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Democracy or Autocracy: Which is Better for Economic Growth? Becker - The Becker-Posner Blog

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Democracy or Autocracy: Which is Better for Economic Growth? Becker

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The Economist in its October 2-8 issue has a cov er page with the title: How Indias growth will outpace
Chinas. One of the main reasons they giv e for this claim in their leader on this topic is that India is
democratic while China is autocratic. The other is that India has higher birth rates, and hence a y ounger
population. Both arguments can be questioned, although I concentrate my discussion on whether
democracies fav or economic growth.
V isionary leaders can accomplish more in autocratic than democratic gov ernments because they need not
heed legislativ e, judicial, or media constraints in promoting their agenda. In the late 1 97 0s, Deng Xiaoping
made the decision to open communist China to priv ate incentiv es in agriculture, and in a remarkably short
time farm output increased dramatically . Autocratic rulers in Taiwan, South Korea, Singapore, and Chile
produced similar quick turnabouts in their economies by making radical changes that usually inv olv ed a
greater role for the priv ate sector and priv ate business.
Of course, the other side of autocratic rule is that badly misguided strong leaders can cause major damage.
Maos Great Leap Forward is one prominent and terrible ex ample, but so too are Castros forcing Cuba into a
centrally planned gov ernment-controlled inefficient economy , or Irans mullah-led gov ernment that created
monopolies controlled by religious foundations and other groups. The ov erall effect of autocratic
gov ernments is some av erage of the good results produced by v isionaries, and the bad results produced by
deluded leaders.
Democracies help control the range of outcomes. V isionaries in democracies can accomplish much
sometimes, as did Manmohan Singh when Finance Minister of India from 1 991 -1 996, Margaret Thatcher after
she became Prime Minister of Britain in 1 97 9, Ronald Reagan as US president during the 1 980s, and Japans
leaders after World War II. Howev er, their accomplishments are usually constrained by due process that
includes legislativ e, judicial, and interest group constraints. On the other hand, bad leaders in democracies
are also constrained, not only by due process, but also in addition by the reporting of a free competitiv e
press and telev ision, and nowaday s too by a competitiv e Internet.
Whether on av erage democracies are more conduciv e than autocracies to economic growth is far from well
established. What is clearer is that democracies produce less v ariable results: not as many great successes,
but also fewer prolonged disasters. Since the bad outcomes tend to produce more damage than the good
ones, less v ariable outcomes would be an attractiv e feature of democracies compared to autocracies, ev en if
democracies on av erage did not produce greater economic growth.
Comparisons between the effects of these different sy stems of gov ernment on economic growth are muddied
by the fact that personal freedoms usually increase substantially under autocracies that hav e been growing
at a fast pace. China is an ex cellent ex ample. Although China has remained a one party autocratic sy stem
since it started growing rapidly 30 y ears ago, the degree of personal freedom has ex panded enormously .
Personal freedoms in China did not ex ist when I first v isited there in 1 981 shortly after the economic reforms
had begun. Changing domiciles was v irtually impossible, and Chinese men and women could not ev en enter
Western sty le hotels and shops.
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Democracy or Autocracy: Which is Better for Economic Growth? Becker - The Becker-Posner Blog

I hav e returned a few times since then- most recently a few weeks ago- and the contrast is simply amazing.
Students and many others criticize economic and social policies of the gov ernment, including the one child
policy , although they cannot openly criticize the one party gov ernment, as jailed dissidents show. Many
Chinese hav e trav eled abroad and hav e seen first hand the freedoms in other countries, and the Internet
prov ides access to opinions and facts on many thousands of subjects. The gov ernment does try to censor out
opinions and information from the Internet that are considered damaging to the gov ernment, but cheap
software has enabled many to by pass the gov ernment censors by connecting directly to Hong Kong, which is
free of gov ernment censorship.
Other ex amples of growing freedoms under autocracies include Taiwan, South Korea, and Chile. They all
started their economic booms under single party dictatorships, but after a period of quite rapid growth,
fierce opposition to the dictatorships emerged. Before long all these countries did become democratic, with
competing political parties.
To return to the comparison of China v s. India, the analy sis I hav e giv en indicates that it is far from obv ious
whether democratic India has an adv antage in the economic growth race ov er autocratic China. Each has its
own strengths and weaknesses from a growth perspectiv e, although India clearly dominates in political and
social freedoms. Y et if, and this is a big if, China continues to hav e effectiv e leaders, I would giv e China the
edge in terms of future economic growth. This edge is partly because of the enormous enthusiasm to regain
its former great country position among all strata in Chinas population: entrepreneurs, professionals, and
workers. On the other hand, a dismal leader could come to power in China and cause considerable damage to
the economy . Ov erall, I ex pect Indias growth rate to be lower but more stable, and that stability might be
worth a lot.

