How democracy can help or

hinder development
On the general issue of democracy and development, while many liberals believe in a
positive relation between the two, increasingly with the phenomenal success of China,
there are some who believe in what is now sometimes called the 'Beijing Consensus': that
at early stages of industrialization, authoritarianism is helpful. Even in India we hanker
after 56-inch-chested strong leaders. But a moment's reflection tells you that
authoritarianism is neither necessary nor sufficient for development. It is not necessary
because we know there are countries which have developed reasonably well without
authoritarianism. Forget about the rich Western countries or Japan. Take some
developing countries that have done well with democracy for a long time. They did not
need authoritarianism. If you start with small countries, Costa Rica in Latin America is a
major success story of democratic development for a long period. Similarly, in Africa, the
country of Botswana gives us a successful story of democracy and development. Among
large countries, India is an example of democracy with sustained economic growth in
recent decades. That authoritarianism is not sufficient is obvious from cases of stagnant
authoritarian countries in Africa and Latin America. There are also examples of countries
where democracy exists but where there has been not much progress in development.
Thus democracy is also neither necessary nor sufficient for development.
By Pranab Bardhan

 Published 7.04.16

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On the general issue of democracy and development, while many liberals believe in a
positive relation between the two, increasingly with the phenomenal success of China,
there are some who believe in what is now sometimes called the 'Beijing Consensus': that
at early stages of industrialization, authoritarianism is helpful. Even in India we hanker
after 56-inch-chested strong leaders. But a moment's reflection tells you that
authoritarianism is neither necessary nor sufficient for development. It is not necessary
because we know there are countries which have developed reasonably well without
authoritarianism. Forget about the rich Western countries or Japan. Take some
developing countries that have done well with democracy for a long time. They did not
need authoritarianism. If you start with small countries, Costa Rica in Latin America is a
major success story of democratic development for a long period. Similarly, in Africa, the
country of Botswana gives us a successful story of democracy and development. Among
large countries, India is an example of democracy with sustained economic growth in
recent decades. That authoritarianism is not sufficient is obvious from cases of stagnant
authoritarian countries in Africa and Latin America. There are also examples of countries
where democracy exists but where there has been not much progress in development.
Thus democracy is also neither necessary nor sufficient for development.

Let me now talk about the pros and cons of the rather complex relationship between
democracy and development. Let's take some pros first, namely democracy helping in
development. Democracy enriches individual autonomy and freedom, participation and
deliberation, which some would regard as an important part of development itself. In fact,
if you read Amartya Sen's book Development as Freedom, there he identifies such
freedom with development. So in this view democracy itself is a part of development.
You may, however, look at democracy more in an instrumental way, so may want to find
out, does democracy help or hinder development?

–– ADVERTISEMENT ––

Democracy is, of course, slow, but its deliberative and electoral processes manage social
conflicts better and lend some stabilizing legitimacy to policy decisions. Here, the major
contrast is with China. In post-liberation China, for a long time, what helped to bring the
country together was socialism. That's long gone for many decades now. I have gone to
China many times and observed that 'socialism' is no longer the social glue. The glue
today that increasingly the Chinese leaders are trying to use is 'nationalism', trying to
portray China as a great power and to portray the pride associated with the fast economic
growth that China has achieved in the last three decades. I remember in 2008, after the
big financial crisis in the world, I was in Beijing and talking to many of my Chinese
friends and they were worried. I asked them why they were so worried. One of them told
me that all these years, Chinese annual growth rates had been very high, often double-
digit. Now, because of the global financial crisis, the growth rate was going to come
down. They were worried that this was going to undermine the legitimacy of the regime,
and there might be social unrest. I joked with them, saying that if in India the growth rate
even falls to zero, nothing big will happen because our political regime derives
legitimacy not from the growth rate, but from democratic pluralism. That is what makes
us alarmed today when this democratic-pluralist idea of India - as visualized by
Rabindranath Tagore, Nehru, and others, and as embodied in the Constitution - is being
undermined in India. If you read newspapers, every day you can see how it is being
undermined. So, in a sense, it is an assault on the basic source of political legitimacy in
India.

