Democracy and Economic Growth

Economic growth is no defence for authoritarian rule

Expectedly, the BJP’s electoral defeat has provided fodder for proponents of the “golden cage” theory make that China vs India comparison. Announcing that democracy can be perverse (Wall Street Journal, via Cafe Hayek), David Hale writes that should China have had a democratic set up, populist politicians would have slowed down that country’s economic growth.

What he misses out is income equality – the widening of the gap between the richest and the poorest. The biggest lesson from India’s elections has been that democracy abhors inequitable economic growth. Inequitable growth has tremendous social (and political) consequences that are only beginning to unfold in China. The rural unemployment scene in China is a well kept secret. The unintended consequences of its one-child population policy that required authoritarian implementation will start becoming visible over next decade when a single tax-payer will be forced to support six dependents.

Hale goes on to say that western countries should not be too hung up on promoting elections.

As India’s election will testify, democracy is not always supportive of coherent economic policy and prosperity. India should recover in the long term because its democracy is mature and enduring, but the economy will suffer in the near term. The real challenge lies with countries at an earlier stage of political transition. In such places, the West should attempt to promote the preconditions for democracy, such as a free press and the rule of law. It should be more hesitant about promoting political competition which could destroy the leadership pursuing the economic changes essential for the ultimate emergence of democratic institutions. In the search for democracy, every country will have to find its own way. [WSJ]

Conveniently David Hale leaves out examples of real non-democratic countries which enjoy a free press and rule of law. Actually, there are none.

While there is scant doubt that China’s Communist leaders have brought millions of people out of poverty and brought unprecedented prosperity to its citizens, China’s example does not automatically become an argument against democracy. When asked about his opinion about the outcome of the French Revolution, Chairman Mao is reputed to have said ‘its too early to tell’. The last chapters in China’s remarkable story of growth are yet to be written.