Is democracy bad for economic growth?

Europe’s ongoing malaise has reignited the old debate over which form of government produces better economic performance.

Are authoritarian regimes, with their ability to ram through unpopular choices, more effective at generating growth? Or does liberal democracy, with its built-in checks and balances, yield greater material prosperity?

It is a discussion in which the supporting evidence seems to have oscillated from one side to the other in recent decades.

In the 1980s, economic performance in Chile under General Augusto Pinochet’s dictatorship and in Singapore under the more benign but nonetheless authoritarian Lee Kuan Yew, was impressive.

Meanwhile, the democratic countries of the industrialized world struggled against recession and stagnation. In Europe, this gave rise to the term “Eurosclerosis.”

Democracies, according to political scientists, were vulnerable to growth-constraining special interests.

Authoritarian regimes - at least those not committed to pillaging their countries - might be better positioned to implement policies that ensure long-term economic success. This view crumbled with the fall of the Berlin Wall.

The collapse of Communism and the renunciation of central planning in Eastern Europe gave rise to a new line of thinking, as large numbers of voters demonstrated that they were ready to accept temporary sacrifices if they were linked to a realistic and non-corrupt reform program.

In Latin America, left-wing politicians embraced market principles as the best way to satisfy their constituents’ aspirations, and growth resumed. For much of the 1990s, democracies seemed to have the upper hand.

But the tug-of-war continues. Since the beginning of this century, China’s supercharged economic growth once again seemed to highlight the benefits of authoritarianism.

The Chinese Communist Party’s success in navigating the turbulence of the global economic crisis with barely a shudder has attracted the attention of others who would follow its example.

Leaders like Russia’s Vladimir Putin, Turkey’s Recep Tayyip Erdogan, Egypt’s Abdel Fatah el-Sisi and Hungary’s Viktor Orban claim that the price of economic stability and growth might sometimes be the suspension of democracy.

The seemingly endless euro crisis has led some European leaders to give credence to that viewpoint.

At the start of the crisis, Jean-Claude Juncker, now president of the European Commission, is reputed to have said, “We all know what to do, we just don’t know how to get reelected after we’ve done it.”

In May 2010, the European leaders decided that they could not enforce reform in Greece on their own and called in the International Monetary Fund less as a financial resource than as a disciplining mechanism.

More recently, German Finance Minister Wolfgang Schauble sparked controversy when, evidently drawing inspiration from that experience, he said that France “would be glad if someone could force the parliament” to reform.

The truth, of course, is that authoritarian systems - whatever their short-term successes in holding the line against irresponsible policies - are unsustainable in the long run.

A lack of accountability inevitably produces corruption and inefficiency - problems with which China is now wrestling.

The challenge for democracies is to develop mechanisms that allow them to set policies that are sustainable in the long term while safeguarding the democratic process itself.

The public consensus supporting difficult reforms in Eastern Europe in the 1990s demonstrates that voters are able to understand and accept tradeoffs when they have no perceived alternative. (Likewise, the crisis in Greece shows that voters will refuse to make sacrifices if they think there is another way out).

Parliamentary debate is an effective way to set long-term priorities but politicians need to ensure that the decisions taken are carried out without excessive tinkering or backtracking.

In the aftermath of the Great Depression, for example, there was a widespread consensus in the United States that excessive congressional interference was responsible for the disastrous hike in import barriers under the Smoot-Hawley Tariff.

Trade policy, it was decided, was better delegated to the president, an office better insulated from electoral pressures.

Similarly, the European debate over appropriate fiscal frameworks might be most appropriately settled by a referendum, following public debate on a long-term and sustainable strategy. But the implementation of the decision would be best entrusted to the member states.

Whether at the European level or in individual member states, the authority for ensuring long-term economic growth should be precisely and clearly delegated to agencies that derive their legitimacy from the democratic process, while being protected from its baser whims.

The sustainable alternative to democratic decision-making is not authoritarianism; it is the implementation of mechanisms that ensure that cool-headed deliberation is not undermined by the heated response to an immediate crisis.

(Πηγή: ejinsight.com)