Democracy versus growth?

PRINCETON, N.J. — Europe’s ongoing
malaise has reignited the old debate over
which form of government produces better
economic performance. Are authoritarian
regimes, with their ability to ram
through unpopular choices, more effective
at generating growth? Or does liberal
democracy, with its built-in checks and
balances, yield greater material prosperity?
It is a discussion in which the supporting
evidence seems to have oscillated
from one side to the other in recent decades.
In the 1980s, economic performance
in Chile, under Gen. Augusto Pinochet’s
dictatorship, and in Singapore, under the
more benign but nonetheless authoritarian
Lee Kuan Yew, was impressive. Meanwhile,
the democratic countries of the industrialized
world struggled against recession
and stagnation.
In Europe, this gave rise to the term
“Eurosclerosis.” Democracies, according
to political scientists, were vulnerable to
growth-constraining special interests.
Authoritarian regimes — at least those not
committed to pillaging their countries —
might be better positioned to implement
policies that ensure long-term economic
success.
This view crumbled with the fall of
the Berlin Wall. The collapse of Communism
and the renunciation of central planning
in Eastern Europe gave rise to a new
line of thinking, as large numbers of voters
demonstrated that they were ready to
accept temporary sacrifices if they were
linked to a realistic and non-corrupt reform
program. In Latin America, left-wing
politicians embraced market principles as
the best way to satisfy their constituents’
aspirations, and growth resumed. For
much of the 1990s, democracies seemed to
have the upper hand.
But the tug-of-war continues. Since
the beginning of this century, China’s supercharged
economic growth once again
seemed to highlight the benefits of authoritarianism.
The Communist Party’s
success in navigating the turbulence of the
global economic crisis with barely a shudder
has attracted the attention of others
who would follow its example. Leaders
like Russia’s Vladimir Putin, Turkey’s Recep
Tayyip Erdoan, Egypt’s Abdel Fatah
el-Sisi, and Hungary’s Viktor Orbán claim
that the price of economic stability and
growth might sometimes be the suspension
of democracy.
The seemingly endless euro crisis has
led some European leaders to give credence
to that viewpoint. At the start of the
crisis, Jean-Claude Juncker, now President
of the European Commission, is reputed
to have said, “We all know what to
do, we just don’t know how to get reelected
after we’ve done it.” In May 2010,
the European leaders decided that they
could not enforce reform in Greece on
their own, and called in the International
Monetary Fund less as a financial resource
than as a disciplining mechanism. More
recently, German Finance Minister Wolfgang
Schäuble sparked controversy when,
evidently drawing inspiration from that
experience, he said that “France would be
glad if someone could force the parliament”
to reform.
The truth, of course, is that authoritarian
systems — whatever their short-term
successes in holding the line against irresponsible
policies — are unsustainable in
the long run. A lack of accountability inevitably
produces corruption and inefficiency
— problems with which China is
now wrestling.
The challenge for democracies is to develop
mechanisms that allow them to set
policies that are sustainable in the long
term while safeguarding the democratic
process itself. The public consensus supporting
difficult reforms in Eastern Europe
in the 1990s demonstrates that voters
are able to understand and accept tradeoffs
when they have no perceived alternative.
(Likewise, the crisis in Greece shows
that voters will refuse to make sacrifices if
they think there is another way out).
Parliamentary debate is an effective
way to set long-term priorities; but politicians
need to ensure that the decisions
taken are carried out without excessive
tinkering or backtracking. In the aftermath
of the Great Depression, for example,
there was a widespread consensus in
the United States that excessive congressional
interference was responsible for
the disastrous hike in import barriers under
the Smoot-Hawley Tariff. Trade policy,
it was decided, was better delegated to the
president, an office better insulated from
electoral pressures.
Similarly, the European debate over
appropriate fiscal frameworks might be
most appropriately settled by a referendum,
following public debate on a longterm
and sustainable strategy. But the
implementation of the decision would be
best entrusted to the member states.
Whether at the European level or in
individual member states, the authority
for ensuring long-term economic growth
should be precisely and clearly delegated
to agencies that derive their legitimacy
from the democratic process, while being
protected from its baser whims. The sustainable
alternative to democratic decision-
making is not authoritarianism; it is
the implementation of mechanisms that
ensure that cool-headed deliberation is
not undermined by the heated response to
an immediate crisis.
Copyright: Project Syndicate, 2015.

The author is professor of history and international
affairs at Princeton University, professor of history
at the European University Institute, Florence,
and a senior fellow at the Center for International
Governance Innovation.

by Harold James