Even when it comes to social conflicts, we are among the world's most heterogeneous
countries, yet a great deal of social conflicts are handled with some degree of success
through a pluralistic political culture (though there have been important exceptions). The
Chinese, on the other hand, are part of a much more homogeneous country. They are
mostly Han Chinese except in Tibet and Xinjiang where the Tibetans and the Uighurs are
in a tense relation with the Han Chinese. The Chinese government is managing those
conflicts very badly. When they regard the slightest dissent in China as sedition or as
'anti-national', they only exacerbate conflicts. This is a lesson our Hindu majoritarian
ruling party needs to learn. Narendra Modi's hollow homilies on our Constitution being a
'holy book' are not enough.

Democracy also usually avoids colossal mistakes (like those in Mao Zedong's China - the
Great Leap Forward with the associated disastrous famine, the Cultural Revolution and
so on). When mistakes are made, corrections and the healing process are also somewhat
less difficult in a democracy.

Democracy also tends to curb the excesses of capitalism and thus render development
more sustainable, for example, by encouraging social and environmental movements as
watchdogs against environmental despoliation. If we just compare cases, again with
China, let me give two examples. We all know that, in West Bengal and elsewhere in
India, land acquisition has been a big political issue. There have been agitations, changes
of government and so on. The Chinese government has been acquiring land in a much
more dramatic, high-handed and arbitrary way for many decades. Although there have
been localized protests, these are nothing compared to the kind of protests in India. In
fact, a Chinese friend told me, in China, if the government decides to bulldoze your
house, they will sometimes not even tell you. One day, you wake up in the morning - and
this is in Beijing - and look at the front of your house. In the night, somebody has put a
big white Chinese character on the wall, and that one character means 'raze' or 'bulldoze'.
In other words, your house has been marked for being bulldozed. That is the only
information you are getting; you better get out soon. Now just contrast that with the
amount of political agitation that goes on against land acquisition in India. So democracy
substantially curbs some of the excesses of capitalism. China is much more of a wild,
frontier capitalism today than India is. Even more striking than peremptory land
acquisitions are the data on coal mine fatalities or accidents. Coal mine fatalities in China
are 15 times more numerous than in India. In India, working conditions in the mines are
quite bad; many accidents happen and people unnecessarily die because of a lack of
safety precautions. However, this is nothing compared to the Chinese case; safety
standards are routinely violated through a collusion between the local Communist Party
officials and local businesses.

So these are pros for democracy. Now, let us look at the cons or the negatives of
democracy from the development point of view.

Accountability processes to the general public are seriously undermined in a democracy

by the influence of money, both in funding elections and in lobbying, protecting and
promoting the interests of the wealthy and powerful, sometimes thus entrenching an
oligarchy.

Without political centralization, political competition under democracy often encourages

competitive populism or short-termism in India. To an economist, populism essentially
means short-termism and absence of foresightful or long-horizon planning. For example,
come election time, Indian politicians, often promise free electricity and water, which can
wreck the prospects of long-term investments in them, or bank loan waivers for farmers,
which can wreck the banking system. I recently read about a detailed study, of electricity
distribution in Uttar Pradesh. The researcher shows that electricity theft in UP has an
electoral cycle. During election years, electricity theft increases substantially through
collusion among the people involved with official connivance. We also know that in
many cases, for example in south India, colour televisions, mixer-grinders (this is a J.
Jayalalithaa speciality) and so on are distributed by south Indian politicians and, of
course, in many parts in India, free alcohol and cash are distributed before elections.
Many scarce resources are thus frittered away in short-run subsidies and handouts, which
hurt the cause of long-run pro-poor investments (like in roads, irrigation, drinking water
and electricity).

