalism, and on the other hand, developing countries such as India continued with their adopted mixed economy or protected economy approach till the 1990s. Both of these economies look similar on the surface, but are starkly different in terms of economic policies or economic regime (Mulligan, Sala-I-Martin & Gil, 2003). Although our concern is limited to measuring a regime's effects on a country’s growth, but it can’t be denied that the differences that we see between various democracies leave us to assume that only democratic form of government may not guarantee a country’s economic growth. In the next section, we will discuss more about the methods to measure the economic growth.

Economic growth is usually measured by GDP per capita. Capital is regarded as cultivated wealth, which would yield higher returns in the coming future. Gerring et al (2005) argue that if a democratic regime endures, it is likely to foster four types of capital: physical, human, social, and political. He further argues that the longer the countries remain democratic, the more chances that these four types of capital will be enhanced resulting in better growth. This optimistic view is based on the concept of equal distribution of capital, which scholars see as an important factor of economic growth (Besley and Burgess, 2000). In a democratic regime, the successful redistribution of wealth through taxation, social policies, land distribution, and civil rights forge the way for the economic growth as per this connotation. However, he rightly observes that we expect better results from a long term democracy than newly democratized or authoritarian regime. Learning and instutionalization takes time to garnish the fruitful results of democracy (Besley and Burgess, 2000). So, it can be argued that democracy is beneficial in the long run, but in the short run it still has to prove.

Autocracy or Democracy? Interestingly, scholars argue that a democratic regime focuses on maximizing total output, but in a authoritarian regime the focus remains on maintaining the order (Dunleavy, 2014). For an instance, the rise of East Asian economies is portrayed as democracy induced growth. However, a set of economists found that growth has induced democracy, not vice-versa (Glaeser, 2004). They took the case of North Korea and South Korea, which were under dictatorial regimes till 1980. Till that time both countries were on the equal ground, but in the same year S. Korea began democratizing. They say that better institutions were developed due to dictator’s policy of choices. Others, such as Acemoglu and Robinson (2012) also argue that this type of growth can be attributed to political decision making. Since, elites want to maximize their own power by altering the institutional changes and allowing technological changes required to spur economic growth. The interesting fact, they contend that particularly in S. Korea first introduced economic freedom introduced by dictator government, led to political freedom. However, the autocratic government’s fueled economic growth is sustainable or not is a different matter. Classical analysts also argue that democracy undermines growth unleashing pressure for immediate consumption, which occurs at the cost of investment, hence growth. This minimalist view is based on the assumption that democracy accelerates the demand for current consumption; these demands obstruct the path of profit, thus obstructing the path of economic growth of a country. So, different regimes have different consequences on development and economic growth .