Democracy is slowly spreading around the world. From the Middle East to Latin America and Asia, many autocracies are taking gradual steps towards more democratic and accountable forms of government, or have become fully-fledged and well functioning democracies. The US administration is determined to consolidate political freedoms in many developing countries under its sphere of influence; indeed, expansion of democracy has become a cornerstone of US foreign policy.
There are many reasons to celebrate the current democratic wave. Democracy is associated with less injustice and abuse, with basic civic and political freedoms, and with greater sensitivity by governments for the true priorities of its citizens. But how important is democracy for economic success?
Not much, the empirical evidence suggests. This might appear surprising. After all, is it not true that virtually all rich countries have democratic forms of government, while the poorest countries -- mainly in Africa -- are non-democracies? Indeed, throughout the world, democracy is strongly correlated with higher per capita income.
But this correlation goes missing when one looks at the dimension of time rather than space. Countries that become democracies do not, on average, achieve faster economic growth after their political transition; and, vice versa, democracies that fail and relapse into autocracy do not, on average, do worse than before.
The positive correlation between income and democracy that one sees across countries could be due to reverse causation: democracy is more likely to persist as a country grows richer. It could also be due to special historical or cultural circumstances: some societies are just more successful than others, both in terms of economic development and with regard to their ability to develop and maintain democratic political institutions.
Whatever the reason for the observed positive cross-country correlation between income and democracy, it should not be confused with causality. Being democratic does not seem important in securing economic success.
Of course, there are many different kinds of democratic transition, and lumping them all together might be misleading.
An important distinction in practice concerns the interaction between the economic and the political system. A democracy born in an open economic environment, with a well functioning market system, widespread foreign direct investment and sizeable international trade, is likely to consolidate economic liberalism, stabilize expectations and hence lead to more investment and faster growth. Conversely, if an economy is tightly controlled by the state, has protectionist barriers against foreign imports and capital movements, or relies on rents from exhaustible resources to obtain foreign currency, transition to democracy can be plagued by populism and struggles for redistribution, hurting economic growth.
Empirical evidence supports the idea that the success of a democracy depends on the openness of the underlying economic system at the time of political transition. In the post-World War II period, the more successful episodes of democratic transitions have been preceded by widespread economic reforms that extended the scope of the market and facilitated international integration. Examples include Chile and South Korea in the late 1980s and Mexico in the mid-1990s.
Conversely, when democratic transition was attempted in a fragile and closed economic environment, the outcome was much worse. This applies to the episodes of democratization in Latin America and the Philippines in the mid-1980s, but also to Turkey in the early 1980s and Nepal in 1990. The contrast between China and Russia also fits this pattern very well.
China first opened its economic system to the rest of the world, and only now is it thinking -- a bit too slowly -- about political reform. Russia instead jumped into democracy, and only then worried about replacing socialism with a market system. There was probably no other way to do it in Russia, but the Chinese path seems much more likely to lead to lasting economic success.
This does not mean that democracy is unimportant. But the sequence of reforms is critical for successful economic development, with economic reforms coming first. When an open and well functioning market system is in place, democracy has a much better chance to lead to lasting prosperity.
An important reason for this is that, in order to create a successful market system, the state must respect basic individual rights: the rule of law, private property, and the enforcement of justice. These fundamental rights are part and parcel of democratic government. But when it comes to economic development, these fundamental rights are more important than other purely political aspects of democracy, such as universal suffrage and genuine political competition.
This is how the Western world became democratic in the nineteenth and twentieth centuries. Economic liberalism came first, political liberalism later. But today's young democracies have to do everything much faster. They don't have the luxury of restricting suffrage to property owners, or to more educated citizens.
Nevertheless, we should remember the lessons of history. Political reforms are more likely to be successful if they are preceded by economic reforms. We should insist that Egypt or Pakistan improve their market system, apply the rule of law, and open their economies to international trade and capital movements. Allowing free elections and true political competition is also critically important, but this should follow economic reforms, not precede them.
Guido Tabellini is professor of economics at Bocconi University, Milan.
Copyright: Project Syndicate
When 17,000 troops from the US, the Philippines, Australia, Japan, Canada, France and New Zealand spread across the Philippine archipelago for the Balikatan military exercise, running from tomorrow through May 8, the official language would be about interoperability, readiness and regional peace. However, the strategic subtext is becoming harder to ignore: The exercises are increasingly about the military geography around Taiwan. Balikatan has always carried political weight. This year, however, the exercise looks different in ways that matter not only to Manila and Washington, but also to Taipei. What began in 2023 as a shift toward a more serious deterrence posture
Reports about Elon Musk planning his own semiconductor fab have sparked anxiety, with some warning that Taiwan Semiconductor Manufacturing Co (TSMC) could lose key customers to vertical integration. A closer reading suggests a more measured conclusion: Musk is advancing a strategic vision of in-house chip manufacturing, but remains far from replacing the existing foundry ecosystem. For TSMC, the short-term impact is limited; the medium-term challenge lies in supply diversification and pricing pressure, only in the long term could it evolve into a structural threat. The clearest signal is Musk’s announcement that Tesla and SpaceX plan to develop a fab project dubbed “Terafab”
China’s AI ecosystem has one defining difference from Silicon Valley: It is embrace of open source. While the US’ biggest companies race to build ever more powerful systems and insist only they can control them, Chinese labs have been giving the technology away for free. Open source — making a model available for anyone to use, download and build on — once seemed a niche, nerdy topic that no one besides developers cared about. However, when a new technology is driving trillions of dollars of investments and leading to immense concentrations of power, it offered an antidote. That is part of
In late January, Taiwan’s first indigenous submarine, the Hai Kun (海鯤, or Narwhal), completed its first submerged dive, reaching a depth of roughly 50m during trials in the waters off Kaohsiung. By March, it had managed a fifth dive, still well short of the deep-water and endurance tests required before the navy could accept the vessel. The original delivery deadline of November last year passed months ago. CSBC Corp, Taiwan, the lead contractor, now targets June and the Ministry of National Defense is levying daily penalties for every day the submarine remains unfinished. The Hai Kun was supposed to be
RSS