Is Democracy the Best Political System for Fostering Economic Growth?

Do we have too much democracy in the United States? Is there too much democracy around the globe?

You might think that the answers to these rhetorical questions are numbingly obvious. But you might be wrong.

A recent article in Business Week magazine highlights the ambivalence that many elites in this country feel about democracy.

The article, titled “Is Democracy Bad for Growth?” appears to raise troubling and fundamental questions about the economic desirability of democracy in the late 20th Century. “Americans have always believed that democracy is good for growth,” the article begins. But the picture has become more and more complicated, it continues, because there may be real economic costs to democracy.

It cites as an example the differences between relatively democratic but stagnant India and much more politically autocratic yet economically robust South Korea and China.

Does all this mean, in any important sense, that we would be better off economically in the United States if we had less democracy? It is difficult to respond to the Business Week article, in part because its message and intended implications are ambiguous.

In one direction, which casts doubt upon the effectiveness of democracy, the authors seem to suggest that either of two political systems, neither necessarily democratic, best promotes economic growth in the modern world.

One is a system of political autocracy, which strongly protects private-property rights. The article cites Chile under dictator Augusto Pinochet as an example of this orientation. Another is a decentralized, federalist political system “with policies, laws and regulations allocated between the center and the regions”--whether or not such governments feature a substantial amount of democracy. Business Week mentions China as a prominent example of a nation with considerable federalism but little democracy--and stunning recent growth.

These arguments could certainly give the impression that democracy is economically unappetizing. In the other direction, Business Week nonetheless concludes with a kind of limp endorsement of democracy: “ . . . the democratic system is an imperfect one, but it is the most desirable one.” We should apparently hold on to our democratic system, one reads between these final lines, whether or not it helps foster the most effective economic performance.

What are we to make of such ambivalence? I have no particular insights into the authors’ p syches, so I cannot probe the sources of their equivocation. But I think their conclusions could have been clearer and their views about democracy more unequivocally positive if they had avoided two important mystifications in their discussion.

First, they jump back and forth between the advanced industrial economies and the less developed or newly industrializing economies with a dizzying lack of discrimination.

In one pivotal graph, for example, they compare the democracy-growth connection across the full spectrum of conditions of economic development, lumping economies such as Germany and the United States in the same graphic breath as economies from Chile, Nigeria and China.

But the problems of initial development are very different from those of already-developed economies, as the Business Week authors occasionally appear to acknowledge.

It is not at all obvious that what seems to work or not work in China or Chile today has much relevance, one way or the other, for our political economy in the United States.

Second, and probably more important, the authors of the article work with far too narrow a conception of democracy. They limit themselves to considering democratic freedoms with respect to the public body we call government. But what about democratic freedoms in the rest of our lives, especially during those many hours of each week we spend at work? Are we supposed to check our Bill of Rights when we enter the factory gate or the office elevator?

These additional concerns are hardly peripheral to the issues the Business Week authors consider. More and more evidence accumulates in studies of advanced economies that enterprises are more productive if the workers have a greater voice in and control over decision making.

In short, if the Business Week authors had been careful to distinguish between developed and developing economies, and had worked with a more ample and robust vision of democracy, their tepid concluding endorsement of democracy might have carried more conviction.