“Poor countries cannot afford democracy” is a common refrain. It suggests that poor lands need strong, authoritarian leaders to overcome the forces that have kept them poor for centuries. That the great majority of rich countries are mainly democratic may be evidence for this claim, but the effects of democracy on economic performance are disputed. Let’s explore how democracy can have economic advantages for poor as well as rich countries.
The actual effects of democracy on the economy and life in general should be compared not with an ideal form of government but with various governments that do not have a free press, do not allow open competition for political office, do not have widespread suffrage, and lack the other institutions and freedoms that define democracies. As Winston Churchill famously said, “No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of government, except for all those other forms that have been tried from time to time.” (This is from a House of Commons speech on November 11, 1947, delivered about two years after he was defeated in a postwar election.)
Many studies have tried to isolate the effects of democracy on economic development, inequality, and education, and draw comparisons to authoritarian systems of government. It is very hard to separate the effects of democracy from other variables, so these studies fail to reach conclusive results. They tend, however, to find that once other suitable factors are taken into account, there seems to be only a weak relationship between long-term average rates of growth in GDP and whether countries are democratic. Democracies do appear to encourage broader investments in education, however, and education helps promote faster economic growth.
While some authoritarian leaders greatly improve their economies, they are not the rule. For every example of dictators like Augusto Pinochet and Chiang Kai-shek who produced fast economic growth, there is a Joseph Stalin or Idi Amin with dismal economic policies. Similarly, not every democracy handles the economy well. India, for example, has been a vibrant democracy since its independence in 1947. During its first forty years it produced slow growth under a socialist government, and then made a transition to much faster economic growth after the government shifted toward more market-friendly policies.
While average rate of growth does not appear to differ much between democracies and authoritarian regimes, the variability in performance does differ more among authoritarian governments. China has had remarkable growth since the 1980s, but the prolonged devastation and hardship produced by China’s “great leap forward” (when millions of farmers starved) and its Cultural Revolution probably would not have occurred in a democratic country like India. Nor is it likely that Cuba and many African nations, for example, would have suffered so long with such terrible economic policies if they had had reasonably democratic institutions.
One reason persistent economic distress is less likely in democracies is that a free press would publicly report the distress and severely criticize the economic policies causing it. Similarly, political candidates would openly attack policies that led to prolonged economic crises, and they would often be elected with a mandate to change the policies.
Some economic commentators use the strong correlation at any moment between wealth of countries and democratic governments to argue that democracy causes greater wealth. To be sure, many long-term democracies, such as the United States and Great Britain, grew very wealthy. So too, however, did countries like Taiwan and South Korea that started to grow rapidly under dictatorships but became democracies, some rather quickly, when they became richer.
The late sociologist and Hoover fellow Seymour Martin Lipset concluded many years ago from an examination of historical evidence that growing wealth mainly encourages democracy, rather than vice versa. I believe his interpretation was basically correct. Especially in the modern world, as people get richer they travel more, learn more through newspapers, television, and the Internet about what is going on in their own and in other countries, and communicate by phone, e-mail, texting, and otherwise. People in wealthier countries learn to desire freedom not only in economic choices but also in social and political life. These aspirations are incompatible with governments that censor what people read and hear, try to suppress open discussion of politically sensitive subjects, and suppress challenges from political candidates outside officially recognized parties.
So yes, poor countries can afford democracy, as long as they use their democratic government to promote economic freedoms. Unfortunately, many poor countries, including democracies, fail to do this.