Democracy And Growth

Jul 11 2011 @ 6:10pm

by Zack Beauchamp

Ryan Avent thinks getting and staying rich requires democratic political institutions.  His colleague Matt Steinglass counters:

China, obviously, is a very large one-party state. But I feel the variables on offer here don't do justice to the uniqueness of the Chinese and Vietnamese systems. The combination of successful capitalist economies with monopoly parties that can successfully manage non-fatal non-nepotistic leadership transitions six times in a row is new. It's a big deal.

Count me (somewhat guardedly) with Avent, on broadly Hayekian grounds.  Authoritarian central economic planners have the advantage of being able to snap their fingers and implement policy, which, if the policy is good, can lead to much more efficient economic behavior.  It's why China managed to implement a successful stimulus package while its American counterpart was too small to function properly.* 

But there's a tradeoff: the free speech restrictions required to maintain authoritarian governance means that policymakers hear only a small subset of the perspectives on core issues that democracies do.  This makes them more likely to make policy based on bad information, which in turn makes catastrophic failures more likely.  There's empirical evidence that bears this out: authoritarian states have, historically, experienced far more severe swings between high growth and devastating collapses than democracies, who tend to have steady, moderate growth rates. 

This isn't a hard and fast rule, obviously (see financial crisis, the).  But it's an important point in converstations about the new authoritarianism: just because they have experienced high levels of growth, and stable institutions parasitic on that growth, doesn't mean that they're immune to the central deficiency of authoritarian economic governance.  And given that China and its ilk are highly dependent on growth for legitimacy, I'd think that a coming crash could bring down more than China's GDP.

*And yes, I'm aware of the irony of invoking Hayekian arguments about central planning while defending the efficacy of Keynesian stimulus.  But there's no real contradiction there.  Shove off.