Is democracy an economic liability?

Jul 6th 2011, 17:01 by R.A. | WASHINGTON

The Economist

OVER at Democracy in America, a colleague embarks on an interesting discussion highlighting the similarities between the institutional roots of economic troubles in Europe and America. Then, alas, he goes astray:

I actually think the issue goes beyond the increasing unwillingness of Chinese authorities to even pretend to listen to Western complaints about human rights. Unless you buy the Nouriel Roubini argument, and I don't, China is going to be the world's largest economy within ten or 15 years, bigger than America or the euro-zone. And, in case anyone has failed to notice, it's a Communist country.

Every year China continues to grow, the case that countries need to be democracies in order to become wealthy and developed becomes more tenuous. In fact, what's happening both in America and in the EU at this point is raising the possibility that democratic governance may in some modern situations be inimical to competent economic stewardship. The incentive structure created by democratic political competition in an internet-era media society may actually be driving countries towards fiscal self-destruction. We're increasingly getting a polarised, viciously divisive, intellectually bankrupt, wildly irresponsible populism that lives up to every negative caricature of multiparty democracy that a CCP ideological hack could dream up. That's certainly what the behaviour of the tea-party-driven GOP and the Party for Freedom suggests.

China's economy will soon be the world's largest, but that's largely because China's population is the world's largest. If you can't manage to produce more with 1.3 billion people than Americans produce with 310m, you're doing something terribly wrong. Relatedly, China's recent growth rates have been fast because China was previously so poor. And China was previously so poor because its authoritarian government embraced atrocious economic policies for decades. It's certaintly true that, "democratic governance may in some modern situations be inimical to competent economic stewardship". This is not a new development. Just as hoary a chestnut is the generalisation of the above quote: governance may in some situations be inimical to competent economic stewardship. What's true of presidents and prime ministers was also true of Chairman Mao. And many kings, queens, pharoahs and chieftains of old.

Here's the deal. For all its competent stewardship, China's government runs a country where the average citizen is only about 15% as rich as the average American. And if we look at the world's richest large countries (say those with 10m people or more) in terms of per capita GDP, we see that the league tables are dominated by democracies. In order: America, the Netherlands, Australia, Canada, Belgium, Germany, Taiwan, Britain, France, Japan, South Korea, Spain, Italy, Greece, Cyprus, Czech Republic. The first non-democratic large country to make the list? Saudi Arabia. And I don't think we need to chalk its wealth up to sound macroeconomic management.

It is possible to grow rapidly as an authoritarian country. It's even possible to become wealthy as an authoritarian country, though it helps to be small and resource-rich. Becoming democratic is no guarantee of economic riches, either. But it appears to take a democratic system of governance to build and sustain high levels of national wealth. Maybe China will challenge this record some day. It has a lot more growing to do first.