Finally, I will discuss the issue of local democracy. I have already said that the national-
level democracy in India is rather shallow in depth, but there has been a great deal of
widening. But our local-level democracy is much weaker than at the national or the
provincial level. By local I mean district level, block level, village level. At the district
level we have zilla parishads, in the block level we have panchayat samitis and at the
village level we have gram panchayats. We had constitutional amendments, the 73rd and
the 74th, to promote local democracy. If you ask me, looking at India as a whole,
decentralization has not yet succeeded in any significant way. Major exceptions are some
municipalities and panchayats in Kerala. Take the municipal governments. The richest
city in India is Mumbai, the financial capital. However, the major decisions in running
the city are not taken by an elected municipal government. Not by the elected mayor.
They are taken by a commissioner, a bureaucrat appointed from the state government
above. So when there is so little effective local democracy in the city of Mumbai, what is
there to say of villages? Quite often, these local village administrations are captured by
local elites and more often by provincial political hierarchies. Even in better governed
states like Tamil Nadu, political parties dominate from above the local agenda. More
often than not in India, provincial-level politicians hijack that local agenda. Hence there
is limited devolution of funds and functions from the provincial government and limited
administrative and auditing capacity at the ground level.
This brings me back to Amlan Datta's ideas on decentralization and local cooperation. In
fact, Amlan Datta started his book For Democracy by looking rationally at the pitfalls of
Stalinism and arguing for human rights and the accountability procedures of democracy.
Those of you who want to pursue the evolution of the thought process of Amlan Datta,
one interesting thing to me is that here is a person who started as a rationalist follower of
M.N. Roy. As you know, there was a great deal of mutual admiration between M.N. Roy
and Jawaharlal Nehru. But there was not much mutual admiration between Roy and
Gandhiji. Amlan Datta, who started as a disciple of the rationalist M.N. Roy, in the latter
part of his life came much nearer to Gandhi's ideas, as you can see from his later books,
especially the Bengali books - I particularly remember one book, a collection of essays
called Bikalpa Samajer Sandhane (in search of an alternative society). These are
thoughtful essays about his vision, looking to the future. Amlan Datta is not happy with
the present India, not happy with capitalism, not happy with the kind of democracy that
India has. He is looking for an alternative. He is going back to Rabindranath Tagore and
Mahatma Gandhi, to decentralized development and rural reconstruction. In those
evenings of load-shedding in Santiniketan in the 1980s, when we sat together for
discussion, I spent many evenings discussing some of these local democracy issues. By
that time, my thought process also had evolved since the days of my early acquaintance
with Amlanda. I had lots of differences of opinion with him. However, Amlan da being
Amlanda, he would show great respect for differences of opinion. So we used to argue
quite a lot. I often used to tell him that his ideas of decentralized development drawn
from Rabindranath and Gandhi, to me, looked very utopian. In fact, if you read Tagore,
he talks rather wistfully about decentralized development, rural reconstruction and
cooperatives. Long before his book in Bengali titled Russia-r Chithi, where he discusses
the examples from Soviet Russia, around the 1920s he wrote extensively on the need for
cooperatives and autonomous rural development. Both Gandhi and Tagore spoke of
changing values: people are selfish and greedy and have to be exhorted to be self-
sacrificing and cooperative. To an economist, this selflessness, change in ethical values,
if it can be done, is fine and encouraging. But, for a long time, we have to accept that not
all people will be selfless. In such a situation, what is to be done? That is where
economists propose that even in an imperfect society or an imperfect world how we can
manipulate incentives and organizational imperatives to get some things done. There are
now a large number of empirical studies on these matters, what works and what does not.
I myself, with a team of researchers, have been working on decentralized development in
West Bengal. With another team of researchers I have tried to look at when cooperation
works and when it does not in water allocation and dispute resolution among farmers. For
this purpose in Tamil Nadu, we surveyed 48 irrigation communities. In West Bengal, for
the last 15 to 20 years, we are going back to the same set of about 90 villages to
understand these issues of decentralized development, cooperation and rural
reconstruction. We are yet very far from definitive conclusions, and I plead with the
younger people to carry on this kind of research and, if possible, involve themselves in
activist social work on issues, which were very much in the minds of Tagore, Gandhi,
Pannalal Dasgupta (who founded the Tagore Society for Rural Development in Birbhum)
and Amlan Datta.

That would be the biggest tribute we can pay to the memory of Amlan Datta, my teacher,
mentor and above all, friend.

