Analysis of Relationship between Democracy and Economic Growth

Democracy is seen as a worthy cause in the world, but there is a lot of debate about the consequences of democracy, the process of democratization and its image of being the most perfect system ever. For example, it is questionable whether democratization brings benefits economically as a given and whether democracy leads to peace. On the other hand, there is also a debate about the possible causes of natural democratization. Do developing countries have less chance of democratization, does corruption prevent the democratization process? In this essay a similar debate is going on with regards to economic growth.

Economic recessions are seen as a problem, but its causes and consequences are a subject of discussion. Does economic growth lead to a decline or to an increase in democracy and vice versa? Does economic development turn to an increase in corruption without democracy?

Democracy and economic growth are also frequently linked. Both are seen as a possible cause and possible consequence of the other, in other words: 1) economic development increases or decreases the chance of democratization; 2) democratization and democracy lead to an increase or decrease in economic development.

Why Democracy Is Linked to Economic Growth?

Democratization is expected to affect a decrease in financial inequality on the basis of the median voter hypothesis. The median voter is the voter whose income is equal to the median of all incomes. Half of the voters earn more than he does, half earn less. As long as it is in the interest of half (plus one) of voters to redistribute, because the average income is higher than theirs, a democratic government according to the median-voter hypothesis would do so for the benefit of the half plus one. For example, through a progressive tax system. More money for most people would lead to a stronger middle-class and more leverage for economic development to grow the economic, thus the theory (Carbone, 2009).

After all, according to the standard theories, the government conforms to the will of the median voter (Boix, 2010), in which the will of the poor or victims of economic underdevelopment cannot be ignored if they make up too much of the population. In the event that the median voter earns less than the average they will argue for redistribution or more quality developmental programs/initiatives for the economy. This is confirmed by the fact that the extension of the right to vote (to the poorer population) in Europe has led to unprecedented redistribution programs and huge economic development programs in poorer regions of the continent to stimulate economic growth (Acemoglu, 2000).

This idea is undisputed in many literatures and functions as a kind of baseline for all research related to this topic. There is almost no pin between its theoretical explanation. It cannot be otherwise than that a democratic system, based on the idea of equality and fair voting, has a better effect than an autocratic, fundamentally unequal system. Nevertheless, a number of drawbacks adhere to this hypothesis.

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Drawbacks of This Theory

First of all, this hypothesis works only when political power forms a pure representation of the population in a country. If the election turnout is not 100% (and not by chance perfectly representative), then this leads to less (or more) redistribution of economic goods, depending on which income group is underrepresented (Bonica 2013). In those cases, the median voter does not have the actual median income and thus its final result will not be able to claim that economic growth is due to democratic institutions creating a forceful demand for quality economic growth.

The voting system also plays an important role in this. After all, this is the basis for a democratic party system, the government composition and thus the possible political motive for economic development (Iversen 2006,). For the electoral system too, not every voter has the same influence when not every vote counts equally. The voice of the economically disadvantaged seems to be better heard in a system of proportional representation: in that state of being, it is more likely to have a pro-economic development coalition in power (Iversen 2006).

Thirdly, the extent to which society as a whole is organized is important for the extent to which actual political pressure can be exercised and thus the question of whether the government proceeds or is able to develop its economy. A strong civil society is better able to exert effective pressure. The construct in which the poor voters in particular are organized makes a difference for their influence on policy and thus for political pressure to redistribute or develop.

Democracy always has its winners and losers and not every citizen has the same influence. Often the upper class is considered to be better organized and therefore more influential than the poor, who have the greatest difficulty influencing the policy process to suggest better qualitative programs to support economic growth (Carbone, 2009). In other words, it is very questionable whether the casting of a vote offers sufficient and equal opportunity to exercise influence by every citizen. If not, the median voter can argue for redistribution or development, but the richer electorates actually have more influences because of their stronger position in civil society and thus less effective pressure for economic development/growth will adhere.

Finally, even if it were to be assumed that every electorate exercises the same effective influence, votes for purely economic considerations and thus actually moves the country to proceed to focus on economic growth, the question remains whether this government policy that came from electoral positions can also bring about the desired consequences. In other words, does government policy work? Do people know what is best for them? Democracies tend to invest in the social sector, but that does not guarantee that the poor or the economy actually benefit from it (Carbone, 2009, p.135). The state capacity differs per country and a weak state has an impeding influence on policy implantation (Bermeo, 2009) The power of a state and of a democracy in particular is supposed to be related to its stability. Stability arises over a long time, creating a much stronger link between political participation and the understandings of the economy than the democratic level and willingness alone, at least when controlled for economic growth (Muller, 1988). On this basis, it is suggested that the influence of democratization on economic growth only after about twenty years will begin to play a role, but it is still not clearly defined as a sole reason for positive results. A recently democratized state cannot be expected to make policy for the long term, while everything in that is still fluctuating.

Conclusion

The more theoretic, procedural requirements of maximum voter turnout and proportional electoral systems seem in any case to play no or a limited role. I suspect this has to do with the narrow approach to democracy (as process) where these variables are strongly ignored: the electoral system, degree of organization, corruption differs, voting motives and effectiveness of governments. In my opinion, the relationship between democracy and a country’s economic growth is thus far inconclusive.

References

1. Carbone, G. (2009). The Consequences of Democratization. Journal of Democracy, 20(2).
2. Acemoglu, D., & Robinson, J.A. (2000). Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective. Quarterly Journal of Economics.
3. Bonica, A., McCarty, N., Poole, K., & Rosenthal, H. (2013). Why Hasn't Democracy Slowed Rising Inequality. Journal of Economic Perspectives.
4. Iversen, Torben and Soskice (2006). Electoral Institutions and the Politics of Coalitions: Why Some Democracies Redistribute More than Others.
5. Bermeo, N. (2009). Does Electoral Democracy Boost Economic Equality? Journal of Democracy.
6. Muller, E. (1988). Democracy, Economic Development, and Income Inequality. American Sociological Review; Official Journal of the American Sociological Association.