Liberal Democracy and Economic Growth 3000 words

Is Liberal Democracy the key to economic growth?

Introduction: Liberal democracy, which is otherwise referred to as constitutional democracy, refers to a kind of representative democracy (Ashcraft, 1986). The fundamental principles of liberal democracy include the organisation of free and fair elections within a competitive political environment (Ashcraft, 1986). Liberal democracy encourages multiparty party politics that makes it possible for people of different political ideologies to fight for future of their country by expressing themselves during elections (Taylor, 2009). Multiparty politics, also known as pluralism, refers to a political environment that has distinct political parties that co-exist. This makes politics more competitive and poses a challenge to the various political factions as each faction has to do its best for the country in order to win the support of voters during elections. There are different forms of constitution used by liberal democracies (Barnes, 2001). These forms of constitution include a federal republic, such as the case in Germany, United States, India, Brazil and Nigeria to name just those, or a constitutional monarchy such as the case in Japan, Spain, the UK and Canada to name just those (Barnes, 2001). Liberal democracies could make use of a presidential system of government, such as in the United States, Brazil, or a parliamentary system such as the UK and many Commonwealth states (Ashcraft, 1986). Irrespective of what system a country chooses to use, liberal democracies have underlying principles that govern the way national politics is run (Taylor, 2009). Some of these principles include the existence of a free press, freedom of expression, free and fair elections to mention just those. However, in addition to the above mentioned principles that govern liberal democracies, there is a new tendency to associate liberal democracies to economic success. This essay would set out to analyse the correlation between liberal democracy and economic growth.


How Liberal Democracies Promote Economic Growth

Statistics suggest that there is a correlation between democracy and the economic performance of a state. These statistics imply that the more democratic a government is, the more are the chances that the economy run by that government will perform well. At the same time, critics have questioned the links between democracies an economic growth (Barnes, 2001). Most critics base their argument on the fact that democracy spread across the world long after the industrial revolution. As such, the economic explosion that occurred across the world during the revolution cannot be attributed to the democratic processes of the time. This is because although England was a democracy at the time, the level of democratisation during this period cannot be compared o contemporary notions of democracy (Taylor, 2009). However, it is important to note that democracy brings about transparency and promotes meritocracy. Most liberal democracies such as the US, UK, Germany and other Western European states have leaders who were elected into office through free and fair elections. These leaders are truly the people’s choices and are most often voted as a result of their ability to run the affairs of the state including the economic and political affairs of the state. In order to receive good rating, these leaders appoint the finest men and women who are most qualified to run the affairs of the state (Taylor, 2009). In most cases, these leaders go out of the way to appoint individuals who come from different political backgrounds to occupy posts of responsibility such as secretaries of departments in the US and Ministers in the UK (Barnes, 2001). When the government is based on meritocracy, it has more chances of recording economic growth unlike what happens in most undemocratic nations across Africa. In Africa, it is disheartening to learn that most heads of states only appoint their friends, family members and party militants to post of responsibility. Many of these men and women are unqualified to run the offices they are appointed to manage. This leads to poor economic policies and embezzlement to name a few of the consequences that arise from such favouritism. It is difficult to have good economic performance under such and unstable economic environment.


Liberal democracies are rife with competition (Taylor, 2009). All the various political factions in the country continue to see to prove to the country that they can lead the country onto the path to progress. This is not just done in words but also in actions. When Labour takes office for instance, it does all it can to create jobs and foster economic growth. This is because the Labour party is aware of the fact that when it leaves office, it will be evaluated by the people. If it fails to lead the country to the path of progress, it is likely that it would be voted out of office. This is exactly true of the last Labour government (Taylor, 2009). The government took a lot of risks including its participation in the US led Iraq war. This made the government unpopular and easily paved the way for the Conservative party to take over power through the new coalition government that was created last year. The government is also under constant pressures from the electorate. It needs to do everything within its power to make the economy grow. In modern democracies, one of the most important factors that determine the voters’ final decision is the economy (Soëtard, 1999). And in order to be re-elected, it is important for labour to ensure that it makes the economy better. This is because the most important thing for most voters is job security, better infrastructure and healthcare (Soëtard, 1999). And none of these can be achieved if the economy is not in good shape. Such tough competition within the political landscape is good because it leads to better economic performance. This is why it right to say that liberal democracies create a favourable condition for economic growth.


