The consequences of democracy

For economic growth, human development, & peace

Thanksgiving!

Class structure

I. Recap: • Does economic development promote democracy?

Przeworski et al. Ch 2

II. Consequences of democracy for… 1. Economic growth? - Przeworski et al. Ch 3 & 42. Human development - Siegle et al.3. Peace - Mesquita et al.

III. Discussion: Policy implications?

I: Recap Przeworski et al

1. Are democracies more likely to emerge as countries develop economically? (The ‘endogenous’ or ‘modernization’ thesis)

• Industrialization, urbanization, education, communication, mobilization…democratization

2. Having emerged for other reasons, are they more likely to survive as democracies in developed nations? (The exogenous thesis)

• Emerge due to war, death, economic crisis, foreign pressures, succession crisis, etc

• Level of income cannot predict when dictatorships fall

Model

Affluent Democracy

Poor Dictatorship

Regime change

Democracy

Democracy

Dictatorship

DictatorshipDictatorship

Regime change

Table 2.1 p.82

Conclusions Ch2.

“To summarize, the level of economic development, as measured by per capita income, is by far the best predictor of political regimes. Yet there are countries in which dictatorships persist when all other observable conditions indicate that they should not; there are others in which democracies flourish despite the odds.” p.88.

II: Consequences of democracy for growth, development, and peace

Impact of democracy on human development

Sources:– Przeworski et al 2000. Democracy & Development– Joseph T. Siegle, Michael Weinstein and Morton

Halperin. 2004. ‘Why democracies excel’ Foreign Affairs 83(5):57-72.

– Morton H. Halperin, Joseph T. Siegle, and Michael W. Weinstein. 2005. The Democracy Advantage Routledge

Key Questions

Is there a trade-off between economic and political development?Do developing countries have to choose either higher per capita income/less democracy (the ‘China/Singapore model’) or democratization and poorer economies (the ‘India’ route)?Complex normative and empirical issues

Discussion

What is the impact of democracy on economic growth?Reasons why democracy may harm growth?

Reasons why democracy may benefit growth?

Change in democracy and economic development

Democracy & development

Fear that democracy hindered economic development– Galenson (1959), Huntington (1968), O’Donnell (1973)– Rise of unions > pressures on wages/ consumption/ inflation– Shift from investment to consumption– Democratic regimes more vulnerable to public pressures– Stronger governments can take difficult decisions in long-term national

interest (the ‘authoritarian advantage’)Counter arguments – North (1990), Barro (1990), Olson (1991), Sen (1994)– Democracies better allocate resources to productive uses– Some government intervention in economy is optimal for growth – Dictatorships are less efficient than markets– Sen: “no democracy ever experienced a famine” – press & opposition

Przeworski et al.

Does democracy undermine investment?Growth rates of productive inputs– Investment share in GDP – Probit model controlling for income, Britcol, religion

Unit of measurement: type of regime per year 1950-1990 (dictatorship v. democracy)

Przeworski et al.

Conclusions: “There is no trade-off between democracy and development, not even in poor countries.” p178.In poor countries (with incomes below $3,000), the two regimes are almost identical in their:– Investment shares– Growth of capital stock– Growth of labor force– Output per worker– Product wages

Democracy need not be sacrificed to economic developmentYet important distinction between rich and poor nations

Przeworksi et al.

Poor nations invest little, get little value from total factor productivity and pay low wages– Most poor nations remain poor– Regimes make no difference for growth– Democracy is fragile in poor nations so most have dictatorships

More affluent nations ($2500-3000+)– Total growth rates similar for dictatorships and democracies– Yet reasons for growth differ…

• Wealthy dictatorship grow by using a lot of labor and paying low wages (repressing unions) – labor-intensive productivity, higher birth rates/fertility but shorter longevity (esp. for women)

• Wealthy democracies grow by using labor more effectively: slower population and labor growth rates but higher wages, benefit more from technical progress

Przeworski et al. conclusions

The kind of regime does not affect the rate of investment, the growth of capital stock (p153), or the growth of total income (p156)“There is no trade-off between democracy and development, not even in poor countries.” P.178“Much ado about nothing.”Strengths and limits of this account?

Potential criticisms of Przeworski

1. Definition/classification of regime types?2. Focus on economic, but not human, development 3. Limited period of analysis: post-1990 developments?4. Under-specified model –

– Limited institutional controls?– Limited cultural controls?

5. Outliers to the model – eg Singapore, Saudi Arabia?

Halperin, Siegle and WeinsteinClassification of nations

Compare all nation states 1960 to 2001Low-income nations (per capita less than $2000)Contrast low-income autocracies and democraciesClassification by Polity IV

Ref: Halperin, Siegle and Weinstein

Halperin, Siegle and WeinsteinConcepts

Democracy: “Governance systems in which national leaders are selected through free and fair elections, there are institutions that foster a shared distribution of power, and citizens have extensive opportunities to participate in political life.”Polity IV democracy index

Use Polity IV index

Rates 161 states every year since 18000-10 scale

• Constraints on the chief executive (1-4)» (Independence of the chief executive)

• The competitiveness of executive recruitment (1-2)» (Extent to which chief executive is chosen through competitive elections)

• The openness of executive recruitment (1)» (Opportunities for non-elites to attain executive office)

• The competitiveness of popular participation (1-3)» (Extent to which non-elites are able to access institutional structures for political expression)

