This paper reconsiders a long-held view that democracy is a hindrance to economic development, at least in its early stages, and, further, that authoritarianism works better than democracy, because it allows the state to mobilize more effectively the resources necessary for industrial take-off. The different experiences of India and China would appear to reinforce this conventional wisdom. The Economist sums it up thus: “A proudly democratic India that grows at 6% a year … should be congratulated for having succeeded better than a brutal anti-democratic China which grows at 10% a year.” I suggest reasons to be sceptical of this view, and argue, to the contrary, that democracy will, in the medium to longer run, promote, rather, than retard, economic development, and predict that the future experiences of India and China may bear this out. This is quite apart from the philosophical consideration that democracy and liberty are intrinsic, not merely instrumental, to the process of development. One line of reasoning rests on the classical liberal dictum, best enunciated in the last century by Friedrich von Hayek and Milton Friedman, that economic freedom and political freedom are inextricably linked. China’s pursuit of a free market, without a free society, sets up contradictory forces that will eventually lead, either to slow and painful democratization, or, more likely, a sudden political implosion, which will, obviously, set back economic development. In India’s case, democracy serves as a safety valve, through which putative losers of reform can make their voices heard. The paper considers debates around the 2004 general election, in particular, whether it could be considered a vote against further economic reform by those left out, especially the rural poor, or whether merely an anti-incumbency vote. I conclude, after sifting the evidence, that there is, indeed, a case that the defeat of the BJP-led NDA government and the electoral success of the Congress-led UPA government rested on the 1 former’s triumphalist “India Shining” campaign and the latter’s appeal to “aam admi” (the common man). To clinch the analysis, I argue that the pursuit of a more gradual and nuanced approach to further reforms, so-called “second” and “third” generation reforms, such as labour law reform, disinvestment, financial sector reform, removal of agricultural subsidies, etc., can be crafted in a manner to be politically feasible, under the twin rubrics of “inclusive liberalization” and “optimal globalization”. This is a critical challenge in the context of a still largely poor, democratic polity, such as India, in which the political centre of gravity is, perforce, to the left. This is the question of the moment in India, as it is in other large and democratic emerging economies, such as Brazil, Mexico, or South Africa, in which the imperative is to build a politically durable consensus around such next generation reforms. The paper outlines avenues that would make this possible, including gradualist and sequenced reforms centred around public-private partnerships (PPPs), especially in the infrastructure sector, selective expansion of special economic zones (SEZs) on non-agricultural land, income support to farmers to replace protection lost through trade and subsidy liberalization, and, perhaps most importantly, firmly establishing in the public eye the trade-employment link by promoting and nurturing small-scale producers in selected exportable sectors in underprivileged regions. If these succeed in allowing reforms to proceed, incrementally if not apace, this will vindicate my contention that, in the long run, democracy is a friend, and not a foe, of economic development.

Additional Metadata
JEL Economic Development (jel O1)
Publisher Department of Economics
Series Carleton Economic Papers
Citation
Dehejia, V. (2007). Democracy and Development: Friends or Foes? (No. CEP 07-11). Carleton Economic Papers. Department of Economics.