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Good, with reserv ations. Becker say s that the result of autocratic gov ernm ent is "som e av erage" of good and bad
results. Not really . It is bim odal. A sm all num ber of autocracies (he nam es pretty m uch all of them ) m anaged to get
it right. Most don't. They are usually corrupt and backward. And autocracies are frequently catastrophes. Not
hav ing any serious risk of Great Leap Forward, a Holocaust or a Holodom or, which a functioning dem ocracy would
alway s prev ent, is so im portant that it is worth trading som e points of econom ic growth in ev ery case. There is a
case to be m ade that m odern, pro-growth autocracies hav e learned their lessons from free and open societies, and the
trend in the future of econom ically free autocracies m ay be better. But the historical record is rotten, and the risk of
disaster is far from triv ial.
Posted by : Lexington Green | 1 0/1 0/2 01 0 at 08:4 3 PM

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Posted by : den | 1 0/1 1 /2 01 0 at 1 2 :3 8 AM
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2/16/14

Democracy or Autocracy: Which is Better for Economic Growth? Becker - The Becker-Posner Blog

Users of site http://www.e-rostov .ru thinking that dem ocracy .

Posted by : Kesha | 1 0/1 1 /2 01 0 at 04 :1 2 AM

I gotta check it out in m ore details tonight. Secondbrain sounds v ery useful to m e.
Posted by : ghd straightener | 1 0/1 1 /2 01 0 at 04 :4 2 AM

Very good observ ations on the relationship between the political sy stem and econom ic growth. The prospects of
sustainable long-term econom ic growth in China, India and other dev eloping nations depend m ostly on how these
countries integrate structural change in the institutional fram ework of econom ic dev elopm ent.
The autocratic political regim es inherently produce econom ic sy stem s that are equally v ulnerable to external
shocks and structural change as their political sy stem s.
Ev en though China's m edium -term econom ic growth is forecast to outpace the av erage of dev eloping countries, the
country 's capacity of incom e per capita conv ergence with industrialized countries entirely depends on dom estic
structural change in the institutional env ironm ent as well as the quality of econom ic growth. First of all, without a
robust rule of law, com prehensiv e protection of phy sical and intellectual property rights and low transaction costs in
contract enforcem ent, China's long-run GDP per capita prospects are far less bright than current growth figures
suggest.
And second of all, if Chinese policy m akers will show additional reluctance to adopt the free-floating exchange rate of
y uan, the quality of country 's econom ic growth will slowly dim inish. The appreciation of y uan would increase
relativ e export price lev el and probably reduce the intensity of export-led growth and shift the m ajor source of GDP
growth towards dom estic consum ption.
I'm quite optim istic about India's growth prospects. Mainly because it is a relativ ely poor country with a dem ocratic
sy stem that am assed persistent social rigidies such as rent-seeking by interest groups. The latter heav ily im pairs the
prospects of adopting public policies such as m arket liberalization, priv atization and an effectiv e sy stem of the rule of
law that would be conduciv e to protect indiv idual liberties and im pose a sy stem of checks on the endless power of
interest groups.
India's growth outlook would be far brighter had the country introduced a robust institutional structure to restrain
the inv isible and coerciv e power of interest groups. But the latter would be easier to achiev e if India were a political
dictatorship.
I hav e argued that higher lev el of dem ocracy (especially in term s of greater civ il liberties) is conduciv e to econom ic
growth in poor countries while the opposite is true in dev eloped countries:
http://rspruk.blogspot.com /2 01 0/1 0/econom ic-growth-and-dem ocratic.htm l
Howev er, adopting a full-fledged set of dem ocratic institutions in poor countries could be dam aging to econom ic
growth as the ev idence from India indicates. Poor and dev eloping countries would greatly enhance the prospects of
econom ic growth if autocratic political constituencies in these countries would im pose the rule of law, foster judicial
protection of priv ate property rights and adhere to the principles of free-m arket econom ics.
In the initial stage, such policy set would greatly boost growth and structural change in poor countries. In the next
stage, higher per capita incom es would increase the reluctance towards political dicatorships and encourage the
transition towards the constitutional dem ocracy , as it happened in Chile.
I believ e this is the best solution to foster the prospects of econom ic dev elopm ent in poor countries.
Posted by : Rok Spruk | 1 0/1 1 /2 01 0 at 08:50 AM

