Is an authoritarian government better for economic development than a democracy? Xinyi Qu

Sixth Form Essay Competition Winner

Whilst it is certainly more convenient to view the world as binary with only right or wrong answers, the reality of the matter is much more complicated. Hence, it would be a sweeping statement to say that either an authoritarian or democratic government is better.

Instead, this essay will argue that an authoritarian government is better at delivering economic growth only in the early stages of development, while democratization is desirable as the economy matures. Autocracy can be more focused on economic growth as it is more efficient at making decisions, even those that might be resisted by the public. As economic development consists of more than just economic growth, a democracy can better deliver on the other measures such as welfare and equality. Thus, while authoritarianism can promote faster growth, democracy allows the economy to develop more comprehensively and inclusively.

Autocracy is better at delivering economic growth

Authoritarianism is more efficient at boosting economic growth in the early stages of development mainly because the regime can adopt good-quality policies and implement them efficiently, which is particularly necessary for the developing countries. An autocracy is broadly defined as a regime where the majority of power is held in the hands of a few (Khan, Batool and Shah, 2016), which insulates it from various private and social pressures and allow the best policies to be pursed (Przeworski and Limongi, 1993). Apart from being less sensitive to societal pressures, the implementation of policies is also less interrupted by changes in power and the presence of opposing parties.

In contrast, a democracy might be less efficient in decision-making as the power of democratic rulers is checked by other parties (Rivera-Batiz, 2002), which allows powerful special interest groups to sway the decisions made in parliament. Interest groups lobby to maximise their net benefits (Becker, 1983), which is wasteful and inefficient due to their rent-seeking behaviour. Diversification of power in a democracy wastes time during decision-making (Dahl 1971), which hinders economically beneficial projects from being implemented as soon as possible, limiting the economic growth of the country.

The construction of high-speed rails (HSR) in the UK (democratic) and China (authoritarian) could be used as a case in point. The UK’s 750km High Speed 2 (HS2) project was proposed in 2009 but the decisions on the route were approved by the Parliament only in July 2017. Phase 1 and Phase 2 of HS2 are estimated to finish in 2033 yet there are still on-going debates and national campaigns against the project. In contrast, China began to build its high-speed rail in 1998 and by the end of 2018, China's highspeed rail has reached 29,000 km in total length, becoming the world's longest high-speed railway network. The HSR in China has an estimated return of 8%, well above the opportunity cost of capital in China and most infrastructure investments in other countries (World Bank, 2019).

The ease of transport has increased business opportunities (Hyatt, 2018), promoted regional economic growth (Li, 2019), and increased productivity overall (Lawrence, Bullock and Liu, 2019). This is especially critical for low-income countries as they require predictable, strong, and centralized institutions during their ‘catch-up’ phase that democracy cannot supply (Haplerin, 2005). Hence, in an authoritarian state, economic growth will occur immediately, bolstered by the multiplier effect which further stimulates the economy. Autocracy is also more likely to mandate saving, which can be translated into investments (Huntington, 1968).

Democracy could deter long-term growth because economic freedom leads to immediate consumption at the expense of investment (Galenson and De Schweinitz, 1959). Societies with single-party regimes show a greater savings rate (14.5%) than states with no legislatures (9.9%) and thus a higher economic growth rate (Wright, 2008).

Even though economic growth is only one aspect of economic development, it is the foundation upon which other factors lie. Hence, developing countries need to secure this before they can proceed to target other factors of development such as education, life expectancy and equity. The efficiency and focus provided by an autocracy surpass that provided by a democracy, and thus an autocracy seems more desirable for a developing economy (Leftwich, 1995).

Maturing economies: moving towards democratization

However, there are drawbacks to adopting autocracy: unsustainable growth and a lack of economic freedom. The economic growth led by autocracy is unsustainable (Acemoglu and Robinson, 2012) because it occurs at the expense of the environment, equity and the human capital upon which growth is built. Hence, a transition to democracy is to achieve sustained economic growth.