THIS IS A SOMEWHAT REVISED VERSION OF THE AMLAN DATTA

MEMORIAL LECTURE DELIVERED ON FEBRUARY 19, 2016, ORGANISED BY THE
ALUMNI ASSOCIATION OF CALCUTTA UNIVERSITY ECONOMICS DEPARTMENT

CONCLUDED

Does democracy help or hinder

growth?
Regardless of its appeal politically, can democracy be
defended on economic grounds alone?
Democracy in the context of the Indian case has always been an intellectual
puzzle. Its significantly variegated society with its many communal and ethnic
divisions coupled with widespread socio-economic disparities has managed to
survive the democratic challenge. The Democratic institutions of Independent
India consolidated within the constitutional framework have demonstrated
principles such as impartiality, secularism, and equality before law and have
included arrangements such as effective courts, responsive electoral systems,
functioning parliaments and assemblies, open and free media and participatory
institutions of local governance. The performance of such institutions though, is
contingent on a wide range of social conditions, from educational levels and
political traditions to the nature of social inequalities and popular
organisations. [2] In the strengthening of such democratic practice, a wide
variance can be observed from the democratic ideals the country aspires to
achieve.

The framework provided by the gaps between these democratic ideals,

institutions and practice is used in this essay to analyze democracy in the Indian
context while understanding its implications on the development of the country.

Democracy and Development:

Democracy and development have always been recognised to have an intrinsic
relationship. The modernisation theory of the 1960s held that Western economic
and political liberalism represented the ‘good’ society in itself, and that it
constituted the broad historical convergence point of diverse developmental
trajectories. [3] Developing from such propositions is the new found belief that
democracy is a necessary prior condition for development while it may or may
not be a sufficient one.

According to Adrian Leftwich this presupposition is not well qualified. He

develops the argument that there are inherent tensions, conflicts, and trade offs
over time between various goals of development- growth, democracy, stability,
equity and autonomy. This further implies that there are special preconditions for
a stable democracy that cannot be instituted at any stage in the development
process of a society and may well hinder development as opposed to the
common notion of enhancing it.
The term development has a connotation of an all encompassing term of social,
economic and political enhancement. The World Bank provides certain
prerequisites for development. These include:

An efficient public service

An independent judicial system and legal framework to enforce contracts

Accountable administration of public funds

An independent public auditor responsible to a representative legislature

Respect for the law and human rights at all levels of the government

A pluralistic institutional structure and,

A free press [4]

With these directives in consideration, development has popularly become

directly related to a liberal democratic capitalist regime, presided over by a
minimal state. [5] Democracy, which is often considered as a concomitant of
modernity has sometimes even been thought of as an outcome of socio-
economic development rather than a condition of it. [6]

Economic Development
With the collapse of large planned economies and large scale intervention in
state economies, there has been an emphasis on the inevitable relationship
between democracy and markets. The belief is that, insofar as democracy is about
political freedom for individuals, markets are about economic freedom and the
two must serve the interests of the people in cohesion. [7] The interdependence
between markets and governance implies that in the absence of such rights as
property rights, legal rights, entitlements etc., the markets could very well fail to
function. The democratic regime in India must therefore complement economic
development by providing and ensuring the enforcement of such rights along
with the redistribution and allocation of the resources of society in a fair and just
manner to ensure welfare maximisation and social equity.

Beginning with the 1980s, the IMF and the World Bank sought to promote open
and competitive free market economies to minimise state-led development and
avoid developmental stagnation. The process of macro-economic stabilization in
India was a consequence of the external debt crisis which surfaced in 1991 and
led to large scale liberalization measures that saw great departure from the past
independent India. [8] The reorientation of economic policy saw measures such
as privatisation, disinvestment, reduction in subsidies, promotion of greater
competition, reduction of the scale of the public sector and various other
stimulating measures for greater efficiency and productivity in the economy.
These adjustment measures called for strong resistance from an organised
opposition of bureaucrats and political elites.

Democracy can therefore be seen as, often retarding the process of political or
economic reform to the extent that it allows such powerful groups to cash in on
elected representatives’ inclination towards a policy of appeasement and a
conscious effort to increase its vote banks. While the Indian polity was
necessitated to pay heed to this opposition, the looming fear of insolvency and
failing debt payments had become the most important agenda to be addressed
in the political campaigns of most major parties. The success of the 1990s
reforms can be attributed to a number of social and political variables but the
important aspect to highlight here is the tension that is created in a democratic
environment when developmental reforms take shape.

