“The World’s largest Democracy” versus “The Workshop of the World”

I wrote earlier this month on China’s economic transformation and what it meant for the attractiveness of democracy for a developing country. Contrary to popular belief, popular Democracy, rather than the unpopular iron hand of an authoritarian bastard, is the best method to secure growth.

Dani Rodrik explains in a piece for Project Syndicate that Democracies prove better at providing both long run growth and are also better at providing long run stability and smoothing the ups and downs of an economy. When you are poor that last thing is really important, with the underdeveloped financial systems which are common in poor countries it is very difficult to save for the event of erratic year to year earning.

Institutions matter for development and developing those institutions is not an easy task, as the massive divergence in incomes between the rich world and poor world illustrate. Democracy offers the best meta-institution for developing these institutions. However, Democracy obviously is not the only show in town.

There are two countries which from 1800 of the last 2000 years dominated the world in terms of population and wealth; China and India. At the moment these two countries appear to be running an experiment to see whether Democracy or Authoritarianism is best for reclaiming their former prominence. China’s Authoritarianism seems to be winning and this could prove bad news for freedom lovers the world across.

When it comes to the pre-eminence of Democracy in delivery growth, I think Rodrik overplays his hand [1] when he says that Democracy is clearly the best system for providing growth. An Authoritarian system can remain dynamic so long as it remains decentralised and a large array of political strategies can be tried simultaneously to reduce the impact of a single failure. For example, if only Gansu had attempted the Great Leap Forward it would still have been a tragedy, but it would have been a smaller tragedy. If Gansu had tried it and failed then others would not have followed. When Fengyang introduced the Household Responsibility System it was a success and it was copied.

Therefore, even if undemocratic, there is an asymmetry which favours decentralised systems. China is one such decentralised systems, in fiscal terms perhaps the most decentralised in the world, and its success is largely characterised by “crossing the river by feeling for stones”; making things up as they went along. This partially explains China’s undemocratic success.

India has not grown as dynamically as China has, and the last decade has seen a clear divergence between the successful India and the very successful China. In the medium to long term however, we are likely to see each system stress tested; for a variety of reasons I think it is very likely India will prevail in any contest.

In short, Democratic counties are better at dealing with external shocks and at maintaining stable economies, in the long run this matters more as to who is successful. India has many institutions, like Parliamentary Democracy, a loyal opposition and recourse to the law, which are lacking or underdeveloped in China. If this is added to the fact that China is more vulnerable than India to internal and external shocks then we can see that the fate of the world remains, thankfully, democratic.

First of all, although internally India has a long tradition of insurgency and regional violence, in many cases democratic settlements have been reached. In an authoritarian country like China, the release of tension which democratic negotiation and reconciliation offer are unavailable. Similarly, although the Chinese are often characterised as passive and obedient, they have a long history of rebellion. 1989 saw the outbreak of a movement which actively tried to challenge the ruling class. The militant strike waves seen in China illustrate that internal stability is not guaranteed.

Secondly, India faces less external threats than China does. Although Pakistan has nuclear weapons the chances of it using them are slim. Islamic Terrorism is a problem, but not an insurmountable one by any means. Happily, the collapse of the North Korean State is all but certain, sadly, this will impose a large shock on South Korea and the North East of China with results which an undemocratic China, already scared by ethnic tension may not be able to contain. Likewise, the belligerence which China shows towards its tiny neighbour Taiwan may one day spill over into war, China may well win, but the resulting disruption could easily derail economic growth.

Worryingly, the failure of the Chinese model will have knock on effects around the globe which will make us all poorer and our lives more precarious: anything which threatens such a large part of the world economy would do. When the US sneezes the world catches a cold; if China experiences a major rebellion the world is going to get something much more acute. This makes the establishment of better democratic institutions and the enforcement of human rights in China all the more important; if reform is not incremental it may be catastrophic.

Democracy may not prove to be the best system at all times, but in the long run it remains the least worst system. This should matter to two groups of rather short sighted individuals. Those recommending the “Beijing Model” (I’m looking at you Ken Livingstone) had better think again, there is no silver bullet for raising up the poor and putting the boot into the Capitalist West. Those thinking human rights and democracy are a luxury we can no longer afford better reconsider sharpish, few things matter as much for our long term prosperity and welfare.

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[1] That is, he overstates and simplifies his argument when writing in Project Syndicate, his “Institutions for high Quality Growth” chapter in One Economics, Many Recipes is far more balanced, and to a certain extent I am using private academic Rodrik to argue with public academic Rodrik.

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4 thoughts on ““The World’s largest Democracy” versus “The Workshop of the World”

  1. Just came across this post and felt like had to comment.

    I think you oversimplify the situation when you state that India is a democracy and China is an authoritarian state and ignore all other factors.

    First of all, an authoritarian regime may not stay authoritarian forever and democratic governments can come in many forms – flawed and functioning.

    I believe that the ‘Beijing Model’ is the way to go for poor, developing countries. After all, over the past 50 years, the only poor economies that have gotten rich were those that started out under authoritarian rule and then slowly democratised. Every poor country in the world with a democratic government 50 years ago are still considered developing countries today. I think this is something we cannot and should not ignore even if we were to detest authoritarianism.

    Some examples of the newly rich countries that I mentioned are South Korea, Hong Kong, Singapore and Taiwan. Every single one of these countries/economies started out under a dictator or an authoritarian government for decades (even Hong Kong under the British colonial government – the locals aren’t allowed to vote). And it was under authoritarianism that growth was phenomenal. Human rights abuse were common but over time as they got wealthier, the situation progressed and today all of them have flourishing democracies (other than Singapore) not through significant revolutions but incremental progress.

    Now, on the other hand, there has not been a single example of a poor democracy 50 years ago that is a rich democracy now. This is a sad situation but it is a reality. Even western countries didn’t get where they are today through mere democracy – it was about rule of law and property rights. 100 years ago, the idea of one man one vote is unthinkable so I can’t see how growth can be attributed to democracy for western countries, at least in the developing stages.

    Democracy is something every country should strive for. But it is an end in itself and my personal opinion is that it shouldn’t be regarded as a means to an end. Especially given the poor track records of Democratic poor countries today like the Philippines.

  2. On another note, it would be nonsensical to suggest that there had been no progress in China’s human rights record or civil society. They are still in terrible condition, but each year, there is a definite incremental improvement. So I am not so pessimistic about China.

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