When asked by a group of Harvard Business School graduates why democratic India has lagged behind authoritarian China in terms of economic growth, Philip Tose, the flamboyant founder of the failed Asian bank, Peregrine Securities, is said to have answered: "Democracy." As the stock market crashes and chaos in the new body politic reigns supreme, more people than ever in Taiwan are asking: Is this what real democracy is all about?
Indeed, a cursory glance at many Asian countries reveals that democracy is not necessarily good for business. Multi-party politics often tends to reduce efficiency, thanks to endless legislative logjams and confusions of policy. Governments, particularly those in high-tech Taiwan, have little time to spare as they respond to the tectonic changes of the technological era with swift and incisive decisions.
Many promoters of the so-called "Asian Values" have also spent a lot of energy trying to draw a nexus between the authoritarian nature of Singapore and Taiwan with their superior levels of economic performance. Is democracy, then, actually bad for development?
Deepak Lal, a professor of economics at the University of California at Los Angeles, has studied the economic histories of 25 developing countries over the past 30 years. Much to the dismay of the advocates of "Asian Values," he has failed to find a correlation between the nature of political systems and development. His study concluded that an economy's natural endowments -- such as a good climate and an abundance of natural resources -- may be more important than the nature of its political system in determining growth in these countries.
But that fails to explain the strong growth in resource-poor countries such as Taiwan, Hong Kong and Singapore. Lal believes that these countries achieved growth by focusing on their human capital, mainly through an emphasis on education. Amartya Sen, who won the 1998 Nobel Prize for Economics, has also argued that there is little evidence proving that authoritarian government is good for economic growth or vice versa.
Sen believes that none of the now widely supported policies explaining the success of East Asian economies is inconsistent with democracy. These policies include openness to competition, the use of international markets, a high level of literacy and education, successful land reforms and public provision of incentives for investment, exporting and industrialization. Importantly, he goes further, to say that democracy is to be preferred -- not because it is good for growth -- but because it promotes the no less valuable end of human freedom. Even if democracy comes at a price, he believes, it is to be pursued -- rejecting the arguments of, most prominently, Singapore's Lee Kuan Yew (李光耀), that multi-party democracy and freedom may not be conducive to economic growth.
It is true that while freedom is not easily reflected in short-term economic growth statistics, it has long-term positive economic implications. Citizens living in democratic regimes are more likely to be creative, open-minded and productive than their counterparts in authoritarian states. This is a defining factor as economic development in the future will increasingly be driven by innovation. Perhaps, this is the reason that while China is a faster-growing economy, it lags far behind India in high-tech innovation.
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