Democracy or Autocracy: Which is Better for Economic Growth? Becker

@font-face { font-family: "Cambria"; }p.MsoNormal, li.MsoNormal, div.MsoNormal { margin: 0in 0in 10pt; font-size: 12pt; font-family: "Times New Roman"; }div.Section1 { page: Section1; }

 

The Economist in its October 2-8 issue has a cover page with the title: “How India’s growth will outpace China’s”. One of the main reasons they give for this claim in their leader on this topic is that India is democratic while China is autocratic. The other is that India has higher birth rates, and hence a younger population. Both arguments can be questioned, although I concentrate my discussion on whether democracies favor economic growth.

Visionary leaders can accomplish more in autocratic than democratic governments because they need not heed legislative, judicial, or media constraints in promoting their agenda. In the late 1970s, Deng Xiaoping made the decision to open communist China to private incentives in agriculture, and in a remarkably short time farm output increased dramatically. Autocratic rulers in Taiwan, South Korea, Singapore, and Chile produced similar quick turnabouts in their economies by making radical changes that usually involved a greater role for the private sector and private business.

Of course, the other side of autocratic rule is that badly misguided strong leaders can cause major damage. Mao’s Great Leap Forward is one prominent and terrible example, but so too are Castro’s forcing Cuba into a centrally planned government-controlled inefficient economy, or Iran’s mullah-led government that created monopolies controlled by religious foundations and other groups.  The overall effect of autocratic governments is some average of the good results produced by visionaries, and the bad results produced by deluded leaders.

Democracies help control the range of outcomes. Visionaries in democracies can accomplish much sometimes, as did Manmohan Singh when Finance Minister of India from 1991-1996, Margaret Thatcher after she became Prime Minister of Britain in 1979, Ronald Reagan as US president during the 1980s, and Japan’s leaders after World War II. However, their accomplishments are usually constrained by due process that includes legislative, judicial, and interest group constraints. On the other hand, bad leaders in democracies are also constrained, not only by due process, but also in addition by the reporting of a free competitive press and television, and nowadays too by a competitive Internet.

Whether on average democracies are more conducive than autocracies to economic growth is far from well established. What is clearer is that democracies produce less variable results: not as many great successes, but also fewer prolonged disasters. Since the bad outcomes tend to produce more damage than the good ones, less variable outcomes would be an attractive feature of democracies compared to autocracies, even if democracies on average did not produce greater economic growth.

Comparisons between the effects of these different systems of government on economic growth are muddied by the fact that personal freedoms usually increase substantially under autocracies that have been growing at a fast pace. China is an excellent example. Although China has remained a one party autocratic system since it started growing rapidly 30 years ago, the degree of personal freedom has expanded enormously. Personal freedoms in China did not exist when I first visited there in 1981 shortly after the economic reforms had begun. Changing domiciles was virtually impossible, and Chinese men and women could not even enter Western style hotels and shops.

I have returned a few times since then- most recently a few weeks ago- and the contrast is simply amazing. Students and many others criticize economic and social policies of the government, including the one child policy, although they cannot openly criticize the one party government, as jailed dissidents show. Many Chinese have traveled abroad and have seen first hand the freedoms in other countries, and the Internet provides access to opinions and facts on many thousands of subjects. The government does try to censor out opinions and information from the Internet that are considered damaging to the government, but cheap software has enabled many to bypass the government censors by connecting directly to Hong Kong, which is free of government censorship.

Other examples of growing freedoms under autocracies include Taiwan, South Korea, and Chile. They all started their economic booms under single party dictatorships, but after a period of quite rapid growth, fierce opposition to the dictatorships emerged. Before long all these countries did become democratic, with competing political parties.

To return to the comparison of China vs. India, the analysis I have given indicates that it is far from obvious whether democratic India has an advantage in the economic growth race over autocratic China. Each has its own strengths and weaknesses from a growth perspective, although India clearly dominates in political and social freedoms. Yet if, and this is a big if, China continues to have effective leaders, I would give China the edge in terms of future economic growth. This edge is partly because of the enormous enthusiasm to regain its former great country position among all strata in China’s population: entrepreneurs, professionals, and workers. On the other hand, a dismal leader could come to power in China and cause considerable damage to the economy. Overall, I expect India’s growth rate to be lower but more stable, and that stability might be worth a lot.

 

Comments

[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.

[den]

Good topic and the whole blog to add to his forehead to favorites
http://www.answerbag.com/profile/1365630
http://www.answerbag.com/profile/1365654
http://www.answerbag.com/profile/1365684
http://www.answerbag.com/profile/1365690
http://www.answerbag.com/profile/1375643

[Kesha]

Users of site http://www.e-rostov.ru thinking that democracy.

[ghd straightener]

I gotta check it out in more details tonight. Secondbrain sounds very useful to me.

[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.

[Angela Sanders]

Hi Webmaster,

Let me congratulate you for maintaining such a wonderful blog: http://www.becker-posner-blog.com/

Keeping in mind the quality information and services of your blog, we are planning to add link to your blog in one of our community site/blogs and get a link to our site from yours.

If you want we could also go for an article exchange. I could provide you a fresh & unique article in which I would make a hyper link of my site. You just need to publish that on your blog.

Please advise me at [email protected] whether we should go ahead.

Thanks again for your good work, awaiting for your earliest reply!!!

[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.

http://umexpert.um.edu.my/papar_cv.php?id=AAAJxnAAQAAAGGuAA5

[soccer jerseys]

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

[jordan shoes]

Ambition is the genius of seedlings, love of labor hands in the fertile land, for the tree will grow strong. Don't love Labour, not self education, this ambition roots will die young. Determine the personal ambition, choose good major, it is the source of happiness.

[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."

[linkslondon]

Aw, this was a really quality post. In theory I'd like to write like this too -

[linkslondon]

Aw, this was a really quality post. In theory I'd like to write like this too -

[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.

[handbags2006]

I thinking that democracy.!

I true that!

[Best Mortgage Deals]

Exclusive mortgage deals are easy to find at John Charcoal and are simply the best. Our Best Buy tables give you a selection of some of the very best mortgage rates currently available. Take a look at our exclusive and semi-exclusive mortgage** deals - only available to John Charcoal customers - displayed below, or choose another Best Buy table from the list on the left, such as the best tracker rates or the best fixed rates. Remember, these exclusive deals are not available on the high street. Exclusive mortgages - making the best mortgage deals Bette

[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.

[xuke]

How to Change the World