Why economic development leads to democracy

As a continuation of an ongoing discussion in the Tallbacks, I discuss why I think economic development leads naturally to democracy, which is the reason I am less concerned by companies such as Google making small compromises in order to gain access to the Chinese market.
Written by John Carroll, Contributor

This is a continuation of a discussion I've been having in the Talkbacks, instigated in particular by John L. Ries, a Talkback regular. I've often argued that economic development is so important that it is worthwhile to make certain compromises when dealing with regimes, such as China, that lack political and media freedoms even as the government tries to encourage rapid economic growth. To put it succintly, don't sweat the small stuff, and keep an eye on the bigger picture, which to my mind is economic development, something that is far more likely to generate political and media liberalization than a lot of evil glances from foreign countries or attempts at economic isolation.

The other side of the argument believes that full access to information is essential to the development of political freedoms. Likewise, despotic regimes aren't truly interested in economic freedom, as they can decide arbitrarily to "yank the carpet" out from under unfavored industries and / or people as they pursue a path of "crony capitalism."  Some suggested my post on "Cartoon protectionism" was an example of this.

As noted in some of my previous posts, I question how effective China's attempts at limiting information truly are, given how many ways exist to exchange digital information, if not hide the transmission outright. North Korea does a reasonable job of stemming the flow due to its citizens' almost complete lack of access to modern technology infrastructures, and even that self-imposed embargo is falling apart due to the insidious power of the cell phone.

Second, despots hoping to pursue a path of economic growth are in a catch-22. Economic growth REQUIRES limiting the power of the state quite dramatically. Otherwise, economic growth gets strangled.

I explained some of my reasoning in this respose to John L. Ries, which was part of the Talkbacks to my blog post "China's growing respect for IP."

RIES: I wonder what would happen if a university professor did serious research into air and water pollution that ended up stepping on the toes of the local party bosses. Somehow, I think the research would cease in one way or another, and almost certainly would not be published.

ME: Don't be so sure he would stop. Witness China's experience when they tried to hide news about the outbreak of bird flu, in typical communist secrecy fashion. The international outcry was huge, as it was considered ill-befitting of a country that aimed to be part of the global trading system. They quickly backtracked and certain party members were removed from positions of power. More recent outbreaks have shown a great deal of international responsibility on the Chinese government's part.

In other words, free economies CAN'T squelch bad news the way unfree economies can. That means that local party leaders CAN'T squelch research by a local professor into pollution levels, particularly when that pollution can affect other countries, or would be relevant to investment by foreign companies. Information is the currency of international trade, and they have to provide it reliably.

Despots can act in an economically capricious fashion. Doing this, however, creates a bad investment climate and drives away investors, both foreign and domestic, as well as favors hacks with good government contacts over the entrepreneurs with the ideas that would really generate growth. Start to try to pick winners, and lots of money gets wasted on companies that never had a chance of winning while lessoning the chances of those that did by reducing the competitive impetus created by competition that doesn't play favorites.

Economic growth demands the rule of law, information that is verifiably true, and a government that understands economic choices are best made by buyers and sellers. That restricts the power of the despot, assuming they continue with the goal of economic growth. Add to this the fact that growing affluence reduces the pressing nature of one's day to day existence and builds an expectation of freedom based on experience of it in the economic realm. This leaves more time - as well as motivates a desire - to pay attention to the people who claim to run the country. The combination creates the "gateway" to democracy that I suggest exists by way of economic development, which is really more of a weakening of the governments ability to resist (due to a stronger rule of law) and a strengthening of the people's will (and ability) to resist.

This is why I think a policy that emphasizes democracy first and a sustainable and vibrant market systems second is like filling your gas tank by encasing your engine in a hermetically sealed bag and forcing gasoline through the feed lines. Sorry, Mr. President, but That's What I Think.

It's very hard to make people democratic, which makes sense for an institution based on human choice. You can create the economic circumstances, however, that are most likely to lead to that outcome.

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