Democracy provides a more stable political environment by preventing unconstitutional government change (Acemoglu and Robinson, 2012). This is desirable as it increases predictability in the economy, encouraging investment and spurring growth. South Korea is an example of a successful transition, where the previous dictator decided to encourage economic freedom and democratization. If he had not done so, the country might have failed to sustain its stellar economic performance in the long term as it would be difficult for South Korea to adjust to the changes in the economic environment (Im, 2011). Therefore, once the country has achieved sustained economic growth, it needs to transition to strive for sustainable growth. This process is facilitated by democratization, which brings other benefits as well.

According to the convergence theory, the closer an economy gets to its steady-state, the slower it will grow. Thus, growth can be fast at first but tends to slow down as the income levels converge (Helliwell, 1992). This means that when the income level has nearly caught up with the high-level income countries, the advantage of authoritarian government on rapid economic growth tends to disappear.

In this stage, the stable democracies show advantages – 7 democracies or unstable dictatorships had average incomes about 40% higher than the 13 stable dictatorships in the Latin American (Lipset, 1959). Heo and Hahm (2015) support this view by establishing a positive correlation between democracy and economic performance with data from 1950 to 2000. Their result provides empirical evidence that the relationship is bidirectional, where good economic performance promotes democratic regimes, which then engenders positive feedback that further promoted economic growth.

In transition countries, economic freedom has a positive impact on economic growth largely because this property attracts more foreign and domestic investments. In contrast, political freedom does not influence economic growth (Piatek, Scarzec and Pilc, 2012). To get the best of both worlds, we can adopt an “authoritarian democracy” where the government has basic democratic characteristics but sacrifice certain human rights based on the context of the economy to bring about both rapid growth and stability (Leftwich, 1995).

Democracy is better at leading economic development

As the economy matures and becomes a developed economy, democracy is better at achieving multi-dimensional economic development than an autocracy. A democracy provides more merit goods - public services with positive externalities – and a higher quality of social services (Lake and Baum, 2001). A greater concern for human welfare is also observed; cross-country data from 92 countries showed a positive correlation between democracy and welfare, measured by the Human Development Index (HDI).

Highly democratic countries (represented by the European and Non-European countries) had a higher HDI than more autocratic countries (represented by Asia and Sub-Saharan Africa), with HDI at 0.65 and 0.45 respectively. If a country can transition from extreme authoritarianism to perfect democracy, the HDI value will increase by 17% (Khan et al., 2015). For example, when Nigeria was controlled by military rule in 1983, the enrolment to primary schools dropped from 81% to 72% and the disease immunisation rates among children reduced by over 50%.

A critical point to note is the strong positive correlation between democracy stock – a measure of the survival and maturation of democratic states – and economic development (Heo and Hajm, 2015): the higher the degree of institutional maturity, the more effective the democracy is.

Therefore, if an authoritarian country has achieved sustained economic growth, it is worth converting to a democracy, which may guarantee a higher level of economic development – the ultimate aim of people and government.

However, there exist other determinants that affect economic growth. For instance, if a country has very few natural resource rents (small percentage accounted for GDP), a perfect democracy will perform better than an autocratic state by about 1.5% of economic growth yearly (Collier and Hoeffler, 2004). If society is more homogeneous, authoritarianism could be more suitable. These factors highlight to us how idiosyncratic each country is and that an ‘ideal’ institution does not exist.

Conclusion

In conclusion, whilst there is no one-size-fits-all answer to what regime a country should adopt, there is still a suggested path that countries can refer to. This involves an understanding that in the early stages of economic development, the authoritarian regime is more efficient in helping the country to catch up with the developed ones as soon as possible through implementing good-quality policies and improving investment. After a certain level of development, people’s basic needs are satisfied and they would want more rights and freedom, hence the government is required to achieve a higher level of development instead of mere economic growth. Democracy itself has value because people have the right to have freedom, such as political and economic freedom, no matter whether it can accelerate economic growth or not (Sen, 1999). In reality, many practicalities reduce its efficacy, for example, bounded rationality in people's understanding of political regimes and economic development. Therefore, what matters most is the effectiveness of policies, the stability of the regime, and the developmental stage that the economy is in. ▪

Seoul, South Korea