Liberal democracies create favourable conditions for human capital accumulation (Taylor, 2009). This is because these governments favour human capacity development by putting in place good infrastructure such as competitive higher learning institutions. When there is human capital accumulation in a free economy; the next thing that happens is that these talents start exploding with great economic ideas that lead to job creation  (Bell, 1995). This is especially true for the US. Many young graduates have emerged from the Universities of Yale and Harvard with great ideas that have gained control of our world today (Taylor, 2009). An example of such young graduates who have made it big is the Google guys and founders. This is because the competitive economy is making it possible for entrepreneurs to come up with new ideas that can make them grow to new heights everyday. This is because the more democratic a country is the more liberal its economy becomes and this motivates people to come up with new initiatives that can make money.



Liberal democracies promote the well-being of its people. This leads to higher productivity and subsequently economic growth. In order to assure the wellbeing of citizens, there must be the rule of law whereby people are held accountable for their actions (Taylor, 2009). In some less democratic countries, there is chaos and lawlessness. This leads to poor economic output. This is exactly true with many sub Saharan African countries (Lloyd, 1995). Many of these countries do not organise free and fair elections. This leads to political instability and weak governing institutions since many of those who are appointed to posts of responsibility do not merit their appointments. Instead of working for the good of the electorate, they work to fulfil the motives of their political parties and those who appointed them into office (Barnes, 2001). In Gabon, for instance, when President Omar Bongo died last year after ruling the oil-rich country for four decades, his son, Ali Ben Bongo, was pronounced winner of the highly contested Presidential elections. The same is true of Benin where Faure Gnassingbe took over power after his father President Gnassingbe Eyadema died in power. Such countries find it hard to experience double digit economic growth. This is because there is little meritocracy when it comes to appointing those who would lead the country’s economic institutions. In this respect, it is therefore accurate to say that liberal democracies have more chances of experiencing good economic growth.


Liberal democracy is advantageous to autocracy when it comes to economic growth (Taylor, 2009). This is because liberal democracies make it possible for the common man to grow and prevents monopoly. In most democracies, there are regulatory bodies that make sure that there is competition in almost every industry (Taylor, 2009). This is good for the fact that it leads to better economic performance since businesses need to be able to put in their best effort in order to convince consumers to purchase their goods or make use of their services. In addition to the above, it gives consumers a broader range of choices from which they can choose (Soëtard, 1999). In the UK, for instance, if the mobile telephone industry were to be controlled by just one company, the company would reap all the financial benefits while creating just a few jobs. When there is competition as is the case, there are many companies in the industry that have created more jobs. This helps the economy to grow by creating and maintaining more jobs than a single company would have done. Liberal democracies mean free economies that allow new entrants into the market (Soëtard, 1999). The more companies exist in an economy, the stronger the economy becomes. This is because these companies pay taxes, create jobs and make available the necessary goods and services to consumers. When there is competition, prices of goods and services become more affordable(Soëtard, 1999). The basic rule of demand and supply states that the more the suppliers, the lesser the price. This analysis goes on to justify the view that democracy promotes economic growth.


After the break down of the Soviet Union, it is important to note that the former soviet states that adopted liberal democracy systems have experienced better economic growth than they did during the Soviet era. Some of these countries include Estonia, Latvia, and Lithuania (Taylor, 2009). In Latin America, many democratic regimes are also experiencing high levels of economic growth and prosperity. Countries like Venezuela are experiencing economic growth in Latin America even though its democracy falls short of the western notions of democracy (Taylor, 2009). However, it is important to note that the country suffers from corruption and this slows down the level of economic growth which it currently experiences. The difference between democracies and autocracies when it comes to corruption is that democratic countries have strong judicial institutions that are separate from the government. As such, corrupt leaders and be arrested and tried in court (Lloyd, 1995). That was the case with the management of Enron in the US after it was found out that some of the top management staff had embezzled billions. They were all tried and sentenced. In this respect, democracy can be said to be a tool that favours economic growth.


The Case Against The Correlation

There are non liberal democratic regimes such as China and Russia that experience very high levels of economic growth. This can be attributed to the fact that these countries have leaders who are determined to make their countries grow and not the democratic process. This is because both China and Russia do not have liberal democracy. Freedom of expression and censorship is rife in both countries. Government critics are threatened, assassinated or jailed. There is political witch hunt in both countries. In Russia, Yukos boss Mikhail Kodorkovsky has been jailed as a result of his political stance even though the government claims he is jailed for tax evasion. Despite the above, China recorded 9.8% growth while the USA only experience 3.2% economic growth (Mbandi & Sontong, 2010). Such examples challenge the notion that democracy is linked to economic growth. China has experienced vast growth over the last 30 years. This suggests that autocracy works best for them.


