“Poor countries cannot afford democracy” is a common refrain suggesting that poor countries need strong and authoritarian leaders to overcome the various forces that kept them poor for centuries. In apparent support for this claim is the fact that the great majority of rich countries are mainly democratic. Yet, while the effects of democracy on economic performance are controversial, democracies can have some economic advantages for poor as well as rich countries.
The actual effects of democracy on the economy and other aspects of life should be compared not with an ideal form of government, but with various governments that do not have a free press, do not allow open competition for political office, do not have widespread suffrage, and lack the other institutions and freedoms that define democracies. As Winston Churchill famously said, “"No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government, except for all those other forms that have been tried from time to time." This is from a House of Commons speech on Nov. 11, 1947 that was delivered about two years after he was defeated in an early post- World War II election.
Many studies have tried to isolate the effects of democracy compared to authoritarian systems of government on economic development, inequality, education, and many other factors. Since it is very hard to separate the effects of democracy from that of many other variables, these studies fail to reach conclusive results. The tendency, however, is to find that once other suitable factors are taken into account, there seems to be only a weak relation between long-term average rates of growth in GDP and whether countries are democratic. Democracies do appear to encourage broader investments in education, and education does help promote faster economic growth.
While some authoritarian leaders greatly improve their economies, they are not the rule. For every example of a dictator like Pinochet and Chiang Kai Shek (in Taiwan) who produced fast economic growth, there is a Stalin or Idi Amin in Uganda with dismal economic policies. Similarly, not every democracy handles the economy well. India, for example, has been a vibrant democracy since its independence in 1947. This democracy during its first 40 years produced slow growth under a socialist government, and then India transited to much faster economic growth after the government shifted toward more market-friendly economic policies.
While average rate of growth do not appear to differ much between democracies and authoritarian regimes, the variability in performance does differ more among authoritarian governments. China has had remarkable growth since the 1980s, but the prolonged devastation and hardship produced by China’s “great leap forward” (when millions of farmers starved to death) and its Cultural Revolution would unlikely have occurred in a democratic country like say India. Nor is it likely that say Cuba and many African nations would have suffered so long with such terrible economic policies if they had reasonably democratic institutions.
One reason why persistent economic distress is less likely in democracies is that a free press would publicly report the distress and severely criticize the economic policies causing it. Similarly, political candidates would openly attack policies that lead to prolonged economic crises, and they would often be voted into office with a mandate to change the policies.
Some economic commentators use the strong correlation at any moment in time between wealth of countries and democratic governments to argue that democracy causes greater wealth. To be sure, many long-term democracies, such as the United States and Great Britain, grew very wealthy. So too, however, did countries like Taiwan and South Korea that started to grow rapidly under dictatorships, but became democracies, some rather quickly, when they became richer.
The sociologist Seymour Martin Lipset many years ago concluded from an examination of historical evidence that growing wealth mainly encourages democracy, rather than visa versa. I believe he had basically the right interpretation of the data correlating wealth with democracy. Especially in the modern world, as people get richer they travel more, learn more through newspapers, television, and the Internet about what is going on in their own and in other countries, and communicate by phone, email, texting, and in other way. People in wealthier countries want freedom not only in economic choices, but also in social and political life. These aspirations are not compatible with governments that censor what people read and hear, that try to suppress open discussions on politically sensitive subjects, and suppress challenges from political candidates outside of the officially recognized parties.
So yes, poor countries can afford democracy, as long as they use their democratic government to promote economic freedoms. Unfortunately, many poor countries, including democracies, fail to do this.