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Dani Rodrik On Why Democracies Are Good For Economic Growth

August 17, 2010

There’s an old debate among classical liberals about whether economic freedom ought to precede and help foster political freedom. Many hope this will be the case in nations like China, whose authoritarian rules play a dissonant counterpoint to its burgeoning markets. On the other hand, there are countries like India that are both democratic and impoverished. So what is the overall trend? Rodrik comes down on the side of giving priority to democracy. The Harvard Prof writes:

The relationship between a nation’s politics and its economic prospects is one of the most fundamental – and most studied – subjects in all of social science. Which is better for economic growth – a strong guiding hand that is free from the pressure of political competition, or a plurality of competing interests that fosters openness to new ideas and new political players?

East Asian examples (South Korea, Taiwan, China) seem to suggest the former. But how, then, can one explain the fact that almost all wealthy countries – except those that owe their riches to natural resources alone – are democratic? Should political openness precede, rather than follow, economic growth?

When we look at systematic historical evidence, instead of individual cases, we find that authoritarianism buys little in terms of economic growth. For every authoritarian country that has managed to grow rapidly, there are several that have floundered. For every Lee Kuan Yew of Singapore, there are many like Mobutu Sese Seko of the Congo.

Democracies not only out-perform dictatorships when it comes to long-term economic growth, but also outdo them in several other important respects.

His book on related themes is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.

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