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COMMENTARY
Does India pay a democracy
tax?
By Dinkar Ayilavarapu
KOLKATA - Ten years ago, in an election in the
greatest democracy of the world, US president George
Bush Sr lost to upstart Bill Clinton despite having
presided over the demise of the Soviet bloc and then led
his nation to victory in Desert Storm. A sign on the
wall of Clinton's campaign "war room" summarized it all:
"It's the economy, stupid."
The same slogan might
well apply to China, whose 20-year economic boom is
considered by most Sinologists and modern economists to
be its greatest modern achievement. Contrast that with
India, whose finest and foremost achievement in 55 years
of independent existence is considered by many
Indophiles and historians to be her flourishing
democracy.
These two countries' contrasting
histories naturally lead to consideration of the
relationship between democracy and economic success.
Throughout the modern free Western world, democracy is
normally viewed as the ideal platform for economic
growth. For these nations, having both development and
democracy is a very real option, and when the economy is
threatened, it is democracy that protects it. From a
Western standpoint, a country should be both democratic
and economically viable, yet it is clear that a nation
does not necessarily have to be democratic to be
successful economically.
It is a dilemma that
goes to the core of the problems that many modern
developing nations face. The developing world is full of
enclaves that are either democratic or economically
developing, or in most cases neither. The bulk of
sub-Saharan Africa has neither democracy nor
development. The Middle East has exploited its oil
resources, but at some cost both to development and
democracy. East Asia (China, South Korea, Taiwan and
Singapore) has gained economic development, largely at
the cost of democracy, while India has democracy but not
much to show in terms of development (at least to
Western standards). For many, having democracy and
development is an exclusively Western phenomenon that has
been possible because it took these countries 200 years
and the colonization of the rest of the world to reach
the levels of development that they now enjoy.
For a long time, the developing world fancied a
different path to development. But this alternative
route to development proved to be an illusion when the
Soviet bloc collapsed under the collective stress of 80
years of mismanagement and lack of transparency. This
was another offshoot of the lack of democracy - no
accountability and hence mismanagement. But then, as has
been shown in many places in the world, democracy is no
insurance against mismanagement. Does there exist a
democratic solution to the economic ills of the Third
World? The answer to this question is probably the key
to a Nobel Prize.
For economists in India the
problem is a very real one. In the best years of
economic growth, India's GDP rarely grew more than 6
percent annually. In the worst years of economic growth
since 1979, China's GDP has rarely grown at less than 8
percent. Now India's growth hovers at under 5 percent,
while China is growing at over 7 percent. Is this 2
percent a tax that Indian pays for being a democracy?
The Lee theory
Lee Kuan Yew, the
former prime minister of Singapore and now its elder
statesman, is one of the most respected figures in the
world. He was the father of the Singaporean economic
miracle which transformed a resource-starved city state
at the tip of the Malay Peninsula into an economic
powerhouse of the region. Fittingly, he is now the
statesman who draws the highest salary in the world.
Besides his contribution to Singapore's economic growth
as its prime minister, Lee is known for his postulate
that freedoms hamper a state's economic progress. For
many, this is just a post facto justification for the
controlled democracy that the iron man imposed on
Singapore for many years, but for many, especially in
India, too much freedom is the very reason why India has
come to represent the place where nothing works. After
all, the only time in India when the trains run on time
and things start working as planned is during civil
emergencies when many civil liberties and freedoms are
suspended.
The logic of the Lee theory is simple
- lack of freedoms and democracy hasten economic reform
and the large-scale changes required for the economy.
For instance, economic reforms often require legislative
changes, and these tend to become bogged down because of
a widely diverse democratic polity. The Chinese needed
to carve out the Pudong industrial area in Shanghai from
farmland, and this meant that compensation for land lost
had to be paid to thousands of farmers. Had it been
India, the whole grand development scheme would
undoubtedly have become mired in litigation and
compensation issues. The Chinese needed to close down
loss-making enterprises in Shanghai, causing the
large-scale loss of jobs. Had it been India, democracy
would again have been a problem. After all, Chapter V-B
of the Industrial Disputes Act is yet to be amended to
cope with modern disputes. Hence, China grows at 7
percent, helped by a lack of democracy. Because of
democracy, India chugs along at 5 percent.
For
subscribers to the Lee theory, one needs to have all the
basic needs, such as food, shelter and security, to be
satisfied before one can advance to other needs, such as
freedom and democracy. These people would probably use
psychologist Abraham Maslow's Need Hierarchy to justify
their opinion.
Human development and
democracy
Democracy is tough to quantify and hence
it becomes tougher to establish a correlation between
development and democracy. The recently released
United Nations Development Program's (UNDP) Human
Development Index, though, suggests some kind of
correlation between the two. The index is based on
objective data - per capita income (in purchasing power
parity terms), education (literacy rate, gross
enrollment ratio) and health (life expectancy) and has
evolved over time. While the index does not capture the
democratic dimension, it is arguable whether it was ever
meant to. What suggests a correlation between
democracies and human development is in the results -
democracies tended to be bunched together in the middle
of the index, whereas dictatorships either become star
performers or basket cases. Democracy can be assumed to
guarantee that a country's performance won't fall below
a certain minimum level, even if it refuses to rise
above a certain level either.