Another major hindrance to economic development and a cause for contention

between democracy and development is posed by the problem of corruption. In
such a large democracy as India, administrative positions in office have typically
accounted for large embezzlements and cases of corrupt practices. From a
development perspective it is evident that such practices adversely affect both
equity and efficiency in an economy. The redistribution of resources tends to be
positively skewed towards bureaucrats and influential commercial officers.
Moreover, it tends to undermine democratic institutions by diverting the efforts
of political leaders through organised movements of special interest groups.

Local Democracies
The basic objective of development, according to Amartya Sen should be the
expansion of human capabilities rather than merely a generation of economic
growth in terms of expanding gross national product and related variables. [9] An
important aspect in the developmental process is therefore strengthening of
democratic participation and reduction of the asymmetries in the opportunities
available to different sections of society.

One such promotion of social opportunity has been in effect following the
‘Panchayati Raj’ amendments that have brought into action, local representative
institutions aimed at promoting a healthier practice of democracy at the local
level. In the context of local “panchayats”, democracy directly affects socio-
economic development by affecting social equity, gender relations, caste
differences and economic asymmetries. The practice of local democracy with its
political representation of women and scheduled castes has sometimes even
managed to question traditional inequalities in the freedoms and space provided
to these marginalised sections although the efficacy of such reformative
measures needs further assessment.

Local democracies help in not only participatory politics but can also be seen to
have an intrinsic value for the quality of life. [10] If we are to examine
development with a focus on enhancement of freedoms then we find that
democracy is able to impart an empowering decision making tool even to the
deprived sections of society who have been evaluated to value their political
freedoms highly. [11] The imparting of such freedoms in village politics for
example has encouraged a will among the rural poor to organise themselves,
demand their rights and challenge the existing establishments and authorities.

As early as 1956, it was argued in India that local participation is a crucial

instrument for capital mobilisation. Panchayats are required at the local level to
ensure that there is parity between the public expenditure on local objects and
the requirements of the locality. In addition if it is vested with adequate power
and finances it could serve the purpose of evoking local initiative in the field of
development. An emergence of rural entrepreneurs has been witnessed in the
last decade or so but greater measures towards skill enhancement and provision
of incentives needs to be undertaken if the true potential of the villages ( in fields
of traditional arts and crafts, micro-credit, food industry etc.) is to be fully
realised.

Finally, local governments have been seen to be most effective when they have
enjoyed the trust and the confidence of local elites and are simultaneously
accountable to the local electorate. [12] The crucial link between democracy and
development is the institutionalised political participation at the local level. This
link is able to provide the state with greater legitimacy and resilience.

Caste, Class, Ethnicity and Minorities

India is a society of peculiar complexity with such distinct castes, religions and
economic classes that each division could in itself be considered a minority by
some defining characteristic.

According to Pranab Bardhan, the heterogeneous nature of a dominant coalition

can only be seen as exemplifying democracy rather than detracting it. Each
organised section of the society (for example groups organised on the basis of
caste) demanding political and economic representation has managed to create
strong bargaining networks with the state such that an allegiance based on
patronage has become an almost inevitable condition in the Indian polity. This
social movement in India, according to Weiner, is not to abolish caste or
“casteism”, but is one that focuses on creating a social and political system that
institutionalises and transforms caste.

