July 10, 2018
Activities: Administration, Economic Development, Societal Benefit
Geography:
Demographics:
Annual ROI: 0.0%
Image source: The Economist
After decades of growth, democracy is losing ground.
The world has grown much more democratic since WWII. In 1941 there were a mere 12 democracies. By 2000, only eight sovereign entities have never held a formal election. But this improvement has reversed trend since the 2008 financial meltdown.
In 2017, for the 12th consecutive year, countries that suffered democratic setbacks outnumbered those that registered gains, it says. According to the Democracy Index from The Economist Intelligence Unit, a sister company of The Economist, 89 countries regressed in 2017; only 27 improved.
The latest “Transformation Index” from the Bertelsmann Foundation, another think-tank, which looks at emerging economies, finds that the “quality of democracy…has fallen to its lowest level in 12 years.” What these indices measure is not simply democracy (ie, rule by the people), but liberal democracy (ie, with a freely elected government that also respects individual and minority rights, the rule of law and independent institutions).
Globally, public support for democracy remains high. A Pew poll of 38 countries found that a median of 78% of people agreed that a system where elected representatives make laws was a good one. But hefty minorities approved of non-democratic alternatives.
A worrying 24% thought that military rule would be fine, and 26% liked the idea of “a strong leader” who “can make decisions without interference from parliament or the courts”. In general, autocracy was more popular among the less educated.
So what are the economic impacts?
A study by Daron Acemoglu at MIT claims significant long-term economic growth for countries transitioning to a more democratically-controlled system.
Our estimates imply that a country that transitions from nondemocracy to democracy achieves about 20 percent higher GDP per capita in the next 25 years. The effect of democracy does not depend on the initial level of economic development, though we find some evidence that democracy is more conducive to higher GDP in countries with more secondary education.
The channels via which democracy raises growth include greater economic reforms, greater investment in primary schooling and better health, and may also include greater investment, greater taxation and public good provision, and lower social unrest. In contrast to the equally popular claims that democracy is bad for growth at early stages of economic development, we find no heterogeneity by level of income. There is some heterogeneity depending on the level of human capital, but these effects are not large enough to lead to negative effects of democracy for low human capital countries.
These results taken together suggest that democracy is more conducive to economic growth than its detractors have argued, and that there are many complementarities between democratic institutions and proximate causes of economic development. Work using cross-country and within-country variation to shed more light on how democracy changes economic incentives and organizations, and pinpointing what aspects of democratic institutions are more important for economic success is an obvious fruitful area for future research.
Read Full Story