The military governments in Egypt and Thailand have invited your firm to do business there. As CEO, you appreciate the lucrative offers. But you are also concerned that your firm may be labeled "devil's advocate" or "accomplice" by democracy activists around the world. How would you proceed?

EMERGING MARKETS: Is Democracy Good for Economic Development?

Democracy is good. Dictatorship is bad. Although crude, these two statements fairly accurately summarize the political sentiments in many parts of the world. It is not hard to understand why. Compared with dictatorships, on average, democracies are richer, less corrupt, and less likely to go to war. Beyond such nontrivial benefits, deep down, democracies allow people to make their own political choices. In the second half of the 20th century, the march of democracy was impressive. This powerful idea took root in some of the most difficult terrains, such as Germany (where Nazism had to be defeated militarily), India (which had the world's largest population of poor people), Japan (where emperor worship had to be curtailed and military adventurism destroyed), and South Africa (which had practiced apartheid for decades). Throughout Asia and Africa, decolonization gave birth to a number of new democracies. A series of autocratic governments gave themselves up to democracy: Spain (1975), Argentina (1983), Brazil (1985), South Korea (1987), Taiwan (1988), and Chile (1989). The collapse of the Soviet Union (1991) resulted in the proliferation of young democracies throughout Central and Eastern Europe as well as Central Asia. Recently, the Arab Spring expanded democracy to North Africa: Algeria (2011), Egypt (2011), and Libya (2011). Overall, there is no doubt that democracy has spread around the world: from 69 countries in the 1980s to 120 in the 2000s.

However, according to the Economist, democracy is "going through a difficult time." In new democracies such as Egypt, Iraq, Libya, Thailand, and Ukraine, an unenviable pattern emerges: It seems easier to get rid of the old regime than to establish a functioning democratic government. The new regime fumbles, the economy suffers, jobs disappear, and people find their conditions to be as bad as they were before. Civil disturbance broke out in Iraq and Libya, military coups smashed democracy in Egypt and Thailand, and foreign intervention (from Russia) pushed Ukraine's vulnerable democracy to its limits. At the same time, established democracies have not been good role models lately. The United States has become a joke for dysfunctional politics—with partisan politicians shutting down the federal government once (2013) and threatening to default on its debt twice (2011 and 2013). The European Union is hardly a paradise for democracy either. The fateful decision to introduce the euro in 1999 was largely dictated to the public. In the only two EU countries that held a democratic referendum on whether to adopt the euro—Denmark and Sweden—voters in both of them said "No." Not surprisingly, many ordinary people in Europe who had to cough up higher taxes to plug the hole of the recent euro mess were mad. Far from marching to dominate the world, democracy seems to have lost its forward momentum lately.

One of the litmus tests is: Is democracy good for economic development? While champions of democracy shout, "Yes," the fastest-growing major economy in the last three decades, China, remains totalitarian. The growth rate of India, the world's largest democracy, in the same period is only about half of China's. With little democracy, Hong Kong has achieved enviably higher per capita income than its old colonial master, Britain, which enjoys the world's oldest democracy—US$52,000 versus US$37,000, according to the World Bank based on purchasing power parity. In another example, Russia grew faster under Putin's more authoritarian rule during the 2000s, compared with the 1990s, when Russia was presumably more democratic under Yeltsin. In contrast, the economies of most established democracies have been stagnant or declining—the Great Recession of 2008-2009 can serve as Exhibit A here. Many Westerners have been tremendously disillusioned by their governments' actions to use taxpayer dollars and euros to bail out banks—without much democratic consultation with the taxpayers.

Many Chinese willingly put up with the dictatorship that governs China if the regime delivers jobs, wealth, and economic growth. Of course, they do not have a choice anyway. But tellingly, the 2013 Pew Survey of Global Attitudes found that 85% of Chinese were "very satisfied" with their country's direction, compared with only 31 % of Americans, 30% of British, and 20% of Japanese. Some Chinese elites argue that their model is more efficient than democracy in delivering growth. Just witness the new skyscrapers, highways, and airports that are thrown up in an amazingly short period of time. In two years, China implemented pension coverage to an additional 240 million rural residents—a process that would take decades in a democracy. Despite the regime's heavy hand in control (ranging from jailing dissidents to censoring the Internet), paradoxically such obsession with control forces it to pay close attention to public opinion, which serves as meaningful constraints on the regime's behavior. Conceptualized as the Beijing Consensus, the Chinese model has increasingly gained credibility in the developing world.

Despite democracies' unenviable scorecard on economic development lately, no one outside China has seriously argued for totalitarianism in order to facilitate economic development. In an influential paper concerned about the decline of US competitiveness and the rise of Chinese competitiveness, strategy guru Michael Porter nevertheless wrote, "We do not want to copy China, whose speed comes partly from a political system unacceptable to Americans." If democracy in the 21st century aspires to be as successful as it was in the 20th century, faith in democracy will need to be translated into strengths in economic development. So stay tuned.

 

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