While the rise of regional and caste based politics might be a signalling factor to
India’s democratic capacity, it can have fairly adverse effects on the economy and
development of the country. This complex allegiance undermines the autonomy
and independence of institutions engaged in political and economic decision
making which accounts for much of the lack of credibility and the increasing
disillusionment with developmental policies and reforms. Promotion of group
equity and caste rights, etching out markets for new jobs via reservations and the
negative influence of caste considerations on the insulation of economic
governance have all accounted for infrastructural bottlenecks and low economic
growth. Others have referred to such politics as anti-market contributing to a
poorly managed public sector associated with high and growing capital output
ratios. [13] Bardhan has argued that political accommodation of various castes
through ‘quotas’ and reservations along with equity politics can be combined
with efficiency and a stronger democracy if it focuses on asset redistribution in
the context of accountable and structured local governments. [14]

Democracy has without a doubt proved its capability in the Indian context with
reference to being inclusive of various sections of societies and integration of
these branches into mainstream politics, however, their influence on formulation
and adaption of public policies of importance has been limited. Myron Weiner
has explained this outcome by underlining that the politics of caste is most often
the politics of dignity. The goals sought by such groups are based less on
education, health and development as a whole and more on respect, equality of
treatment and symbolic gains. [15]

Reduction in social hierarchies and economic inequalities needs to be addressed

by mass education system, expansion of employment opportunities and an
adequate healthcare system. An expanding economy needs to be coupled with
development of human capital and economic growth. Caste based politics can
only provide a platform for institutionalising developmental reforms; it should
not be mistaken as a sufficient condition for societal development as a result of
democratic representation.

Social Movements (Case Study: Narmada Valley Projects)

“In politics we will be recognizing the principle of one man one vote and one
vote one value. In our social and economic life, we shall, by reason of our social
and economic structure, continue to deny the principle of one man one value.

How long shall we continue to live this life of contradictions?”

B.R Ambedkar, 1949

Many years post independence, India, along with being the largest democracy in
the world is also considered one of the world’s most inegalitarian societies.
According to some estimates 350 million people still remain below the poverty
level and as much as half the adult population is illiterate.

Democracy stretches far beyond granting of political rights. “It is a political

instrument intended to build a participatory, egalitarian, and just social order, in
which popular sovereignty rests with the people, and by which common men and
women participate in decision making processes to improve their socio-economic
conditions and enhance their lives.” [16]

Democracy mostly fails to achieve socio-economic equality while it vigorously

pursues formal-legal equality. The idea of political equality and democratic rights
has implied various forms of expressions of dissent. Organised movements by
those who belong to the bottom of the social structure have gained momentum
to challenge the traditional social inequalities that have persisted in the
hierarchical rural set up of the Indian society.

Social movements rather than the power of the ballot have facilitated an
enhancement of the responses of democratic institutions, such as courts and
bureaucracy, in India. These movements have helped to highlight the diversity of
the country which is such a defining feature of the its democracy. These
institutions in no way can substitute the state, but the pulls and pressures
associated with their objectives have helped to raise important issues at the local
and national level. Coupled with electoral practices they have helped in
protecting democracy by providing subsidiary political institutions, various
platforms for expressing dissent and providing an opportunity for the
government to recognise, address and negotiate a diversity of interests. [17]

While social movements have deepened the sense of democracy, their outreach
has done little to create any significant administrative or judicial reforms, which
continue to remain rigid, unresponsive and insensitive to the continuously
changing society. Moreover, many of the mutinies have been poorly organised
and have not resulted in any significant redistribution of wealth and income
though they may have served the purpose of preventing further skewing of
India’s distributional patterns. [18]

Development has always been a non-negotiable component of India’s

modernizing agenda yet its limitations in pursuing a programme of social,
economic and political transformation can be widely observed even half a century
after its Independence. The opposition to the Narmada Valley Projects can be
seen as a perfect example of the tradeoffs between democracy and development.

There have been three major arguments for this project that have used
democracy as their underlying motives [19] :

A democracy always uses the argument of majoritarianism which chooses to test

the total number of people affected both positively and negatively and weighs
them against one another.

The argument of ‘public purpose’ that entails the state asking certain sections of
its citizenry to sacrifice some of their rights in order that the society as a whole
may benefit.
This argument claims that there are certain sections in the Indian polity and
society that are conspiring to keep the tribals out of the national mainstream,
culturally and economically.