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Democracy or Autocracy: Which is Better for Economic Growth? Becker - The Becker-Posner Blog

Assum ing stable political leaders and known econom ic principles, the GDP of India, China (and the United States)
should equalize and the standard of liv ing should as well. After all, the current crop of world leaders want global free
trade and they are supported by the preem inent academ ics of our day , the ethicists who believ e that there can be
and should be world wide equality . It seem s to m e that this has been tried before with m urderous results.
Posted by : Jim | 1 0/1 1 /2 01 0 at 1 0:1 4 AM

It seem s the better dichotom y to consider is that of indiv idual liberty v s. centrally planned econom ic policies. The
exam ples of autocracies that "got it right" were all ones that em phasized indiv idual (econom ic) liberty , and kept the
heav y hand of the state off the free m arket (to a point, any way ). It seem s clear that establishing a taste for freedom
and indiv idual responsibility within a one-party state results in a m ore effectiv e, flourishing dem ocracy once the
gov erning transition has been accom plished. Indiv idual rights and the rule of law com e first in the cause for liberty ;
v oting, while ultim ately critical to the long-term legitim acy and sustainability of gov ernm ents, is often fetishized to
disastrous effect (as in post-colonial Africa, for exam ple), where the populace has not been sufficiently "liberalized"
prior to gaining the franchise.
Posted by : Jim McCabe | 1 0/1 1 /2 01 0 at 1 0:1 6 AM

Sir, y ou confused two things on two occasions. That is, y ou confused v isionary leaders in autocratic regim es driv ing
growth (in a m ore "efficient" m anner) with m ore perceptiv e leaders in autocratic regim es realising that they got no
other alternativ es but unleashing the natural power of m arket as the only m eans to surv iv e. Deng realised the dire
situation he was in and m ade the only choice he had to sav e the Com m unists: to incentiv ise the peasants. He was
obv iously m ore perceptiv e if com pared with Fidel Castro, who still didn't realise it. Howev er, when situation got less
dire, Deng rev ealed his true nature of an autocratic brute: he shot down the students.
You m ade the sam e confusion when discussing increasing indiv idual freedom in China. It was not the Com m unist
leaders' intention to grant m ore indiv idual freedom , it was the "price" they had to pay to sustain the econom ic
growth: integrating into the global econom y .
Back to the article y ou questioned. A fundam ental difference between India and China is the role the gov ernm ent
play s in business, which m anifested the difference between a dem ocracy and an autocracy . China's blinding growth
has been chiefly driv en by the huge SOEs (how m any people citing "China m odel" hav e realised that the Chinese
com panies on the Fortune 500 are alm ost all SOEs, or the m ajority of the huge stim ulus package has gone to SOEs?)
while the Indian growth has spurred m ainly by priv ate entrepreneurship.
Then there is the sim ple m athem atics: as the article stated, India's econom y is about 1 /4 of that of China,
"outpacing" m ade easier.
I'v e been a keen reader of Prof. Becker in the last 2 0 y ears, but I'm afraid in this round, The Econom ist beats the
econom ist.
Posted by : Wei | 1 0/1 1 /2 01 0 at 1 0:2 1 AM

