[2118] Of less variance for democratic states versus autocracies

Just weeks ago, former Prime Minister Mahathir Mohamad contrasted the development of China and India. As reported, he praised the single-mindedness of the Chinese government in developing the country and ridiculed the Indian government for being far too democratic and not focusing enough on development. He went on to state that freedom hurts the economy.^[1]

Art Harun, a columnist at The Malaysian Insider replied to this in his column^[2] stating examples where democracies have been successful, contrary to the former Prime Minister’s assertion.^[3] Zaidel Baharuddin, yet another The Malaysian Insider columnist jumped into the debate at his blog by defending the former Prime Minister, stating that “starving hard working farmers in India who has to fight drought and fertilizer prices don’t give a damn about freedom of speech or expression.”^[4] Art Harun took the chance to reply to the point and various other comments too diverse to cite here^[5] by arguing that economic prosperity does not have to be mutually exclusive with respect to freedom as well as adding that they are other factors that need to be considered in the determination of economic development, like leadership.^[6]

Indeed but all those discussions are gradually veering off course from the point the former Prime Minister made, about how democracies perform poorly against less democratic states in terms of economic development.

This point is not necessarily true. If one wants to make that point, one cannot choose two data points and make a conclusion out of it. That is the logical fallacy of hasty generalization. A better way is to take all of democracies and all of authoritarian states and compare them.

There are prominent studies on this. One important study states that while the existence of democracy or dictatorship does not affect the mean growth rate of economic development, it does affect its variance. That means there are less consistency in economic growth under authoritarian regime compared to democracies. Adam Przeworski wrote an important paper on the issue:

Political regimes have no impact on the growth of total income when countries are observed across the entire spectrum of conditions. Contrary to widespread concerns, democracies do not reduce the rate of investment even in poor countries. It appears that when countries are poor there is little governments can do, so that it makes little difference for economic growth whether rulers are elected or hold power by force. In wealthier countries, patterns of growth are no longer the same. Dictatorships rely on the growth of labor force and on keeping wages low, while democracies pay higher wages, use labor more effectively, and benefit more from technical progress. But while growth under wealthier dictatorships is more labor-extensive and labor-exploitative than under wealthier democracies, so that functional distributions of income are different, the average rates of growth of total income are about the same.

Thus, we did not find a shred of evidence that democracy need be sacrificed on the altar of development. The few countries that developed spectacularly during the past fifty years were as likely to achieve this feat under democracy as under dictatorship. On the average, total incomes grew at almost identical rates under the two regimes. Moreover, per capita incomes grow faster in democracies. The reason is that democracies have lower rates of population growth. In spite of rapid diffusion of medical advances, death rates remain somewhat higher under dictatorship and life expectancies are much shorter. Population grows faster under dictatorships because they have higher birth rates, and the difference in birth rates is due to higher fertility, not to age structures of the population. [Democracy and Economic Development. Adam Przeworski. New York University. Retrieved on November 30 2009]

Almeida and Ferreira in 2002 probably made a more direct case:

Less-democratic countries do seem to have variable growth rates and policies than more democratic ones. This corroborates the conjecture of Sah (1991). Possible explanatoins for this fact can be found in Rodrik (1999a) and in Sah and Stiglitz (1991).

The evidence presented in this paper strongly supports Sah’s conjecture. The empirical results are unaffected by many robustness and specification checks. The results are not sensitive to specific time periods, to different democracy indicies, to different econometric procedures, or to model specification. The results hold even after controlling for many plausible determinants of growth rates and democracy indicies, including the usual variables from the empirical growth literature, time dummies and country-fixed effects, GDP, natural resource dependence, and OECD membership.

The greater stability of growth rates and policy measures among democratic countries adds to the existing list of desirable features of democracies, such as the positive correlations between democracy and per capita GDP levels, between democracy and primary schooling (Barro, 1999) and between wages and democracy indices (Rodrik, 1999b). Our evidence also corroborates the common view that some autocratic countries have had the most impressive growth experiences. However, since the worst experiences are also associated with autocratic countries, in an ex-ante sense, autocracy is no prescription for growth. [Democracy and the variability of economic performance. Heictor Almeida. Daniel Ferreira. Economics and Politics. Volume 14. November 2002]

Of note is the relationship between wages and democracy indices as reported by Rodrik. People in the Najib administration may well take that into account.

