The theoretical discourse underpinning the relationship between democracy and the developmental performance of markets and states, especially in the developing countries, has been at stake for millennia and still has not reached a definite consensus about whether this particular type of non-market institutions actually causally results in economic growth. However, the comprehensive existing literature on this highly salient topic draws on the idea that even if democracy is preferable, it is not a necessary precondition for development. In order to assess the failures of the democratic system in promoting good economic governance, it is firstly necessary to clarify how these concepts are understood and used in this paper. This essay will argue that the success or failure of the political system to promote good economic governance is deeply interconnected with the historical context of the country that characterizes. To clarify this, the paper will present the contemporary and classical perspectives that dominate this discourse. Thirdly, the essay will argue that the rise of democracy is dependent on âlocal knowledgeâ of the state it occurs and, conversely to the classical view, it cannot be applied everywhere disregarding those circumstances. Indeed, the essay will present the main differences in the political and economic systems that underpin advanced and developing countries and that explain why democracy is not always functional to the early economic take-off.
First of all, both concepts of democracy and good economic governance are very broad and difficult to define, however in this essay, the former is defined as a system of rules for electing the executive and the legislature that constitute the government of a society through a process of competitive and contested elections (Khan, 2005). On the other hand, the latter is often described to involve the creation of a government, which is, among other things democratic, open, accountable, transparent and which respects and fosters human rights and the rule of law (). The contemporary perspective that characterizes the discourse around the relationship between regime types and economic governance argues that democracy improves the quality of economic governance through accountability, transparency, and civil participation. Indeed, the democratic system hold rulers accountable through contested election and through the presence of civil society and seems to legitimize very difficult decision-making.
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The classical perspective of scholars like Donnell and Huntington, on the contrary, argues that miracle economies were facilitated by the authoritarian rule. Huntington claims that at the early developmental stage authoritarianism is the more conducive political framework for economic development. Indeed, economic growth depends on regime stability, which in turn depend on political institutionalization. In other words, economic growth generates higher social expectations that, if not met, lead to social conflicts. These conflicts are the result of social participation that necessitates to be institutionalized and guided and in democratic regimes, at this early phase of industrialization, people still may not be used to compromise.
Essentially, in this view by prioritizing the long-term authoritarianism wealth creation the formation of the middle class is facilitated and the formation of the middle class provided the basis for democratization and the rise for a more liberalized economy. Therefore, authoritarianism long-termism unleashes social forces in the shape of the middle class that then overturn the authoritarian rule in favor of democracy.
From the analysis of these two views it is already clear that for some countries the democratic system works better than in others in promoting good economic governance. In these instances, the essay will take into scrutiny two case studies that best support the concept of âlocal knowledgeâ (Rodrik). This definition involves clearly accepting the institutional plurality that underpins the globe. Indeed, American capitalism is distinct from Japanese capitalism, and both are distinct from European capitalism. Nonetheless, most structural change in developed countries is predicated on the expectation of a single system of structures worth emulating. By examining the disparities in democratic rivalry between emerging and industrialized countries, it becomes apparent that democracy has contributed relatively little to economic development in developing countries. Narayan et al., state that economic democracy requires a nation to have defined channels that instill a balance of the executive powers, have a well-developed legal system, and a forum that promotes transparency and enables civil participation in the development of economic policies (). This is confirmed by the majority of advanced countries. The level of economic development of advanced capitalist countries means that the have a dominant capitalist sector (). In this context, a high level of economic growth often suggests that redistributive agendas are structured around broad-based institutions that embody the economic interests of vast numbers of people. Democracies, hence, result to be the optimal institutional system for promoting economic governance.
On the contrary, the less industrialised a nation is, the more acute the divergence between its features and those of advanced countries is. Developing countries seem to lack a well-defined economic framework, and their government structures are much more chaotic than in industrialised countries. Secondly, economic underdevelopment results in highly personalized redistributive agendas (). Additionally, patron-client networks are expected to evolve as the most rational organisational framework for faction representatives around the social structure. Factional leaders make promises to their customers in exchange for their corporate patronage, which motivates those below them, resulting in the formation of the so-called pyramidal patron-client network. Political groups, in particular, pursue an alliance that can mobilise organisational power at the lowest possible expense to the faction leader in order to accomplish wealth and income allocation by a mixture of legitimate, quasi-legal, and illegal means. Brazil, for example, demonstrated that it suffered from the democratic cycle that began in 1945 and ended in 1964, in this context of political factionalism and economic underdevelopment. Indeed, democratic Brazil excluded a majority of adults due to literacy requirements. As a result, conservative Brazil neglected civil participation. This can be illustrated by returning to Huntington's classical view, which holds that political engagement can be accomplished following the development of basic capital in order to encourage educational investments and literacy. Another aspect of the failure of the democratic system towards good governance is the predilection towards short-termism that characterizes modern democracies. Politicians in this setting sometimes serve terms of fewer than five years, leading not only to potential political instability, but also to create policy confusion. As a consequence, leaders tasks are often disrupted by campaigns, which divert attention away from the task of tackling long-term policy issues.
Since electoral institutions promote such short-term projects, policymakers also overlook long-term economic problems, such as education and infrastructure, that do not yield immediate political benefits.
To summarize, it has been argued that liberal democracies do not always lead to good economic governance due to a number of factors that underpin both the economic and political context taken into consideration. In particular, the concept of âlocal knowledgeâ proved to be crucial in the explanation that there is not only a single set of institutions, namely the democratic ones, that can lead to good economic governance. In addition, in order to support this hypothesis the essay analyzed the main differences underpinning developed and developing economies, that in turn led to the clarification of those democratic practices that delay economic and social growth.
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