Does Democracy Help Or Hurt Economic Growth

There are some interesting posts up at CIPE’s Development Blog on the consequences of democratic governance. Here’s one discussion comparing India and China. From another, more general discussion on the merits:

Democracies do a superior job of averting disasters, such as famines (Sen). They don’t always have higher growth rates but they have less volatile growth (Rodrik). Controlling volatility matters because an economy can be destroyed faster than it can be built, as the sad example of Zimbabwe most recently shows us.

Democracies do better at controlling corruption. They are certainly not immune, and corruption scandals become very visible in the presence of free media and other mechanisms of accountability. Authoritarian governments are arguably more dependent on corruption to retain power, but do a better job of sweeping it under the rug.

Finally, democracies are better for political stability, as they provide an orderly mechanism for the transfer of power. Building on this point, one can think of democracy as fundamentally a system for handling conflicts. Conflicts, though rarely pleasant, are best handled through honest, open methods in the context of individual rights, rule of law, and good governance – all hallmarks of functioning democracies.

My criticisms of democracy ought not to be taken as wholesale condemnation. Sen’s finding is an important one. (Do note, however, that volatility is not the same thing as collapse. And as I recall, it wasn’t volatility that laid Zimbabwe low. To the contrary, it was a blend of ethnic-hatred, crony-markets and democracy.)

But the main thing is to keep the main thing the main thing: in a world of competitive governance, there will exist many different kinds of states, some or many of which will be well-functioning democracies. There are and will be different degrees of democratic governance, varying from Swiss-style cantons to California-style plebiscites. Some will have constitutional rule-sets that foster growth better than others. And if we allow large scale entry and exit, we should see a massively customized order emerge that represents the particular needs of people in very particular circumstances.

All of which is to say, the question isn’t democracy yes, democracy no–but rather: does competitive governance help or hurt economic growth. That’s the study I’d like to see. Oh wait, we’ve already seen what hurts it.