Funny how this dialogue about autocracy v ersus dem ocracy , as to which is the better feeding ground for econom ic
growth, subsists in the shadow of the 800-pound gorilla -- the United States of Am erica, which has prov en the
superiority of dem ocracy in fostering econom ic growth for all the ages.
Giv en the Obam a Adm inistration's procliv ity toward autocratic gov ernance, howev er, Am erica's priceless lesson to
the world m ay soon becom e m em ory .
Posted by : Jake | 1 0/1 1 /2 01 0 at 06 :00 PM

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Democracy or Autocracy: Which is Better for Economic Growth? Becker - The Becker-Posner Blog

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Posted by : Angela Sanders | 1 0/1 1 /2 01 0 at 1 0:54 PM

To add a few words, following Friedm an's v iews:

Gov ernm ents m ight be at tim es better than the priv ate sectors but ex-ante, the priv ate sector should be better due
to the agency problem s with the gov ernm ent.
Hence, we can draw parallels with Becker's argum ents here. Dem ocracy can be seen as the priv ate sector whilst
autocracy can be regarded as the gov ernm ent sector.
http://um expert.um .edu.m y /papar_cv .php?id= AAAJxnAAQAAAGGuAA5
Posted by : Chee-Heong Quah | 1 0/1 2 /2 01 0 at 01 :55 AM

I think the argum ent can be m ade for both but don't really think the spark is the m ake up of gov ernm ent. The
following countries are econom ic powerhouses: US, China, Japan then y ou hav e the dev eloped and v ery solid play ers
in Spain, Germ any , France, Australia. There's no com m on denom inating factor there in term s of gov ernm ent
structure although willingness to expand and be the best is deep rooted in their psy che.
Posted by : soccer jersey s | 1 0/1 2 /2 01 0 at 09 :3 0 AM

Assum ing there profit m axim izing point of a country AKA GDP, and a rational autocratic gov ernm ent, then
wouldn't they put into place policies to m ake that happen?
Posted by : Chuck Toom bs MBA '87 | 1 0/1 2 /2 01 0 at 1 2 :59 PM

Funny how this dialogue about autocracy v ersus dem ocracy , as to which is the better feeding ground for econom ic
growth, subsists in the shadow of the 800-pound gorilla -- the United States of Am erica, which has prov en the
superiority of dem ocracy in fostering econom ic growth for all the ages
Posted by : antaly a otelleri | 1 0/1 2 /2 01 0 at 06 :1 0 PM

Am bition is the genius of seedlings, lov e of labor hands in the fertile land, for the tree will grow strong. Don't lov e
Labour, not self education, this am bition roots will die y oung. Determ ine the personal am bition, choose good m ajor,
it is the source of happiness.
Posted by : jordan shoes | 1 0/1 2 /2 01 0 at 08:2 0 PM

But if one looks the "outcom e" of econom y in a global sense, then who is to blam e for the current depression? Isn't it
from dem ocratic countries?
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Democracy or Autocracy: Which is Better for Economic Growth? Becker - The Becker-Posner Blog

An incom petent leader in an autocratic gov ernm ent m ight lead to a disastrous econom y outcom e, but the
consequences will only lay upon that country . But a bad gov ernm ent in a dem ocratic country will not only cause its
own doom but also take all other countries with him .As far as the "outcom e v ariability " of dem ocracy and
autocracy ,I am not too confident about y our argum ent.
Posted by : Jim m y | 1 0/1 2 /2 01 0 at 08:4 0 PM

Jim m y -- read Schum peter, then Hay ek, though not necessarily in that order. For m ore recent scholarship on point,
read Anne Applebaum 's "Gulag."
Posted by : Jake | 1 0/1 2 /2 01 0 at 08:53 PM

Aw, this was a really quality post. In theory I'd like to write like this too Posted by : linkslondon | 1 0/1 2 /2 01 0 at 1 0:3 4 PM