Anyway, at the Library of Economic and Liberty, economist Byran Caplan, who introduces Almeida and Ferreira, reproduces the following diagram to drive the point home:^[7]

Autocracies are represented on the left side and democracies on the right side. Note the variances and the means.

Bottom line is, there is more risk to having an authoritarian regime than a democratic one, in terms of economic development. If one wants to be more certain about achieving success, democracy is one of the ingredients one must consider.

^[1] — Dr Mahathir singled out India as an Asian country that “made the mistake of being too democratic” and compared it unfavourably with China’s authoritarian regime.

“India, of course, will grow, but more slowly than China. It has the numbers but is not making use of them well.”

He expanded on the theme at a press conference later, saying that people “don’t understand the limits of democracy”.

“Democracy can be a hindrance to progress because you spend so much time politicking that you don’t have time to develop your country.

“In China, there’s not much politics. So, they can spend more time developing their country.

“In a democracy, everybody has a voice, everybody has a vote. But, in Malaysia, they sell their votes, which is not good at all.” [Dr M: A lot to learn from China. New Straits Times. November 17 2009]

^[2] —[Enemies of the State. Art Harun. The Malaysian Insider. November 19 2009]

^[3] — Yes. According to DrM, the Westerners are wrong for making democracy and freedom the cornerstone of progress. The British are so free they go on strike every other day. Well, who sent people to the moon in 1969? Which part of the world had an industrial revolution? Why have Russia, East Germany, Romania et al embraced democracy and freedom? From whom did we buy our Scorpene? Why Glasnost and Perestroika? So the people know the limits of freedom and how to behave themselves properly and in accordance with the Government’s code of behavioural acceptance?

And finally, according to Dr M, apart from China, Japan, South Korea and Taiwan will lead the Asian charge.

Which made me thinking, were Japan, South Korea and Taiwan governed by a benevolent absolutist government? Do the people in these countries know the limits of democracy? If so, to what extent? And who impose and define these limits on them? [Enemies of the State. Art Harun. November 19 2009]

^[4] — I’m pretty sure, those starving hard working farmers in India who has to fight drought and fertilizer prices don’t give a damn about freedom of speech or expression. It is those comfortably well paid lawyers with some extra time on their hands who are more concerned about these things and write about it.

Meaning, [b]efore you talk about democracy perhaps it is wise to first elevate the people’s (rakyat) quality of living, because like the maslow’s hierarchy of needs there are more important things to fulfill before they get to the self actualization level. [Sinatra_Z – An Answer. Zaidel Baharuddin. November 20 2009]

^[5] — Ahiruddin Attan for instance compared the more democratic Malaysia, which is behind the economic development curve with the less democratic Singapore, which is ahead:

I don’t think the Malaysian Insider would publish such a piece. Good try, though, Z. I do agree with you (and Dr M). We don’t need to look so far, just across the Causeway. We are way more democratic than Singapore, and look at how many of us idolize the Republic for its progress and wealth. Given the choice, however, I’d stay put here, Z. [Art Harun vs The Lipas Man. Ahiruddin Attan. November 20 2009]

^[6] — My question is, why can’t we have them all? Especially in a democracy, where we elect our so called leaders to look after our well being as members of a State?

I think in this day and age, it is downright insulting — and not to mention, pathetic — for any leader to say to the people that I will give you food on your table in abundance but you would have to shut up, toe the line and do as I say, all the time and under all circumstances.

For a leader to lay the blame on the people which he or she ruled — for not understanding the limits of democracy — as a reason for his or her failure to achieve development and progress does not speak much of his or her leadership.

A comparison was made with Singapore in one of the comments. It was pointed out Singapore did not have much of a democracy and they progress well. But that does not prove that Singapore progressed well because it was less democratic.

 

Hasn’t it occurred to any of us that Singapore progressed because of the mentality and work ethics of its leaders? [Freedom lifts us up to where we belong. Art Harun. The Malaysian Insider. November 24 2009]

^[7] —[Democracy, Dictatorship, and the Variance of Growth. Byran Caplan. Library of Economics and Liberty. October 2 2009]