Here's an interesting exchange on whether democracy is a prerequisite for economic growth from the Wall Street Journal. It might provide useful material for our liberal playbooks. :-)

Best,

Essa Remoquillo

KALIPI Philippines

http://online.wsj.com/public/article/SB117330214622129995-wXADlsfRHp9Z34RAyyVjN_w1yBI_20080311.html

ECONOBLOG 

Is Democracy the Best Setting For Strong Economic Growth? March 13, 2007 Hoping to counterbalance the economic populism of Venezuela President Hugo Chavez, President Bush is on a weeklong tour of Latin America, bearing a message of optimism about democracy, trade and economic prosperity. But what exactly do we know about the relationship between democracy and economic growth?

Economies of less-than-democratic nations such as China have surged in recent years. Does a country's brightening economic picture boost the chance democracy may eventually blossom? Or is it the other way around? Are democratic institutions a key component of long-term economic growth? And what's the role of education? 

WSJ.com asked economists Daron Acemoglu of the Massachusetts Institute of Technology and Ed Glaeser of Harvard University to discuss the delicate relationship between economic growth and broader political freedoms. 

Daron Acemoglu is the Charles P. Kindleberger Professor of Applied Economics in the Department of Economics at the Massachusetts Institute of Technology. He is also affiliated with the National Bureau Economic Research, Center for Economic Performance, and Center for Economic Policy Research, and is a fellow of the American Academy of Arts and Sciences, the Econometric Society, the European Economic Association and the Society of Labor Economists. He received his Ph.D. in economics at the London School of Economics in 1992. He was awarded the John Bates Clark Medal in 2005, given every two years to the best economist in the U.S. under the age of 40 by the American Economic Association. 

Edward Glaeser is the Fred and Eleanor Glimp Professor of Economics in the Faculty of Arts and Sciences at Harvard University, where he has taught since 1992. He is Director of the Taubman Center for State and Local Government and Director of the Rappaport Institute of Greater Boston. He teaches urban and social economics and microeconomic theory. He has published dozens of papers on cities, economic growth, and law and economics. In particular, his work has focused on the determinants of city growth and the role of cities as centers of idea transmission. He also edits the Quarterly Journal of Economics. He received his Ph.D. from the University of Chicago in 1992. 

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Ed Glaeser writes: Rich countries are stable democracies. Poor countries tend to be political basket cases, careening between brutal dictatorships and unstable semi-republics. The relationship between democracy and wealth might suggest democracy naturally leads to prosperity. This view is comforting and also gives us another reason to enthusiastically try to export democracy globally. While I yield to no one in my passion for liberty, the view that democracy is a critical ingredient for economic growth is untenable. There is no robust statistical relationship to back it up, and Robert Barro actually found democracy reduces growth, once he statistically controls for the rule of law. It is, however, true that growth rates vary much more under dictatorships than under democracies. Anti-development autocrats, such as Mobutu Sese Seko or Kim Jong Il, are about the worst thing for economic growth, other than civil war. But many of the best growth experiences have been in less-than-democratic regimes that invest in physical and human capital such as Lee Kwan Yew's Singapore or post-Mao China. Some dictators are even better than democrats at restraining the growth-killing practice of expropriating private wealth. I think the relationship between democracy and wealth reflects the power of human capital -- education -- to make countries both rich and democratic. If you put enough smart people together, they'll figure out how to govern themselves and gravitate towards democracy. 

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Daron Acemoglu writes: I agree with Ed on many points. In the postwar era, it's true that democracies haven't grown faster than autocratic regimes. Plus, there are clear examples of fast growth under dictatorships; see South Korea under Gen. Park Chung Hee. So, why haven't democracies been more successful? I believe the answer lies in recognizing two things. First, there are different kinds of democracies. And second, it's important to consider that economic growth and democracy have a very different relationship over the long term -- that is for periods as long as 100 years -- than over the short or medium term. Many societies counted as "democratic" using standard measures are really "dysfunctional democracies" where traditional elites dominate politics through control of the party system, political influence, vote buying, intimidation and even assassination. Colombia, which has had regular democratic elections for the past 50 years, is a typical example. In others, democratic institutions survive, but there is significant in-fighting between ethnic groups, religious groups or social classes. The situation in Iraq would be the most extreme -- but not a unique -- example. Finally, many democracies suffer economically from populist and irresponsible macroeconomic policies, which are often adopted after transitions from repressive dictatorships and during periods when politics are turbulent and conflicts over wealth distribution are strong. On the second point, it's true that autocratic regimes can generate growth for certain periods of time by providing secure property rights and good business conditions to firms aligned with political powers. But modern capitalist growth requires not only secure property rights, but also creative destruction, that is, the entry of new firms with new ideas and technologies that replace the successful firms of the past. Creative destruction requires a level playing field, which democracies are better at providing because they have more equal distributions of political power than autocracies or monarchies. So, if we look beyond the past 60 years, we see that it was the U.S., with its democratic institutions, that created the environment for new businesses to enter, flourish and spur the industrial growth of the 19th century. There were many rich autocracies and repressive regimes in the 18th century, including places like Cuba, Haiti and Jamaica. But it was the U.S. that grew rapidly over the next two centuries while these autocratic regimes stagnated.The relationship between human capital and democracy that Ed raises is fascinating. But I will return to that in a little in the context of the causes of democracy. 

