Democracy still the best model for growth

It might not seem obvious after the debt debacle in America, but democracy is still the only game in town for sustained economic growth.
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Does it matter what the placard says?
<div style="text-align: left;"> Does it matter what the placard says? </div>

British playwright Tom Stoppard once joked that if voting mattered, ‘they’ wouldn’t allow it, which was funny because of the truth it contained. But most of our readers did not share Stoppard’s cynicism when we asked them last week if democracy was a luxury or a driver of growth. We are pleased to report that most said democracy promotes economic growth, which most studies seem to agree with.

However, studies into the relationship between votes and policy — how much power voters have — suggest a weak relationship. America’s deficit is a good example. Voters had little say in most of the country’s biggest spending decisions, such as the conflicts in Afghanistan and Iraq, which were both sold as quick and inexpensive wars, or the Bush tax cuts, which were sold as temporary and ‘self-financing’.

Instead, those decisions have cost trillions of dollars during the past decade. Barack Obama was elected president in 2008 on the back of promises to reverse all of them, but has yet to do so. Indeed, under Obama, troop levels in Afghanistan have risen and the Bush tax cuts have been extended. So much for voting.

The euro is another good example. It is inevitable that poor members such as Greece, Ireland and Portugal will not be able to convince voters to adopt the fiscal policies that Germany would like to impose. Yet, at the same time, those countries have no choice — Germany will not continue to pay their bills without more control over their spending.


Is democracy a luxury or a growth-driver?

Democracy promotes stability and economic growth

Democracy is a luxury that produces poor policy

Neither. If voting mattered they wouldn't allow it

This dilemma could ultimately lead to the collapse of the eurozone, but it is more likely that it will force a crisis in which voters in the poor countries watch from the sidelines as politicians give up sovereignty against their wishes.

Even so, the ultimate defence of liberal democracy is that it is better than any of the other ideas we have. China’s brand of state capitalism has been tremendously successful in its short life, but it is a transitional model rather than an answer to China’s long-term governance. Southeast Asia has had its fair share of authoritarian governments, with Singapore’s Lee Kwan Yew often cited as an example of how benevolent dictators can also deliver growth and stability.

But the central problem with almost all competing ideas is the transfer of power. Singapore’s model, for example, has barely confronted this problem yet — Lee remained a member of the government until May this year.

China might not be democratic yet, but it is already terrified of the power of its own people. It is only a matter of time before they have a greater say — or at least the appearance of a greater say — in how the country is run.

People attribute many qualities to democracy, but its real selling point is its ability to deliver stable transitions of power. Politicians make at least as many bad decisions as good ones, but their willingness to retire when they’re told to makes them a valuable commodity.

¬ Haymarket Media Limited. All rights reserved.
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