As hard as the
report tries to argue that there is really no trade-off
between democracy and prosperity, the fact remains that
many developing countries face this dilemma. Indonesia,
as an emerging, albeit struggling, democracy, makes a
compelling study of whether democracy and prosperity
clash or complement each other. Indonesia is ranked
110th in the index, which uses data that was available
up until 2000. It has hardly budged from its 1995 rank,
despite the downfall of one of the world's most
repressive tyrants, Suharto, in 1998 and the winds of
freedom that came in its wake. At the same time,
economically, people are worse off than during the worst
days of the Asian crisis that broke in mid-1997.
The reason for Indonesia's ranking remaining
unchanged could probably be explained by the fact that
the freedoms it gained in 1998 were canceled out by the
plunge in prosperity resulting from the economic crisis.
But looking at the index, countries that are less
democratic, yet not necessarily more prosperous, are
rated higher, with Vietnam at 109 and China at 96.
Democracy may well have something to do with
development, which is not all that complementary.
In the UNDP's Human Development Report of 2002,
it incorporated the World Bank's democracy index, which
gives a country a democracy score based on civil
liberties, political rights and press freedom. On this
indicator India scores 0.66, which puts it ahead of
Malaysia, Thailand, the Philippines, Singapore,
Indonesia and China. But it puts India behind Slovenia,
the Czech Republic, Slovakia, Estonia, Lithuania and
Latvia.
Indian democracy has grown and evolved
over the years. In the 80s and 90s, India saw social
empowerment on a wide scale, with democracy spreading at
the grassroots level. The panchayats (village
councils) became a constitutional third tier of
governance (the first tier is the political center in
New Delhi and the second tier is the state). It was in
these very decades that India saw average growth of 5
percent per annum in its GDP (this after considering the
two dark years of 1990-91). So as democracy became
stronger in India, so did the economy. So perhaps
democracy has a positive role to play in economic
growth.
Institutional economics and
democracy
Economist Douglas North won a Nobel
Prize for his theory on institutions and their role in
economic growth. His theory, which replaced the
neoclassical economic model, argued that economic growth
was not "naturally occurring" and that the success of
the capitalistic model of development was embedded in
certain non-market institutions. He referred to property
rights and economic freedom as playing a major role in
helping a person to be in a position to appropriate the
benefits accruing to him from an economic investment.
Another institution was a mechanism for a person to get
his rights and freedoms enforced, and to manage conflict
with others in society, that is, the legal system. In
addition there were institutions required to ensure
macroeconomic stability, social insurance and
regulation. These institutions aren't naturally
occurring, all societies don't have them naturally. This
makes the success of the capitalistic system "not
naturally occurring" and contingent on the possession of
these institutions.
It is in this context that
democracy assumes importance. Experts have argued that
democracy is the required meta-institution that helps
develop the other institutions which are needed for
development. So it is argued that only a democratic
government can ensure the rule of law, whereas an
authoritarian regime, like the current one in Zimbabwe,
can't. The basic argument being that in a democracy the
objective function of the state is the betterment of the
people, which may not always be the case with an
authoritarian regime. In addition, an authoritarian
regime cannot enforce property rights and economic
freedoms. The Asian crisis of 1997 drove home the point
that financial liberalization without adequate financial
regulation is an invitation to disaster. Most of the
states without this financial regulation were
non-democratic. And look who escaped the Asian crisis:
India, which had democracy and consequently the
regulatory mechanisms in its financial sector. Maybe
democracy is a tool for sustainable long term
development.
Development as
freedom
Perhaps the most convincing argument for
democracy comes from another Nobel Laureate for
economics, Dr Amartya Sen. In his book Development as
Freedom he argues that the purpose of development is
the expansion of freedom and the removal of sources of
unfreedom. So in itself more rights and freedoms for
citizens are a sign of more development, and not
obstacles to it. The final objective of any state is to
provide its citizens with expanded freedoms, and that is
where the more free and democratic states score over the
not so free and democratic states of world. So India can
be called more developed than its economic indicators
tell us simply because it gives its people expanded
rights and freedoms and ensures democracy.
Economist Bibek Debroy is also of the opinion
that democracy is the greater provider of freedom to
succeed. India for all its imperfections still makes it
possible for the son of a school teacher to become
Dhirubhai Ambani, the head of the giant Reliance group,
or the son of a minority fisherman in a remote village
of south India to rise to become A J Adbul Kalam, the
president of India. The degree of vertical mobility
provided by democratic India is probably unparalleled
anywhere in the developing world. Another snap test of
democratic success is comparing a sample of Indian
students in universities overseas with random samples of
students from African, East Asian or even other South
Asian countries. Debroy claims that the sample would be
far more representative of the Indian polity, regardless
of the socio-economic background of the students. This
phenomenon, and the underlying structure that sustains
it, he says, ought to be non-negotiable.
The
clincher in the great democracy and development argument
lies in statistics. Without democracy it is
statistically more likely for a state to become a Congo,
a Mozambique, a North Korea or a Lebanon than a
Singapore or a Malaysia. In the neighborhood of India
lies Pakistan, which over the years has compromised on
democracy and simultaneously seen its sterling economic
performance deteriorate to a level that now is reliant
of World Bank handouts to survive. So while it may be an
open question exactly how democracy and development
correlate, they certainly do seem to have something in
common.
(©2002 Asia Times Online Co Ltd. All
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