In assessing these arguments we can clearly see the differences in the conception
of democracy as well as development. The state has clearly invoked a utilitarian
conception of democracy in the context of the Narmada Valley. State discourses
of democracy in the Narmada Valley have been located within a formal,
procedural interpretation in which democracy has been reduced to a game of
majorities and minorities. [20]

It has long been argued that democracy is only but a hindrance to development
and its temporary sacrifice is required to achieve a minimum level of
development. However, development includes not just economic growth but also
civil and political freedom and rights necessary to enhance the capabilities and
opportunities available to people. Much of the political discourse has centred
around that notion of democracy which emphasises on public interest, common
good and majoritarianism. At the same time we could argue that democracy is a
subscription to the right to information, right of political and economic
participation and the right to equal opportunities and livelihood.

The continuation of the Narmada Valley projects would eventually lead to the
displacement and forced eviction of thousands of tribals. Non-recognition of the
opposition is non-recognition of a participatory conception of democracy. The
government has further refused to recognise the traditional rights of these tribals,
their traditional self governing institutions, their dependence on forests for
subsistence and their desire to be relocated as communities rather than
individuals or families. [21]

National developmental objectives are formulated and agreed upon by an

elected representative government. By no means does this imply that all
developmental decisions are therefore democratic or even enjoy a sizeable
support. The optimistic view would be that democracy in India has provided a
space and opportunity for the articulation of dissent and discourse even to the
most marginalised sections of society. At the same time gross inequalities in
social relations points to the limits on democracy.
Social movements in India have started the process of rejuvenating the civil
society. Pramod Parajuli rightly points out that the need of the hour is to extend
the focus of democracy from merely a representative democracy to a social
relation which is consultative and participatory. Such a participatory democracy
cannot be seen to operate only via the government apparatus and finds its
manifestation in cultural, ethical and communicative forms as well. [22]

While India proposes a model of a functioning democracy, it is clearly strained at

many layers. The objective of development in the light of democracy requires a
strong democratic governability that must be supported by effective state
institutions. The state is essentially still perceived as the provider of resources and
seen responsible for economic redistribution along with a consolidation of
democratic ideals. In this light, it is required to simultaneously focus on the
nature and intensity of group demands on the one hand, and of the institution
building tasks undertaken by political authorities on the other. [23]

The dichotomy lies in the fact that democratic institutions facilitate growing
demands of political space and widening definitions of distinct classes which has
created a pressure on the Indian democracy and challenged it. At the same time
they also stand to prove its success in participation and representation. Local
governments, grassroots movements and regional politics all point to a
deepening sense of democracy in the nation while they have also hindered
economic development and contributed to the deinstitutionalisation of its polity.

A fundamental shortcoming of the Indian democracy lies in the fact that stable
and effective conditions have not been established for the efficient functioning of
democracy. Decades after Independence, the country is still battling large socio-
economic disparities and has been unable to provide even the most basic
amenities and entitlements to a large section of its people. The state’s deviation
from its own purposes and objectives though addressed through democratic
practice itself, has been unable to form institutions to ensure its effectiveness and
justice.

Democracy in India is definitely puzzling when viewed from a western

perspective. It has followed its own path and defined democracy in its own terms.
There remain major asymmetries in the opportunities available to different
sections of society which are furthered by social and economic inequalities that
have prevented these sections from inclusion in democratic participation. As is
 argued, development requires order and discipline. To this extent authoritarian
regimes have at times experienced rapid development as in the case of
China. [24] If democracy and development are to complement each other and
continue to persist in the fabric of the Indian society, there needs to be a more
comprehensive understanding of development, one that incorporates expansion
of freedoms and social opportunities.

BY PUSHAN DUTT
5 min read
PUBLISHED: MAR 18, 2016 06:39:37 AM IST
UPDATED: MAR 17, 2016 05:18:30 PM IST
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Image: Shutterstock.Com
In the China-India comparison, democracy appears to guard against extreme outcomes
even when its average performance is sub-par

With economies continuing to rise and fall in the aftermath of the global
financial crisis, many investors are looking beyond the promise of fast
returns, aiming for long-term growth from less volatile markets. The
question remains, in this search for stable growth can a country’s
political system help identify a “safer bet”?
Economists and political scientists have long sought to uncover the
secret to why some economies grow at a much faster rate than others.
While there has been a long-standing temptation to extol a link between
democracy and economic performance, empirical evidence shows that
the relationship between growth and a democratic political system is
weak at best.

