Democracy and prosperity (part 3)
decrease in productivity, all of which attribute to the negative effect on growth. An explanation for this lies in the makeup and the dynamics of democracies. It can be argued that democracies hinder growth, as the inclusion and acceptance of political rights, civil liberties and electoral competition leads to and generates social instability and political gridlock, both of which inhibit economic development. 9 Similarly, Przeworski and Limongi (1993) note that the universal enfranchisement of democracy places pressure for consumption at the cost of investment and growth, while votes push governments to adopt progressive redistribution policies, leading to a reduction in investment and profits, as people demand higher wages, and hence, slower growth. This has led to some scholars describing democracy and political freedom as a ‘luxury good’ that can only be consumed once states prosper. 10 Overall, the 21 st century has exposed the structural weaknesses of democracies and has questioned the once commonly accepted view that it is the optimal form of government for economic development. Even though long-lasting democracies may be beneficial for growth, there is evidence to suggest that newly established and early-stage democracies underperform non-democracies economically. Clague et al. (1996) demonstrate the fragility of early-stage democracies and show how it is misleading to assume that democracies always outperform autocracies. They argue that transitory democracies and new democracies tend to be weak, chaotic and lack the power needed to protect property and contract rights and that these rights were better protected under autocratic regimes. They further hypothesize that, when governments are short lived and unstable, this increases the risks for investors, which therefore prevents long term capital accumulation and encourages capital flight. Similarly, Luo and Przeworski (2019) show that poor democracies tend to be fragile, with the probability of a democracy reverting to an autocracy decreasing as income rises. The authors highlight that the reason the fastest growing countries in recent history were autocratic was because of their ability to implement successful policies that enabled ‘catch-up’ growth. Overall, the evidence suggests that while long-standing democracies may be conducive to growth, new democracies tend to be associated with weak property rights and therefore poor levels of economic growth. Blattman, Gehlbach and Yu (2025) find that institutionalized autocracies economically perform comparably to democracies, while personalist autocracies are associated with much weaker outcomes, leading to what the authors call a ‘personalist penalty’. Between 1961 to 2010, institutionalized autocracies have had a growth rate of 2.31%, similar to the democratic growth rate of 2.4%, while personalist autocracies have had a growth rate of 1.37%, as these regimes suffer from low private investment and a poor provision of public goods leading to their depressed growth rates. East Asian states exemplify the economic prowess of institutionalized autocracies. Singapore’s People’s Action Party (PAP) and the Chinese Communist Party (CCP) were able to deliver decades of miraculous growth as these countries had more state autonomy than democracies and could therefore pursue long-term developmentalist policies, while being insulated from interest groups, electoral pressures and media opposition. 11 In particular, these states were able to meritocratically select their political leaders, therefore ending up with more educated leaders. 12 Besley et al. (2011) provides robust evidence that growth is higher when leaders are more highly educated, with Li et al. (2019) revealing that educated
9 Knutsen 2010. 10 Ibid. 11 Millemaci et al. 2024; Liu 2019. 12 You 2016.
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