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Ed Glaeser writes: I strongly agree with the view that unfettered dictatorship doesn't guarantee long-run stability. But how much more stable is democracy? America worked well. The Weimar Republic didn't. Over the past 200 years, democracies have regularly fallen to military coups, communist overthrow and aggressive elected executives, like Hitler, who expanded the reach of their power to the point where democracy disappeared. Even relatively stable democracies, like post-war India, have often failed to provide a safe environment for investment, innovation and entrepreneurship. Since democracy is always vulnerable, I think the key question is why it survived for centuries in some countries like the U.S., the United Kingdom and the Netherlands -- and died quickly in other places, such as post-colonial Africa. One answer is that human capital -- education -- is the bedrock for lasting democracy. Empirically, initial education strongly predicts the survival of democracy education and the survival of democracy in our research. We found 95% of the democracies that ranked as "well-educated" in 1960 stayed democracies for the next 40 years. By contrast, 50% of 1960's "less well-educated" became dictatorships within a decade. The survival of democracy hinges upon capable people who have the incentives and ability to protect their rights against would-be dictators. Education produces social capital that makes it possible for people to organize and makes them think that democracy is worth fighting to protect. 

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Daron Acemoglu writes: Ed argues that education is key to the democratic success. I'm a big believer in the value of human capital. Better-educated people are more productive, better citizens. But democracy is about collective choices in conflict-ridden situations, and education is not a panacea for solving these problems. Weimar Germany is an interesting example. In the interwar years, Germany was one of the most culturally advanced, educated and sophisticated societies in the world. Was the education of the German people sufficient to prevent the Nazi nightmare? No. Looking at the data, there is no strong evidence that either education or economic growth is a major factors in creating or strengthening democracy. In fact, countries that have grown fast over the past 50 years -- or over the past 150 -- haven't shown in much greater tendency to become democratic. Consider the recent experience of Russia and Saudi Arabia. If suddenly the price of oil increases and they become much richer, do we expect them to become more democratic? The same applies to education. Countries that have boosted education levels haven't been more likely to consolidate democracy or transition from autocracy to democracy. After all, former Socialist republics had very high levels of education during the Cold War, but did not show a strong tendency to become democratic. So what does strengthen democracy? Recent research by Benjamin Jones and Benjamin Olken finds that enlightened leadership matters, but it only in autocracies. In societies with strong institutions and established democracies, leader quality seems to have little effect on economic performance. This again makes me think that established democracies, by introducing checks and balances, create a good environment for collective decisions and resolution of conflicts. This type of environment for collective decision-making is the best guarantor of long-run economic development. 

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Ed Glaeser writes: The link between education and growth in democracy is pretty robust, both because more educated democracies are more likely to stay democratic and because schooling strongly predicts which dictatorial regimes will transition into democracy. Consider the states of the former Warsaw Pact. Educated countries such as Poland and the Czech Republic have become reasonably well-functioning democracies. Less-educated spots, such as Uzbekistan and Borat's homeland -- Kazakhstan -- are far less democratic. The education of Russia lies somewhere in the middle, and so does its level of democracy. The link between education and democracy works through at least three important channels. Historically, educated people have been a mainstay of political uprisings, because of their interest in ideas and the ability to organize. Nowhere is this clearer than in the remarkable propensity of students to riot. Indeed, some of the most important of revolutions from 1848 to the deposition of the Shah had their roots in student-led upheavals. Education is also associated with the crafting of complex constitutions, which require education to write and education to use. It's no surprise that the American constitution was the product of extremely well-educated men. James Madison learned the best ideas of the Scottish Enlightenment from his Princeton mentor, John Witherspoon. Finally, educated people have shown a remarkable ability to fight to protect democracy. The English, American and Dutch democracies have regularly been defended by people steeped in legal and political learning. Daron is, of course, right to emphasize the failure of Germany's educated to stop Nazism. I would respond by saying that first, Germany wasn't all that well educated in 1933, and second, that while education predicts transitions to democracy, it hardly guarantees them. 

