05 June 2008
On Democracy and Development: Rejecting the Extremes
Daniel Kaufmann
In the long term, freedom of speech and the press plus democratic accountability make a positive difference in economic development, Daniel Kaufmann says. Kaufmann is director of global governance at the World Bank Institute.
Is economic development impossible without democracy?
It is easy to assert confidently that democracy is a fundamental precondition for an efficient market economy and for economic growth. Or to state that particular democratic systems, as we know them in the industrialized West, are the only way of promoting economic development in other parts of the world.
But are these assertions based on dogma or evidence? Unfortunately, the analysis of the empirical evidence points to a complicated answer. This is not an experiment in the hard sciences, but a nuanced challenge in the social and political sciences.
Ambiguous Evidence
The evidence on the short-term effects of democracy on growth is ambiguous.
More than a dozen serious research papers have investigated the effects of democracy on economic growth (cited in the bibliography at the end of this eJournal USA, Markets and Democracy). They present a mixed picture. Utilizing large cross-country samples, a number of studies found that, on average, democracy has no major effect on growth (Baum and Lake; Przeworski). Another study, however, which also finds little direct evidence of democratization affecting growth rates, does point to some potentially important indirect effects: Democracy may be associated with higher levels of human capital formation, macroeconomic and political stability, and liberalized markets. These, in turn, are conducive to higher growth rates.
Other researchers have found evidence that a move toward democratization in highly repressive political regimes is indeed associated with higher growth rates (Barro, others). But beyond a certain level of political liberalization, they say, any further democratic reform does not translate into yet higher growth rates. To the contrary, there may be growth deceleration at intermediate levels of political liberalization, according to such research. But then another recent study suggests that a transition toward democracy is not associated with slower growth (Persson and Tabellini).
In short, based on these studies, there is no clear linear and causal link between democracy and growth. Yet there is no strong basis for concluding that political liberalization results in growth deceleration either.
Short Term, Long Term
These studies are generally based in the short to medium term. Further, we need to keep in mind a basic stylized fact in development: Irrespective of the type of political regime, one expects to see faster economic growth in lower-income countries than in industrialized countries. This is because poorer countries can potentially catch up by applying existing technology from more advanced countries for increased productivity. On average, developing countries typically grow at a higher rate than richer countries. Compare, for example, China or India with the United States or Germany.
Part of the slower growth observed during political liberalization may actually reflect decreasing opportunities to play technology catch-up in an increasingly industrialized setting, and not the influence of the political regime per se. Either way, there appears to be no compelling positive link between democracy and growth in the short term.
But consider the longer term and a broader view of democracy.
Part of the problem may lie in viewing democracy too narrowly as a system that holds elections and that allows for more than one political party. Many countries that did not hold elections 20 years ago are doing so now, and they generally allow more than one party, even if grudgingly at times.
The extent to which these countries hold “free and fair” elections is, of course, another matter. Furthermore, given recent electoral mishaps in Kenya and Zimbabwe, for instance, the notion of “free and fair” should be expanded to “clean, free, and fair,” so as to acknowledge more explicitly the challenges of corruption, vote buying, outright poll rigging, and other forms of subverting electoral integrity, which is only partially captured under the notion of “fair” elections. Also, given the dominance of the government’s political and funding machinery in some countries, the existence of more than one party does not mean that there is meaningful political contestability.
Neither does it necessarily mean that there is freedom of expression. Indeed, according to Freedom House, the number of countries classified as democracies grew from 75 (46 percent of the overall global sample) in 1990 to 123 (64 percent) in 2006. Yet Freedom House tells us also that from 1995 to the present there has been no significant improvement in press freedom, on average, worldwide. The 2007 data suggest that only 37 percent of countries have a fully free press (27 percent for developing countries). Also according to Freedom House, well over 40 percent of the world’s democracies (and almost one-half of developing country democracies) do not have a free press.