The Middle East has one of the fastest growing economies in the world today (Mbandi & Sontong, 2010). However, it is surprising to learn that the region mostly has authoritarian regimes. Growth in the region is motivated by the desire of its leaders to make their countries to become stronger and better for the well being of citizens (McPherson, 2007). Most of these governments appoint highly competent economists who have studies in the West and have good working experience. These people are able to design and implement policies that make the economies to succeed. Most of these economies are resource driven. However, the new trend in the region is the diversification of local economies. The UAE is the most prominent economic and infrastructural success story in the region (McPherson, 2007). The UAE is not a democratic country. But the vision of its Sheik has transformed the country into fast growing economy. This is because the Sheik makes use of the best economists in the world who advise his government on how it can carry on in order truly diversify the economy rather than just depend on in its depleting gas and oil reserves. This is working out well because the country has tremendously improved on its tourism and manufacturing industry over time. Today, Dubai has grown to become a popular tourist destination (McPherson, 2007). The city hosts the world’s most expensive hotel and artificial Islands. These structures are attracting tourist from all over the world who come to visit the country. This has led to the creation of jobs and increased the spending habits of local residents. It is wrong to associate the economic growth in the UAE to democracy because it is not a liberal democracy. Instead, this success can be attributed to the good economic policies that come as a result of the fact that the leader heeds to the advice of the best economists in Europe and America.


Public policy scholars consider the identification of a problem as the first step towards the creation of a successful public policy be it economic or political. This stage is important because it begins by admitting that there is the existence of a problem. It is impossible to address a problem unless the problem is identified (Russell, 1998). When the problem remains unidentified; there are chances that attempts to resolve the problem would be baseless and likely out of focus. Identifying the problem leads policy thinkers to explore all facets of the problem. These include the historical background of the problem, and who is affected by the problem. The identification phase also seek to examine whether the problem is a short, medium or long term one. It also seeks to asses the level of public awareness of the existence of the problem. Some other important questions that need to be addressed at the identification phase include things like whether a new policy in the area can adequately address the issue at hand (Russell, 1998). Answers to the above questions would help to give policy makers some clues on what policies can be adopted so as to address the problem. The same is true for economic growth. The government starts by identifying a goal, such as to improve on economic growth. It then sets out a strategy that it intends to use to achieve the goal.


There are many other factors that influence economic growth other than liberal democracy or authoritarian rule (McPherson, 2007). Factors that determine the economic growth rate are mostly economic and not political. As a result, it is economically wrong to admit that democracy is linked to economic growth. Economists believe there is no correlation between the two (Mbandi & Sontong, 2010). Instead, pure economic factors such as the monetary policy, the fiscal policy, the countries balance of trade and nature of major economic activities are the factors that can help to explain whether an economy grows or not (Mbandi & Sontong, 2010). That is why countries like China that are not the best democracies are experiencing economic growth that is better than that of the US. That alone is enough evidence to prove that it is economic policies that determine economic growth and not whether a country is democratic or not (Mbandi & Sontong, 2010). The collapse of the US housing market a couple of years ago was as a result of the fact that banks were loaning out money recklessly. Although the US is a liberal democracy, the economy shrank because of the bad economic policies at the time. In this regard therefore, it would be wrong to thing that democracy has a strong correlation with economic growth.


In conclusion, it is difficult to clearly establish the links between liberal democracy and economic growth.  Even where there are links, it is difficult to measure the extent to which one influences the other. But in any case, one thing is clear; a stable political environment is the ideal condition for economic growth. That is why liberal democracy is often associated with better economic growth. The correlation between liberal democracy and economic growth can only be visible depending on the angle from which we look at it. When we consider the fact that a stable political environment is required for economic growth, it is accurate to admit the correlation. On the other hand, when we also consider the fact that it is economic policies that can determine whether an economy grows or not, we can also say that liberal democracy has little or nor influence on economic growth.  This is assertion can be supported by the case studies mentioned above in the US and China, where the less democratic state is experiencing a higher level of economic growth. On the other hand, the undemocratic regime of President Robert Mugabe of Zimbabwe has a failed economy. This is because the political environment is highly unstable. It is difficult to have good economic performance under such and unstable economic environment.








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