Why a democratic political system is the
best system for sustainable economic
growth.
Economics 214
Word Count: 715
Why a democratic political system is the best system for sustainable
economic growth.
The question of which political system (democratic or autocratic) is better for economic growth
in the long run has long been pondered. Many have theorized that democracy influences
economic growth more than autocracy, and others state that autocracy is just as good. Thus,
there has been no clear answer on which system is best. Democracy is better for economic
growth because it has a unique advantage over autocracy, a democracy is built on liberty. It is
an exclusive advantage because it is not in an autocracy’s nature to have liberty. Liberty is an
indirect cause of sustainable economic growth. Liberty leads, to innovation (Knutsen, 2015),
economic development (BENYISHAY & BETANCOURT, 2010) and political stability (Tang
& Tang, 2018).
Economic development increases growth which is conditioned by liberty. The political
economy hierarchy theory, states that hierarchies contribute to growth because of the stability
it provides but it also suppresses bottom-up innovation. Liberty in a hierarchy creates a balance
between this. There two stages to economic development: imitation and innovation. Liberty
has no advantage in imitation economics, but when growth depends on innovation liberty is
critical. Democracy strengthens the protection for property rights. This gives confidence to
individuals and firms, that will increase their investments in the economy and create growth
(Tuck & Zakout, 2019).
This advantage promotes growth via innovation. Economists believe innovation to be the main
determinate of long-term growth. Civil liberties, such as freedom of press and speech will help
spread information and ideas. Freedom of speech allows organizations, firms, citizens, and
politicians to innovate. Bottom-up innovation is protected by liberty. This is because when
there are fewer regulations on the sharing of information with no fear of sanctions, a larger
amount of ideas will be shared making ideas more comparable (Knutsen, 2015). Autocracies
suppress growth through bottom-up innovation because it suppresses liberty. The soviet union’s
progress in genetics was hindered because of Lysenko, he found others, research was too
idealistic even when they were right. There was no liberty so no one could challenge his
statements. Bottom-up innovation could find new production technologies that are more
efficient, contributing to growth (Tang & Tang, 2018).
Political stability and economic growth are intertwined. Democracy and liberty contribute to
political stability. It allows for change in institutional systems and the transfer of power by
peaceful means. Such as fair presidential elections, as well as allowing citizens to be heard on
problems that need changing. Autocracies have to try and achieve political stability through
violent means, this inherently makes the political stability volatile. Thus, citizens in
democracies are more inclined to invest in innovation, enterprises, and education contributing
to GDP per capita. The effect of democracy upon stability is conditioned by the level of GDP
per capita. A study showed that GDP per capita and the level of polity has a positive correlation.
The polity score is an indicator of democracy.
When GDP per capita is $4000, a fully democratic country (i.e., Polity score is 10) will grow
20% faster than a fully autocratic country (i.e., Polity score is -10). A half democratic country
(i.e., polity score of 5) has advantages over a half autocratic country (i.e., -5) (Tang & Tang,
2018). This showcases how democracy contributes to political stability and economic growth.
Autocratic governments may increase growth by increasing investment, through pushing
(unpopular) savings-enhancing policies, for instance banning luxury consumption or restricting
consumer loans. However, this would only lead to economic growth through imitation,
economic growth would fall behind in terms of innovation, making it unsustainable.
Most democracies economic growth will benefit from liberty, others may have delayed
economic growth after they have become fully developed countries. For they may possess new
growth-retarding dynamics (Tang & Tang, 2018).
Democracies have a balance between hierarchy, stability, and liberty. There is protection of
property rights, which increases investment. Bottom-up innovation is protected and promoted.
It is promoted through civil liberties, such as free speech. Autocracies have suppressed growth
by killing key scientific innovation (Lysenko). Liberty contributes to the political stability of a
country. There is a positive correlation between political stability and growth. This contributes
to the hypotheses that a democratic political system is the best for sustainable growth.
References:
BENYISHAY, A. & BETANCOURT, R.R. 2010. Civil liberties and economic
development.
Journal
of
institutional
economics.
6(3):281–304.
DOI:
10.1017/S1744137410000081.
Knutsen, C.H. 2015. Why Democracies Outgrow Autocracies in the Long Run: Civil
Liberties, Information Flows and Technological Change. Kyklos (Basel). 68(3):357–
384. DOI: 10.1111/kykl.12087.
Tang, R. & Tang, S. 2018. Democracy’s Unique Advantage in Promoting Economic
Growth: Quantitative Evidence for a New Institutional Theory. Kyklos (Basel).
71(4):642–666. DOI: 10.1111/kykl.12184.
Tuck, L. & Zakout, W. 2019. 7 reasons for land and property rights to be at the top of
the global agenda. Available: https://blogs.worldbank.org/voices/7-reasons-land-andproperty-rights-be-top-global-agenda.