Democracy and prosperity (part 3)
per unit input), driving long-term economic growth. 4 Moreover, democratic societies tend to be associated with inclusive but pluralistic political and economic institutions which ensure and secure property rights, access to markets, as well as encourage participation and innovation. 5 One of the strongest arguments in favour of democracy, especially liberal democracy, is its ability to secure property rights. John Stuart Mill argued that it is the role of liberalism and therefore a liberal democracy to limit the power of the elected government and ensure the protection of individual rights and therefore property rights. Barro (1996) found that the protection of property rights is positively linked with faster levels of growth and is vital for an economy to develop, as the security of private property creates incentives for the individual to invest and increase productivity that will therefore bring the private rate of return closer to the social rate of return. Knutsen (2011) provides strong econometric and empirical evidence that democracy is positively and significantly associated with property rights. His results emphasize that moving from a full autocracy to a full democracy increases a country’s property rights on the property rights index by between 4.2 and 9 points out of 24, where 24 represents the strongest protection of rights. This could be seen specifically with the Philippines during the People Power Revolution of 1986 in which the Philippines transitioned from an autocracy to a democracy leading to a 3.4 increase in their property rights index. 6 While Acemoglu et al. (2019) provide the most compelling quantitative and empirical evidence in favour of democracy, their findings must be approached with caution. Firstly, their findings are based on data from between 1960 and 2010, a time where the conditions were favourable to democracies. The geopolitics of the cold war led to the formations of alliances between many democratic countries while the expansion and eruption of globalization created and allowed for export-led growth that had never been seen before. 7 Secondly, the mechanisms that lead to growth under their models, such as an increasing tax capacity, economic reforms and investment as well as the provision of health and education, are not peculiar to democracies. Institutionalized autocracies such as China and Singapore were able to build strong fiscal systems, implement economic and political reforms, and provide exceptional levels of education and healthcare. In fact, Knutsen (2010) found empirical evidence that autocracies, specifically in Asia, invested a larger share of their GDP compared to democracies, with China’s growth in the early 21 st century being investment-led due to the fact that autocracies are able to mobilize high levels of capital investment. 8 Although democracy might have been strongly associated and linked with economic prosperity in the 20 th century, there has been more recent evidence to suggest that its benefits in the 21 st century have declined drastically. Narita and Sudo (2021) reveal that between 2001 and 2019, democracy caused slower economic growth and underperformed certain non-democracies economically. While they note that in the late 20 th century there was no negative link between democracy and growth, they find empirical evidence that a standard deviation increase in the level of democracy causes a 2-percentage point decrease in GDP growth per year in the 21 st century. Their findings show that democracy in the 21 st century leads to a decrease in investment as a percentage of GDP, slower growth in imports and a
4 Acemoglu, Naidu, Restrepo and Robinson 2019. 5 Acemoglu and Robinson 2012. 6 See Knutsen 2011; Sanchez 2021. 7 Acemoglu and Robinson 2012; Barro 1996. 8 See Hou 2014; Luo and Przeworski 2019.
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