Raising “Voice”
Consequently, narrow notions of democracy miss the broader notion of “voice” — meaning freedom of expression and participatory voice — and democratic accountability. In our work measuring governance (the Worldwide Governance Indicators, or WGI), one of the six indicators we construct — voice and democratic accountability — is based on this broader definition. Our research, as well as that of other academics, suggests that there is an important causal link from improved governance to higher levels of income.
Figure 1 shows the link between voice and democratic accountability on one side and income per capita worldwide on the other. In contrast to the short-term studies cited earlier, this link can be interpreted as a long-run trend. The evidence suggests that, while the short-term link between formal democracy and economic growth may not be very clear, there is a robust link between voice and democratic accountability, broadly defined, on the one hand, and economic development, on the other — in the longer term.
More speculatively, an important channel through which participatory voice may promote economic development is control of corruption: More freedom of expression, transparency, and political contestability may impose important checks on systemic corruption. And the importance of controlling corruption for economic development has been previously shown in studies. The particular association between voice and corruption control can be seen in figure 2.
Yet figures 1 and 2 also show that none of these links is absolute: Exceptions (outliers) exist, such as Singapore in Figure 2, for example. Of course, Singapore, a city state that has scored very high in key areas of governance other than voice, is a special case, not subject to easy replication in larger countries.
Pirate Ships
Analyzing these types of links in the social sciences requires more than examination of vast cross-country aggregate data sets. Examining in-depth country case studies and microdata are also essential.
More than a decade ago we researched the determinants of success of developing country investment projects financed by the World Bank. Not surprisingly, we found that the quality of economic policies did matter. More surprisingly, at least for economists, was to find that civil liberties also made a significant difference: The more robust a developing country’s civil liberties, the more likely an investment project’s chance of success.
“Micro” historical case studies can provide other insights. A just-published gem of a paper by an economic historian, Peter Leeson, compares the internal organization of merchant, navy, and pirate ships in the 1700s. Merchant and navy ships were absolute dictatorships, with the captain holding absolute unchallenged authority. Pirate ships, in sharp contrast, had formal (often written) democratic structures and regulations — internal rule of law — dividing authority between the captain and the crew. There were checks and balances on the captain’s authority. And statutes specified how the spoils of piracy were to be divided. Bottom line: Pirate ships were extraordinarily successful at enabling internal cooperation — among a bunch of bloodthirsty guys with swords. They were very successful enterprises, in sharp contrast with the commonly mutinous conditions in the authoritarian and strife-torn commercial and navy ships of the day.
Is democracy a crucial precondition for fast growth? Or is democratic accountability unimportant to long-term development? Neither, we conclude.
More Than Elections
On balance, political and governance institutions that promote more political contestability, accountability, and checks and balances can make a difference for economic development in the longer term. In the short term, this link is less clear and not as strong, though often present as well.
Having a broader perspective encompassing the full gamut of freedom of expression, voice, and democratic accountability is also important. Narrow definitions of democracy based solely on whether or not elections take place (or whether more than one party exists on paper or not) often miss the broader participatory voice attributes.
Taking a longer and broader view is also important given the evidence that democratic transitions are difficult. Economic outcomes can vary in the short term following such democratic transitions, and reversals can take place. Development is a complex, arduous, and often fragile process. A number of development lessons, such as macroeconomic stability and low corruption, generally apply, but there is no single template for successful development.
Nevertheless, the evidence suggests that civil liberties and freedom of expression can lead to a more transparent and better governed system and a more robust and participatory economic development. In addition to clean, free, and fair elections and more effective multiparty political systems, also important are a robust free press and other communications media. In today’s world, social media innovations such as blogging and text messaging, complementing community broadcast radio in poor rural areas, are changing the meaning of voice and democratic accountability, with vast potential to help improve governance and development results.
The opinions expressed in this article are those of the author and do not necessarily reflect the official views or policies of the World Bank or the U.S. government.
