« Autocracy, Democracy, and Economic Welfare—Posner | Main | Should Children Born in the United States Automatically Become Citizens? Becker »

10/10/2010

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Lexington Green

Good, with reservations. Becker says that the result of autocratic government is "some average" of good and bad results. Not really. It is bimodal. A small number of autocracies (he names pretty much all of them) managed to get it right. Most don't. They are usually corrupt and backward. And autocracies are frequently catastrophes. Not having any serious risk of Great Leap Forward, a Holocaust or a Holodomor, which a functioning democracy would always prevent, is so important that it is worth trading some points of economic growth in every case. There is a case to be made that modern, pro-growth autocracies have learned their lessons from free and open societies, and the trend in the future of economically free autocracies may be better. But the historical record is rotten, and the risk of disaster is far from trivial.

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Rok Spruk

Very good observations on the relationship between the political system and economic growth. The prospects of sustainable long-term economic growth in China, India and other developing nations depend mostly on how these countries integrate structural change in the institutional framework of economic development.

The autocratic political regimes inherently produce economic systems that are equally vulnerable to external shocks and structural change as their political systems.

Even though China's medium-term economic growth is forecast to outpace the average of developing countries, the country's capacity of income per capita convergence with industrialized countries entirely depends on domestic structural change in the institutional environment as well as the quality of economic growth. First of all, without a robust rule of law, comprehensive protection of physical and intellectual property rights and low transaction costs in contract enforcement, China's long-run GDP per capita prospects are far less bright than current growth figures suggest.

And second of all, if Chinese policymakers will show additional reluctance to adopt the free-floating exchange rate of yuan, the quality of country's economic growth will slowly diminish. The appreciation of yuan would increase relative export price level and probably reduce the intensity of export-led growth and shift the major source of GDP growth towards domestic consumption.

I'm quite optimistic about India's growth prospects. Mainly because it is a relatively poor country with a democratic system that amassed persistent social rigidies such as rent-seeking by interest groups. The latter heavily impairs the prospects of adopting public policies such as market liberalization, privatization and an effective system of the rule of law that would be conducive to protect individual liberties and impose a system of checks on the endless power of interest groups.

India's growth outlook would be far brighter had the country introduced a robust institutional structure to restrain the invisible and coercive power of interest groups. But the latter would be easier to achieve if India were a political dictatorship.

I have argued that higher level of democracy (especially in terms of greater civil liberties) is conducive to economic growth in poor countries while the opposite is true in developed countries:
http://rspruk.blogspot.com/2010/10/economic-growth-and-democratic.html

However, adopting a full-fledged set of democratic institutions in poor countries could be damaging to economic growth as the evidence from India indicates. Poor and developing countries would greatly enhance the prospects of economic growth if autocratic political constituencies in these countries would impose the rule of law, foster judicial protection of private property rights and adhere to the principles of free-market economics.

In the initial stage, such policy set would greatly boost growth and structural change in poor countries. In the next stage, higher per capita incomes would increase the reluctance towards political dicatorships and encourage the transition towards the constitutional democracy, as it happened in Chile.

I believe this is the best solution to foster the prospects of economic development in poor countries.

Jim

Assuming stable political leaders and known economic principles, the GDP of India, China (and the United States) should equalize and the standard of living should as well. After all, the current crop of world leaders want global free trade and they are supported by the preeminent academics of our day, the ethicists who believe that there can be and should be world wide equality. It seems to me that this has been tried before with murderous results.

Jim McCabe

It seems the better dichotomy to consider is that of individual liberty vs. centrally planned economic policies. The examples of autocracies that "got it right" were all ones that emphasized individual (economic) liberty, and kept the heavy hand of the state off the free market (to a point, anyway). It seems clear that establishing a taste for freedom and individual responsibility within a one-party state results in a more effective, flourishing democracy once the governing transition has been accomplished. Individual rights and the rule of law come first in the cause for liberty; voting, while ultimately critical to the long-term legitimacy and sustainability of governments, is often fetishized to disastrous effect (as in post-colonial Africa, for example), where the populace has not been sufficiently "liberalized" prior to gaining the franchise.

Wei

Sir, you confused two things on two occasions. That is, you confused visionary leaders in autocratic regimes driving growth (in a more "efficient" manner) with more perceptive leaders in autocratic regimes realising that they got no other alternatives but unleashing the natural power of market as the only means to survive. Deng realised the dire situation he was in and made the only choice he had to save the Communists: to incentivise the peasants. He was obviously more perceptive if compared with Fidel Castro, who still didn't realise it. However, when situation got less dire, Deng revealed his true nature of an autocratic brute: he shot down the students.

You made the same confusion when discussing increasing individual freedom in China. It was not the Communist leaders' intention to grant more individual freedom, it was the "price" they had to pay to sustain the economic growth: integrating into the global economy.

Back to the article you questioned. A fundamental difference between India and China is the role the government plays in business, which manifested the difference between a democracy and an autocracy. China's blinding growth has been chiefly driven by the huge SOEs (how many people citing "China model" have realised that the Chinese companies on the Fortune 500 are almost all SOEs, or the majority of the huge stimulus package has gone to SOEs?) while the Indian growth has spurred mainly by private entrepreneurship.