Democracies: score 8 to 10Intermediary states: 3 to 7Autocracies: score 0 to 2

Halperin, Siegle and WeinsteinEconomic Growth

Among all countries, democracies have realized consistently higher levels of economic growth from 1960-2001 (2.3% vs. 1.6%).Among low-income countries, no difference in per capita growth in GDP between democracies and autocracies (1.5% to 1.3%) (confirms Przeworski)– When East Asia is removed, the authoritarian growth rate of

growth drops while the democratic rate remains steady– Low income democracies have less volatile growth– Note: prob. of missing/unreliable data for autocracies

Halperin, Siegle and WeinsteinEconomic indicators

0.74

3.26

-0.15

2.66

1

3.16

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

PerCap GDP Growth 1975-2002 GNP Annual Growth 1975-95

Autocracy

Mixed

Democracy

Note: Poor nations only (GDP/cap under $2000)

Polity DEMOC: 35 Autocracies, 25 Mixed, 16 Democracies

Halperin, Siegle and WeinsteinEast Asian exceptionalism?

What of S. Korea, Taiwan, Singapore, Vietnam, Indonesia and China? Rapid growth under autocracies. Exceptions. Why?

• Pursuit of market economics• Access to capital markets• Constraints on leaders• Relative social equality• Openness to Western markets• Security interests

Also failures (Burma, Cambodia, N. Korea)

Halperin, Siegle and WeinsteinSocial Indicators

90

75

114

54

107

74

116

55

29

43

6067

0

20

40

60

80

100

120

140

Aids/100000 InfantMortality ChildMortality LifeExp

Autocracy

Mixed

Democracy

Note: Poor nations only (GDP/cap under $2000)

Polity DEMOC 35 Autocracies, 25 Mixed, 16 Democracies

Halperin, Siegle and WeinsteinSocial Indicators

55.5

34.5

62.9

5453.6

38.4

70.4

52

67.6

20.5

80.3

69

0

10

20

30

40

50

60

70

80

90

Educ enroll 2002 Illiteracy Water Gender (GDI)

Autocracy

Mixed

Democracy

Note: Poor nations only (GDP/cap under $2000)

Polity DEMOC 35 Autocracies, 25 Mixed, 16 Democracies

Halperin, Siegle and WeinsteinSocial indicators

On average, low income democracies consistently have superior levels of welfare across various measures of human development

• Life expectancy• Secondary school enrollment• Agricultural production• Childhood mortality• HDI

Growing divergence in recent decadesDue to greater effectiveness NOT higher welfare spending (eg education)

Halperin, Siegle and WeinsteinGovernment expenditure

24.5

4.22.7

9.7

20.2

3.52

10.5

22.9

4.1

1.63.2

0

5

10

15

20

25

30

Central Govnt Educ Military Aid rec'd

Autocracy

Mixed

Democracy

Spending & aid as % GDP.

Poor nations only (GDP/cap under $2000)

Polity DEMOC 35 Autocracies, 25 Mixed, 16 Democracies

Halperin, Siegle and WeinsteinA ‘democratic peace’?

Autocracies more stable?Autocracy, poverty and conflict are related. Democracies are less likely to engage in conflict with other democracies than any other regime type– Less external conflict (?)– Fewer civil wars

Democracies are less likely to be state failures - one of the three most important factors (The State Failure Project)

Democratic peace

Democracies rarely fight each other

Why?– Constraint of risk-averse mass public?– Constraint of multiple interest groups?– Transparency of decision-making process leads

towards greater trust and predictability– An Imperial (US hegemonic) peace?

Ref: Bueno de Mesquita et al. 2003. The Logic of Political Survival MIT Press

Halperin, Siegle and WeinsteinPolicy implications?

Multilateral agencies should prioritize democracies by…1. Use democratic selectivity when allocating aid

• Eg MCA

2. Revise charters WB, IMF & regional banks to favor democratic regimes

3. Use democracy-impact statements4. Separate security aid from development aid5. Develop cohesive Development Policy coordination Council

(Sec State, Treasury, MCA, USAID)

III: Discussion exercise

Ford Foundation Discussion Exercise

Policy Analysis Role Playing Exercise: Ford Foundation Program ManagementDivide into pairs to discuss the following. You have 15 minutes to develop your joint recommendations and the reasons for your conclusions.

You are employed as Senior Program Managers for the Ford Foundation. The Foundation has decided to invest $50m over a ten year period in the Rights and Social Justice Program aimed to encourage Governance and civic society in the developing world. “In governance we foster effective, transparent, accountable and responsible governmental institutions guided by the rule of law and dedicated to reducing inequality.”

The Foundation has asked you to advise them about suitable criteria for this Program when evaluating how to prioritize applications for different projects in Africa, Asia and Latin America. The Foundation wants to know which of the following two options they should follow.

(i) To prioritize investments in projects which will directly encourage economic growth and social equality in developing countries, (including improving education , encouraging literacy, and reducing extreme poverty), on the grounds that human development will gradually create the necessary social and cultural foundation for democratic consolidation.OR(ii) To prioritize investments in projects in developing countries which will directly encourage the reform of political institutions, including funding independent advisors to promote free and fair elections, effective party competition, the organization of voluntary and professional associations in civil society, and a free press.Focus your discussion on any two poorer developing countries (defined as those with a per capita GDP (PPP) of less than $4,000). What are your recommendations, and why? Use information from your experience, from Przeworski, and from the data to support your conclusions.

Democracy and Development, 2004

Rich autocracies

Poor democracies

Next class:Huntington’s Clash

Wed: Does Huntington predict a clash of ‘civilizational cultures’? Reading: Huntington Ch.1-3