Aw, this was a really quality post. In theory I'd like to write like this too Posted by : linkslondon | 1 0/1 2 /2 01 0 at 1 0:3 4 PM

I still cant decide whether dem ocratic or autocratic. I am in a dem ocratic country and the people hav e freedom but
others are abusing dem ocracy that causes; war and chaos. When it com es to autocratic the people hav e no freedom
and the decision is all in the leader that is worse for m e.
Posted by : MRWED | 1 0/1 2 /2 01 0 at 1 0:4 5 PM

I think the best m ethod for econom ic growth is a dem ocratic sy stem , particularly one capable of ev olv ing with the
tim es and able to creativ ely adopt policies that create new industries. For instance, decrim inalizing m arijuana is
one such m ethod as is the case in California: http://lawblog.legalm atch.com /2 01 0/1 0/06 /why -californias-decisionto-reduce-m arijuana-possession-to-a-traffic-v iolation-is-a-ploy -to-kill-off-prop-1 9 /
It m ay be daring to som e, but it will bring in ov er a billion dollars in tax rev enue a y ear, not to m ention all the new
jobs and sav ings.
Posted by : Jonas Yan | 1 0/1 3 /2 01 0 at 1 2 :07 AM

I thinking that dem ocracy .!

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Posted by : Best Mortgage Deals | 1 0/1 4 /2 01 0 at 1 1 :1 4 PM

I think that a couple of com m entators are correct to observ e that Professors Becker and Posner are confusing different
issues in this discussion. I do not see that dem ocracy necessary leads to greater liberty , political stability , or
sustainable econom ic growth. Alexander Ham ilton expressed an insight com m only held in the Eighteenth Century
about dem ocracy when he said that "It had been observ ed that a pure dem ocracy if it were practicable would be the
m ost perfect gov ernm ent. Experience had prov ed that no position is m ore false than this. The ancient dem ocracies in
which the people them selv es deliberated nev er possessed one good feature of gov ernm ent. Their v ery character was
ty ranny ; their figure deform ity .
We can see the danger posed to the econom ic prosperity and stability of a nation by dem ocracy when we consider the
work of Mancur Olson is his *Rise and Decline of Nations.* We hav e to keep in m ind that collectiv e decision m aking is
not sy nony m ous with liberty nor is it necessarily conduciv e to responsible polity .
Dem ocracies also do not necessarily av oid the wild swings of policy as we can see in Parliam entary sy stem s or what
we are in the process of witnessing in the U.S. The constraints on dem ocratic elem ents in our sy stem such as the
Senate with its extended debate and our constitutional lim itations on policy im plem entation serv e to m ake our
gov ernm ent som ewhat m ore stable than a purer dem ocracy .
Also m onarchies and dictatorships are not in the sam e category . There is an inherently conserv ativ e quality to
m onarchy since there is a tradition that a particular m onarch rules within. If he acts too precipitously against the
tradition that he gov erns from , he can destabilize his own power. If he does not recognize this crucial aspect of
m aintaining his rule, his fam ily is apt to and rein him in. A m onarch has a further incentiv e to act responsibly
since he v iews his realm as his own property and is m ore concerned to preserv e it for the future than a transitory
m ajority or a lone dictator. Monarchs hav e a track-record of financial responsibility that is far m ore conserv ativ e
than dem ocracies or dictatorships.
As Dav id Hum e observ ed, m onarchies are m ore interested in dev eloping the arts and m anners than are
dem ocracies. This is also true in com parison with dictatorships. These interests of m onarchs and aristocrats further
social and political stability prov iding a firm er foundation for culture to spontaneously facilitate coordinating the
actions of indiv iduals m aking m ore heav y -handed tactics by gov ernm ent less necessary .
As Montesquieu noted, which sy stem fits a nation depends on a num ber of factors, so that there is no one size fits all
form of gov ernm ent for ev ery one.
Posted by : Christopher Grav es | 1 0/1 5/2 01 0 at 05:4 6 AM

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