Then there is the simple mathematics: as the article stated, India's economy is about 1/4 of that of China, "outpacing" made easier.

I've been a keen reader of Prof. Becker in the last 20 years, but I'm afraid in this round, The Economist beats the economist.

Jake

Funny how this dialogue about autocracy versus democracy, as to which is the better feeding ground for economic growth, subsists in the shadow of the 800-pound gorilla -- the United States of America, which has proven the superiority of democracy in fostering economic growth for all the ages.

Given the Obama Administration's proclivity toward autocratic governance, however, America's priceless lesson to the world may soon become memory.

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Chee-Heong Quah

To add a few words, following Friedman's views:

Governments might be at times better than the private sectors but ex-ante, the private sector should be better due to the agency problems with the government.

Hence, we can draw parallels with Becker's arguments here. Democracy can be seen as the private sector whilst autocracy can be regarded as the government sector.

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I think the argument can be made for both but don't really think the spark is the make up of government. The following countries are economic powerhouses: US, China, Japan then you have the developed and very solid players in Spain, Germany, France, Australia. There's no common denominating factor there in terms of government structure although willingness to expand and be the best is deep rooted in their psyche.

Chuck Toombs MBA '87

Assuming there profit maximizing point of a country AKA GDP, and a rational autocratic government, then wouldn't they put into place policies to make that happen?

antalya otelleri

Funny how this dialogue about autocracy versus democracy, as to which is the better feeding ground for economic growth, subsists in the shadow of the 800-pound gorilla -- the United States of America, which has proven the superiority of democracy in fostering economic growth for all the ages

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Jimmy

But if one looks the "outcome" of economy in a global sense, then who is to blame for the current depression? Isn't it from democratic countries?

An incompetent leader in an autocratic government might lead to a disastrous economy outcome, but the consequences will only lay upon that country. But a bad government in a democratic country will not only cause its own doom but also take all other countries with him.As far as the "outcome variability" of democracy and autocracy,I am not too confident about your argument.

Jake

Jimmy -- read Schumpeter, then Hayek, though not necessarily in that order. For more recent scholarship on point, read Anne Applebaum's "Gulag."

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MRWED

I still can’t decide whether democratic or autocratic. I am in a democratic country and the people have freedom but others are abusing democracy that causes; war and chaos. When it comes to autocratic the people have no freedom and the decision is all in the leader that is worse for me.

Jonas Yan

I think the best method for economic growth is a democratic system, particularly one capable of evolving with the times and able to creatively adopt policies that create new industries. For instance, decriminalizing marijuana is one such method as is the case in California: http://lawblog.legalmatch.com/2010/10/06/why-californias-decision-to-reduce-marijuana-possession-to-a-traffic-violation-is-a-ploy-to-kill-off-prop-19/

It may be daring to some, but it will bring in over a billion dollars in tax revenue a year, not to mention all the new jobs and savings.

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Christopher Graves

I think that a couple of commentators are correct to observe that Professors Becker and Posner are confusing different issues in this discussion. I do not see that democracy necessary leads to greater liberty, political stability, or sustainable economic growth. Alexander Hamilton expressed an insight commonly held in the Eighteenth Century about democracy when he said that "“It had been observed that a pure democracy if it were practicable would be the most perfect government. Experience had proved that no position is more false than this. The ancient democracies in which the people themselves deliberated never possessed one good feature of government. Their very character was tyranny; their figure deformity.”

We can see the danger posed to the economic prosperity and stability of a nation by democracy when we consider the work of Mancur Olson is his *Rise and Decline of Nations.* We have to keep in mind that collective decision making is not synonymous with liberty nor is it necessarily conducive to responsible polity.

Democracies also do not necessarily avoid the wild swings of policy as we can see in Parliamentary systems or what we are in the process of witnessing in the U.S. The constraints on democratic elements in our system such as the Senate with its extended debate and our constitutional limitations on policy implementation serve to make our government somewhat more stable than a purer democracy.

Also monarchies and dictatorships are not in the same category. There is an inherently conservative quality to monarchy since there is a tradition that a particular monarch rules within. If he acts too precipitously against the tradition that he governs from, he can destabilize his own power. If he does not recognize this crucial aspect of maintaining his rule, his family is apt to and rein him in. A monarch has a further incentive to act responsibly since he views his realm as his own property and is more concerned to preserve it for the future than a transitory majority or a lone dictator. Monarchs have a track-record of financial responsibility that is far more conservative than democracies or dictatorships.

As David Hume observed, monarchies are more interested in developing the arts and manners than are democracies. This is also true in comparison with dictatorships. These interests of monarchs and aristocrats further social and political stability providing a firmer foundation for culture to spontaneously facilitate coordinating the actions of individuals making more heavy-handed tactics by government less necessary.

As Montesquieu noted, which system fits a nation depends on a number of factors, so that there is no one size fits all form of government for everyone.

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