Bernardo M. Villegas
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Rebalancing Strategy
published: Mar 31, 2017



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Can Democracy Deliver Economic Growth?

           Last March 26, 2012, I had a most stimulating conversation with some leading intellectuals in Jakarta.  The occasion was a breakfast forum hosted by the Rotary Club in Jakarta in cooperation with the National Association of Commissioners and Directors and the Family Business Network.  The forum was chaired by the Editor-in-chief of the prestigious publication Jakarta Globe, Mr. Shoeb Kagda Zainuddin.  The topic assigned to me was “Is Economic Growth Possible Without Democracy?”  I reprint my answer to this question in this column.

          Democracy is a form of government in which there is maximum freedom in all aspects of human life, i.e. economic, political, social, cultural and spiritual.  Economic growth is the long-term sustained increase in Gross Domestic Product or Income per capita.  Is democracy necessary for economic growth?  The answer is obvious.  Democracy in all of its dimensions, e.g. freedom of speech, freedom of abode, freedom of economic initiative, freedom of religion, etc., is not necessary for economic growth, which is a measure of only one dimension of human development, the economic dimension.

          The experience of China over the last thirty years is quite illustrative.  The reforms introduced by Deng Xiao Peng in the late seventies were generally limited to the freedom of individual economic initiative when some forms of private ownership, especially in the agricultural sector, were recognized and the market economy was introduced.  In other respects, however, the Chinese government has continued to be authoritarian and there are significant limits to cultural, political, social and spiritual freedoms.  It cannot be denied, though, that the economic growth experienced by the Chinese economy over the last thirty years has been phenomenal.  Growth of 10-12% per annum liberated some 300-400 million Chinese from dehumanizing poverty.  There is no question in the case of China that democracy—in its fullest sense—was not a pre-requisite for economic growth.

          India is at the other end of the democratic spectrum.  For more than half a century, India has existed as the largest democracy in the world.  Except for some sporadic moves towards authoritarian rule during the time of Indira Gandhi, India has been a model of a society in which all forms of freedoms—economic, political, social, cultural and spiritual—have been generally respected.  India’s democracy has been a testimony to Churchill’s witty remark that “democracy is the worst form of government except all others.”  The fatal mistake of the leaders of India in its first four decades of development was to adopt the Russian form of socialism in which the State suppressed the freedom of individual economic initiative by appropriating to itself the “commanding heights” in the structuring of the Indian economy.  The results were predictable.  Until the reforms introduced by then Finance Minister Manmohan Singh in the early 1990s, the Indian economy experienced very slow growth and suffered from a rapid rise of mass poverty.

          Things changed in the early 1990s when the Government implemented market-oriented policies such as deregulation, liberalization and privatization.  Almost instantly, the Indian economy started to grow at 8 to 10% annually, liberating hundreds of millions of Indians from mass poverty, following the footsteps of China.  At present, however, the Indian economy’s future growth can be stifled by rampant corruption and by underinvestment in infrastructure.  The experience of India over the last twenty years shows that the freedom that is key to economic growth is the freedom of individual economic initiative or the freedom of enterprise.  This is the experience it has in common with China.

          The case of the Philippines, presents another long-term approach to integral human development.  A great deal of economic growth was sacrificed in favor of the pursuit of other forms of human freedom over the last 26 years.  The democracy that was restored in 1986 through the People Power revolution followed the Indian model of a rambunctious, contentious and chaotic system that resulted in a slow and painful process of reforms.  Only after 26 years of economic, political, and social reforms has the Philippine economy reached a “tipping point” that will enable it to grow finally at 7-9% annually for the next twenty years, catapulting it to number 16 among the largest economies in the world by 2050 as predicted in a recent study of the Hong Kong Shanghai Bank. 

          Full-blown democracy is clearly not a pre-requisite to economic growth.  In fact, under certain circumstances when the State is weak, democracy may actually be a hindrance to rapid economic growth.  But the fundamental question still has to be answered.  Is rapid economic growth worth the violation of such human rights as the freedom of speech, of abode, of religion, of raising a family without state intervention, etc.?  Unfortunately, in the case of an authoritarian states like China, this question has been answered in favor of economic growth by only a limited number of individuals belonging to the ruling communist party.  In the Philippines, the advent of people power in 1986, after the repudiation of 14 years of the Marcos dictatorship, enabled the Filipinos to express their preference for the other freedoms (especially of speech, religion and association) over rapid economic growth.  Hopefully, the long wait of about 26 years of reforms can now pay off with more rapid economic growth over the next 20 years.

          In China, meanwhile, after thirty years of rapid economic growth, there are now serious fears about how continuous growth is now being threatened by social tensions coming from decades of repression of the other freedoms.  Only time will tell which approach should be followed by emerging markets in Asia, Africa and the Middle East presently facing the dilemma of full-blown democracy vs. economic growth.  For comments, my email address is bernardo.villegas@uap.asia.