COMMENT

Democracy vs. GDP growth

By Ramesh Thakur

China is the world's biggest country and India is the world's biggest democracy. Each accounts for one-sixth of the world's people. Their fates matter. 

India has finally overcome its abysmal Hindu rate of growth to record impressive economic gains over the past decade. But China's stunning growth in its gross domestic product has been sustained over a longer period, averaging 8 percent or more a year for more than two decades. 

One result: Using a common poverty line of a dollar a day at purchasing power parity, poverty in China (16 percent) is half of that in India (35 percent). Even with people-friendly indicators like literacy, life expectancy, and maternal and infant mortality, China fares much better than India. Unlike China, India is a vibrant, chaotic and rambunctious democracy where governments are "hired and fired" by the people, as was demonstrated in four state elections recently. Is India's slower economic growth a price of democracy?

Not so. Democracy neither causes nor depends on economic growth. India's economic sluggishness for four decades was due to bad policies, not weaknesses inherent in democracy. Policies of economic autarky, import substitution and industrial licensing; fear of foreign investment; and rejection of market principles were conscious choices made by the ruling elite that had nothing to do with liberal democracy per se. Rather, the ideological suspicion of foreign firms was a product of history: The entry of the East India Company into India as a trader provided the springboard for the colonization of the country by Britain.

Fascination by Jawaharlal Nehru, India's first prime minister (1947-64), with the state's occupying the commanding heights of the economy and with planning as the instrument of choice for economic growth -- at the cost of a free-market price mechanism -- grew from an admiration of what at the time seemed to be impressive achievements by the Soviet Union, one of the two superpowers. This produced compromises with liberal democracy. The result was the greatest program of poverty multiplication and persistence in human history.

Yet China's performance under Mao Zedong was no better and in many ways far more inhumane. The human cost of the great failures of the Chinese experiment is vividly portrayed in Jung Chang's gripping "Wild Swans: Three Daughters of China" (1992).

The economic performance of both countries changed dramatically without any change in their basic political systems, once they abandoned their old socialist dogmas, deregulated their economies by adopting market principles and engaged with the international economy. China did this earlier, and so its growth has been the longer and its share of world trade is the more substantial.

In the last quarter century, it has produced the biggest rise in incomes for the biggest number of people in human history. India followed 15 years later, and its deepening engagement with the world economy still lags China's by a decade.

Democracy would appear to be irrelevant to their common failure before, and their parallel success after, economic reforms. Conversely, the drag on the economy of such factors as corrupt politicians, police and judges and bureaucratic resistance to reforms is still common to both China and India.

There is a sharper way of making the same point. The political system, or parliamentary democracy, is the same all over India. But there has been great variation in economic performance among the different states -- from the agricultural and industrial powerhouses of Punjab and Maharashtra to the impoverished coffers, wasting infrastructure, deep poverty and endemic caste violence of Bihar. Democracy that is common to all states cannot be the explanation for this variance in performance. Rather, the explanation lies in the mix of policies and quality of governance.

Neither democracy, economic growth nor poverty alleviation is self-generating and self-guaranteeing. In the absence of sustained annual growth of 7 percent or more for the next two to three decades, India would end up redistributing poverty rather than creating wealth: pulling the rich down and keeping the country poor instead of uplifting the poor, solidifying the middle class and increasing the number of rich.

World history suggests that the market democracies have the best record of sustained prosperity. This is not surprising, as both democracy and capitalism put faith in the ability of citizens to decide what is best for them economically and politically. Governments can be fallible and markets are often imperfect; thus it's better to let the people decide and face the consequences of their choices. They have the capacity to learn from mistakes and success alike. Their will to learn, and learn fast, is greatly strengthened if they are themselves responsible for making crucial life-changing decisions on their economic and political futures.

Both liberal democracies and market economies rely for their long-term success on similar attributes of good governance: healthy competition, access to free and full information, secure property rights, the sanctity of contracts enforceable by an independent judiciary, a multiskilled and well-educated workforce and citizenry, an efficient and transparent legal system, prudential regulatory systems, merit-based recruitment and promotion, and executives who are accountable to shareholders for the mistakes they make as well as answerable to the courts for the legality of their actions.

Markets require governance; good governance is not possible without democracy and civil society. Democracies also facilitate the achievement of the necessary social compromises between capital and labor, efficiency and equity, and growth and equality. Yet the most important attributes of democracy -- political freedoms, civil liberties, religious pluralism, minority rights -- are intrinsically important, not just as utilitarian instruments. They are worth fighting and dying for.

Ramesh Thakur is UNU Senior Vice Rector and director of the Peace and Governance Programme. This commentary first appeared in the December 21 edition of the The Japan Times. These are his personal views.