The Democracy Trap: Ballot Box vs. Industrialization
What is more important for a developing country?
Is it to assure that citizens can freely cast a ballot and quietly return to their shanties?
Or is it to lift millions of citizens out of poverty, create a modern industrial economy, and become competitive in the world economy?
Democracy and Economic Development
The US and its allies would have us believe that political freedom trumps all other considerations. Give people the right to vote and establish a democratic system, and they will be well on their way to "modernity."
That ideology has been applied worldwide, with mixed results, however.
At one extreme, Iraq's democratic system, imposed by the US after the 2003 invasion and toppling of the dictator Saddam Hussein, is synonymous with failed state and instability. One saying reflects the rampant corruption in in the federal parliamentary republic: "We used to have one Saddam Hussein, now we have a thousand."
Similarly, twenty years of airborne democracy and $2 trillion spent by the US on Afghanistan went down the drain when the Taliban took over the country after a mere months of reconquest. What did US-sanctioned democracy bring to the country? With a paltry GDP of $19 billion, the country ranks among the top 10 poorest countries in the world, with 43% literacy rate and 47.3% of the population living under the poverty line in 2020.
In contrast, Ghana, a small country in West Africa, enjoys a stable democratic system since 1993 and healthy economic growth rates. In addition to halving poverty by half, the country has been able to deliver heath care and education to its citizens. By most measures, be it political freedom or economic development, Ghana is a success story in the developing world.
Does this mean that Ghana can embark on a path to industrialization?
Ghana's ability to shift from agriculture to manufacturing is hampered by its democratic system beset by various interest groups trying to influence policymaking decisions and obstructing macroeconomic reforms. With limited state capacity to conduct structural transformation, Ghana is an example of a country falling into the democracy trap: a free political system reliant on commodity exports (gold, oil, and cocoa) but unable to transform itself into an industrialized nation.
Despite its democratic system and growing economy, Ghana is stuck in the periphery of the world economy.
With the US as its northern neighbor, one would expect that Mexico would have lifted millions out of poverty by expanding its industrial sector, which has contributed around 35% of GDP. Yet, 42% of the population lives below the national poverty line; Mexico ranks 19th in terms of the worst GINI index, a measure of unequal distribution of income. Marred by drug-trafficking violence, rampant corruption and widening inequality, Mexico has failed to deliver the democratic promises of bettering the lives of the population.
The promises are even more difficult to fulfill, given Mexico's utter economic and financial dependence on the US: It exports 90% of its products to and imports 70% of goods from the US, which accounts for 65% of its foreign direct investment. "Nearly a third of Mexico’s commercial bank assets are owned by US financial institutions."
Strong State and Economic Development
Although western academics have produced an abundant literature on how democracy fosters economic development, there is strong evidence that those countries which succeeded in industrializing or becoming industrialized were led by non-democratic governments. Industrialization requires purposive state action to engineer structural transformations in the economy and state capacity to implement industrial policies that transcend the various demands of competing interest groups or that can overcome traditional barriers.
China is a prime example of a one-party state successfully transforming an agrarian economy into an industrial one. As the world's factory, China accounts for 28.7% of global manufacturing output in 2019. With an average GDP growth of nearly 10% a year from 1978 to 2010, 800 million Chinese were lifted out of poverty. Such a huge undertaking can be realized only when power is concentrated in the hands of interventionist government officials who are bent on improving the country's economy and citizens' wellbeing.
China's development model is hardly unique.
A democratic country since 1979, South Korea led by an authoritarian regime catapulted into the modern world by launching a series of economic policies that promoted economic growth and industrialization. Under the dictator Park Chung-hee's reign, South Korea drastically reduced extreme poverty in 18 years (1961-1971).
Similarly, in the 1980s, the hand of the strong state engineered the "Miracle of Chile." Once in power, the military dictator Pinochet unleashed the free market and opened the Chilean economy to foreign capital. The radical transformation led to decades of economic development and halving of poverty rate.
The same story of strong state intervention and its ability to transform economic structures can be found in Taiwan, where the authoritarian KMT government pushed for drastic land reform and industrialization (1950s-1970s) , and in Vietnam, whose economy has grown at a rapid pace under a one-party state since the mid-1980s.
History also attests to the role of the state in industrialization in Europe. Napoleon III, the emperor of France (1848-1870), instituted economic policies that brought about rapid economic growth and the creation of industries. In the German Empire, Bismarck played a central role in industrializing the economy.
Conclusion
Undoubtedly, economic growth and bettering of people's lives are possible regardless of political systems, be it democracies or authoritarian regimes. The question is whether a developing country can leap into the modern industrialized world. To catapult a poor country from a largely agrarian or natural resources economy into an industrial one, a strong state and its aggressive interventions in economic and social spheres are a must for a period of time. Without such a strong state, and if saddled with a democratic system hampered by entrenched interest groups, developing countries have little leeway to escape the democracy trap, one in which political freedom, equitable growth, and industrialization intensity fail to go in tandem.
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