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Daron Acemoglu writes: Yes more educated countries are more democratic, richer, more tolerant and more innovative. No disagreement there. But this does not mean that education is the key factor for democracy or for growth. The disagreement is over whether societies that become more educated over time are also more likely to become democratic. Here there is no correlation between changes in education and changes in democracy. Ed also argues that "educated people have been a mainstay of political uprisings." I agree with this and I believe that the educated have an important role in defending democracy. But they can also turn against democracy. Educated people have also been big supporters of anti-democratic movements, including the Bolshevik Revolution in Russia and many revolutionary movements in Latin America. So if education is not a panacea for democracy and democracy is not a panacea for growth, how do we make sense of the big questions of long-run development? Why are democratic societies more educated and richer? The right perspective on these questions is provided by thinking of distinct development paths, that is, clusters of political and economic institutions and economic activities. Prosperity and poverty are partly rooted in a society's history and development path. In one type of development path, democracy, growth, investment and human capital go hand-in-hand, potentially reinforcing each other. Another path involves autocratic regimes, repression, low growth and low human capital. If growth suddenly increases under such a repressive system -- or if a dictator suddenly starts a big education program -- this won't automatically lead to democracy. Societies that achieve sustained economic growth enforce property rights, respect the rule of law and create a level playing field for new firms -- and for their population at large. They develop institutions for collective decision-making that prevent power from being usurped by strongmen or narrow cliques. Fortunately, while history and historical development paths matter, change is possible. Countries can reform their political and economic institutions and start investing in new businesses, technology, and human capital, paving the way for sustainable economic growth under stable democratic regimes. Botswana and South Korea, for example, have made this transition despite having started with very adverse conditions. 

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Ed Glaeser writes: I have tried to articulate two views. First, democracy doesn't strongly predict economic growth. Second, education is an important factor that supports democracy. I want to turn now to the development policy implications of those views. I like promoting education both because it leads to good political outcomes and because, as Daron writes, there are so many other good by-products associated with learning. Of course, I'd rather that education to be more than dictatorial propaganda, but even those Russians educated under the old regime fought for democracy in 1991. I also like promoting democracy. Even if rule by the people doesn't lead automatically to economic growth, there are plenty of other reasons to wish for everyone to get the chance to govern themselves. The heart of economic policy advice is the desire to give people more choices, and political liberty like wealth makes people "free to choose." However, I do think that we need to have a little bit of realism about where democracy has a fighting chance to succeed. The president has said that "it is the practice of democracy that makes a nation ready for democracy, and every nation can start on this path." I'm not so sure. There aren't a lot of countries with the education level of Afghanistan that have ever been stable democracies. Iraq's level of human capital gives it a better shot, but the current difficulties were quite predictable. We need to recognize that exporting democracy is extremely hard in low-human-capital countries and to make sensible judgments about how we can move freedom forward despite facing enormous difficulties. * * * Daron Acemoglu writes: There is a lot Ed and I agree on. Democracy doesn't strongly predict economic growth, at least not in the short run. Education is wonderful for many reasons. And democracy is not perfect as a political system, but it is the best we have. (As Winston Churchill is supposed to have said: democracy is the worst form of government except for all the others forms that have been tried from time to time.) There are indeed barriers to democracy's ability to flourish in many societies. And finally, exporting democracy is probably neither easy nor always feasible and we should be careful in such attempts. (In fact, we should be careful and very cautious in all kinds of social engineering dreams that we have.) However, there are still some areas where there is healthy disagreement between us. The main barrier to democracy is not low education but deep social and economic divides that create intense conflict. Democracy has failed in highly educated countries -- such as Germany before World War II or post-war Argentina. It has also been extremely successful in very low-education countries. Botswana provides a perfect example. It is the most successful democracy and the fastest growing economy in sub-Saharan Africa. When the British granted independence to this colony in 1965, there were only 22 Botswanans who had graduated from university and 100 from secondary school. But Botswana was fortunate to have avoided the most adverse effects of colonialism and thus did not suffer from deep social divides or distributional conflicts, because the British essentially had no interest in the colony and left it alone. Botswana used the revenues from its diamonds both equitably and wisely. Botswana's democracy has not only endured and flourished, but has not even been challenged by a coup or tarnished by major electoral fraud during the past 40 years. I would also like to emphasize -- and conclude with -- this point: Sustained economic growth requires secure property rights and a level playing field for generating new technologies and entry by new firms. Democracy is the best guarantor for such sustained economic growth. Economic growth generates various vested interests, ranging from landed elites to businessmen in declining industries to privileged workers. These vested interests will try to block the introduction of new technologies and stop the entry of new firms. Democracy is not perfect, but with its more egalitarian distribution of political power, it will have greater resistance against vested interests than autocracy.