In fact over the past half a century there have been many examples
where economies under autocratic rule have experienced incredible rates
of growth in contrast to the disappointing economic performance of
many democracies – compare China with its restricted political rights to
democratic India . At the same time some many non-democratic
countries have been growth disasters. In the absence of a definitive
answer, Indian economist Amartya Sen circumvents the democracy-
growth question by arguing that political rights are intrinsically good and
irrespective of its impact on economic performance, are a desirable
outcome. While Sen’s argument is sound, it reflects economists’ unease
with the lack of consensus on the democracy-development link, and even
led the New York Times to question whether economists need to be this
“apologetic” about democracy.

Democracy and stability

What the academic literature has established is a robust relationship
between democracy and stability, with democracies exhibiting lower
growth volatility.

To date this evidence has been observational and there is little theory to
explain why. Some recent papers have looked at voter’s innate risk
aversion, or the constraints on executives’ ability to change policy
autonomously. Others have considered democracy as a conflict
management tool. But none have directly tested a mechanism, thus
rendering the link between theory and the regressive correlation tenuous
at best.

In our paper Democracy and Political Stability, we set out to explore the
channel through which this negative correlation between democracy and
growth volatility occurs. To do this we examined the nature and volatility
of the trade and fiscal policies of both developed and developing
democracies, and compared the results of these policies with the policies
in place in non-democratic political systems. In other words, we looked
at the outcome of policies made when one person, or a small group of
people, is making decisions, compared to the impact of policies from
economies where there are multiple inputs in the policy-making
progress.

What we found was that when an autocratic leader who unilaterally

chooses policies, is replaced by a committee of policy-makers who vote
over alternatives, policies had greater precision and regularity. Strong
leaders may be able to accomplish more in autocratic regimes compared
to democratic governments where they are more likely to be held back by
legislative and judicial processes or media constraints. However poor
leadership decisions in economies which lack the checks and balances of
democratic institutions can cause major damage. Thus while
democracies’ due process may at times stifle visionary policies, they act
as an important moderator, resulting in more stable policies.

The success of democratic governments has less to do with high growth

rates, and more to do with the fact that extreme policies and abrupt
changes in policies are less likely. Our results confirm the intuition of
Sen whose comparison of China and India suggests that although China
has consistently surpassed India in terms of food production and output
growth, India has not suffered from any major famines since 1949.
Unlike in China, democratic institutions facilitate a swift response to the
threat of famines in India. In the China-India comparison, democracy
appears to guard against extreme outcomes even when its average
performance is sub-par.

The causal link between democracies and stability

The challenge with this kind of cross-country research is to go beyond
identifying merely the correlation between democracy and stable policies
and demonstrate the causal channel which links democratic institutions
with stable policies – put simply, to show that it is democracy which
affects policy rather than policy affecting the democratic institutions. To
do this we identified countries where political institutions were created
hundreds of years ago (either through colonialism or the influence of
religion) and then looked at the volatility of policies in these countries
today. Given the passage of time it is very hard to argue that the policies
of today have an impact on the institutions. From this we could see the
causal arrows pointing in one direction: revealing a strong link between
democratic institutions and less volatile policies.

We found that when trade and fiscal policies were more stable, output
tended to be much more stable, and that fiscal policies mattered more
than trade policies for output stability.

Democracies’ strength
In many countries, people aspire to a strong leader along the lines of Lee
Kuan Yew, who can rapidly transform their economies without the messy
constraints inherent in a democracy. But these countries may easily end
up with a Mobutu Sese Seko or a Robert Mugabe instead, where policies
are subject to the leader’s whims and fancies. Democracy delivers far
more stable policies and guards against such extreme outcomes.
Ironically, it seems democracies’ underlying strength lies in the
steadfastness of the very institutions which are often criticised for
obstructing economic growth.
- Pushan Dutt is an INSEAD Professor of Economics and The Shell
Fellow of Economic Transformation. He is also a director of the Asian
International Executive Programme, part of INSEAD’s executive
education suite.

[This article is republished courtesy of INSEAD Knowledge

http://knowledge.insead.edu Copyright INSEAD 2010]