Thursday, August 19, 2010

Democracy and Growth

Dani Rodrik debunks the myth of superior authoritarian growth in an article published by Project Syndicate.


“When we look at systematic historical evidence, instead of individual cases, we find that authoritarianism buys little in terms of economic growth. For every authoritarian country that has managed to grow rapidly, there are several that have floundered. For every Lee Kuan Yew of Singapore, there are many like Mobutu Sese Seko of the Congo.

Democracies not only out-perform dictatorships when it comes to long-term economic growth, but also outdo them in several other important respects. They provide much greater economic stability, measured by the ups and downs of the business cycle. They are better at adjusting to external economic shocks (such as terms-of-trade declines or sudden stops in capital inflows). They generate more investment in human capital – health and education. And they produce more equitable societies.”

The punch line:

“This (Erdogan’s administration) turn towards authoritarianism bodes ill for the Turkish economy, despite its strong fundamentals. It will have corrosive effects on the quality of policymaking, as well as undermine Turkey’s claim to global economic standing.
For the true up-and-coming economic superpowers, we should turn instead to countries like Brazil, India, and South Africa, which have already accomplished their democratic transitions and are unlikely to regress. None of these countries is without problems, of course. Brazil has yet to recover fully its economic dynamism and find a path to rapid growth. India’s democracy can be maddening in its resistance to economic change. And South Africa suffers from a shockingly high level of unemployment.
Yet these challenges are nothing compared to the momentous tasks of institutional transformation that await authoritarian countries. Don’t be surprised if Brazil leaves Turkey in the dust, South Africa eventually surpasses Russia, and India outdoes China.”

I would like to add that this analysis and the corresponding forecast are completely in line with my “decline of hierarchies” (and thus of authoritarian regimes) thesis. In the current information era, decentralized decisions -- and thus democratic organizations -- are much more efficient than centralized ones.
The coming years will provide the test.

Read the paper here .

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