Democracy Versus Growth?

PRINCETON – Europe’s ongoing malaise has reignited the old debate over which form of government produces better economic performance. Are authoritarian regimes, with their ability to ram through unpopular choices, more effective at generating growth? Or does liberal democracy, with its built in checks and balances, yield greater material prosperity?

It is a discussion in which the supporting evidence seems to have oscillated from one side to the other in recent decades. In the 1980s, economic performance in Chile, under General Augusto Pinochet’s dictatorship, and in Singapore, under the more benign but nonetheless authoritarian Lee Kuan Yew, was impressive. Meanwhile, the democratic countries of the industrialized world struggled against recession and stagnation.

In Europe, this gave rise to the term “Eurosclerosis.” Democracies, according to political scientists, were vulnerable to growth-constraining special interests. Authoritarian regimes – at least those not committed to pillaging their countries – might be better positioned to implement policies that ensure long-term economic success.

This view crumbled with the fall of the Berlin Wall. The collapse of Communism and the renunciation of central planning in Eastern Europe gave rise to a new line of thinking, as large numbers of voters demonstrated that they were ready to accept temporary sacrifices if they were linked to a realistic and non-corrupt reform program. In Latin America, left-wing politicians embraced market principles as the best way to satisfy their constituents’ aspirations, and growth resumed. For much of the 1990s, democracies seemed to have the upper hand.