Why democracy is necessary for sustained economic growth

A couple of weeks ago I penned an article headlined “Is the Ethiopian economic miracle a model for Africa’s development?” where I described Ethiopia in illustrious terms such as ‘an emerging economic giant’, ‘the biggest economy in the East African region’, and ‘one of the fastest growing economies in the world’.

But, as I was putting finishing touches to the article, I received news of the eruption of fighting between the Ethiopian federal government forces and the Tigray People’s Liberation Front (TPLF) in the north. I knew that that threatens to unravel everything that Ethiopia has achieved in the past two decades, so I had to make a note of that at the end of the article.

The prospects are not good: TPLF is not a band of ragtag militia. It is large – 250,000-strong, larger than any other East African nation’s army, and is supported by people who have dominated Ethiopia’s politics for decades. This is the group that may find a strong ally in Egypt, which probably has some scores to settle against Addis Ababa due to the disagreements related to filling of the Renaissance Dam.

Moreover, the Tigrayans have age-old issues with the Eritreans which can draw Eritrea into the conflict. There are reports of Eritrean soldiers fighting in Tigray already. This is bad news – the conflict can end up being a drawn-out civil war that ends up destabilising the whole region.

When you sow wind, they say, you will reap whirlwind.

The people of Ethiopia may have to pay for the sins of their leaders past and see their nation become yet another example in history of the value of building democracy for sustained economic prosperity.

While the debate about the relationship between democracy and economic growth has been raging from ancient times, the rise of economically successful but authoritarian states in Asia, especially China, at the time when the economies of liberal democracies have stagnated, has led many to question the relevance of democracy to growth.

Writing in Edge of Chaos: Why Democracy is Failing to Deliver Economic Growth – and How to Fix It, Dambisa Moyo opines: ‘In the face of these economic headwinds, liberal democratic capitalism is in retreat… (Now) alternative models, such as authoritarianism, state capitalism, and illiberal democracies, have proliferated, offering formidable challenges to liberal democratic capitalism’s model of achieving growth.’

The resulting intellectual confusion has empowered autocratic regimes in Africa to sustain their systems provided they deliver growth. Growth is taken as the all-encompassing end that justifies any means.

However, history does not support these claims. There is good evidence to build nations on solid democratic foundations if prosperity is to last.

Think of Stalin’s Russia.

Stalin was an immensely powerful leader and one of the most cunning political operators in world history. As a Russian dictator he managed to mobilise Russia to become an incredibly productive nation capable of inflicting massive losses on Nazist forces and stand mano a mano against the mighty Western powers.

From 1790s, Russia was set on the path of industrialisation and development by Peter the Great. Unfortunately, the leaders didn’t do much to alleviate the plight of common men, the fact which led to the 1917 communist revolution.

When Stalin came to power after the sudden death of Lenin in 1924, he achieved progress at a huge human cost for Russians. In Ukraine, for example, Stalin’s policy of forced collectivisation caused a great famine between 1932 and 1933 leading to the starvation of millions.

Thus, despite great advances in industry, science and technology, the work that Stalin did became almost nothing when USSR collapsed. Within years of his death, Stalin was outed by his compatriots as a great murderer he was. Today, Russia’s economy is as big as South Korea’s, a small Asian nation east of China. The military and the space technology aside, Russia’s reputation in the world is only in causing mischief – a rogue nation.

Systems which are not human centred, which don’t foster economic freedom, don’t build government institutions, don’t focus on social reforms, don’t promote private investments, which work through special favours by leaders’ cronies – they are not built to last. Historically they usually collapse with the death or removal from power of the dictator or when they encounter significant financial difficulties leading to economic collapse.

Such is the story of Gaddafi’s Libya and Saddam’s Iraq.

In Africa, nations which have embraced democratic reforms such as Ghana, Senegal and Botswana have had their economies grow on average 50 percent higher than comparative nations such as Angola and Zimbabwe in the past 40 years. Worldwide, within 25 years, nations which have implemented democratic transitions grew on average 20 percent higher than not, and only 5 out of 80 economic collapses have occurred in a democracy.

The reason is simple – democracy is pro-reform and provides a conducive environment for key growth drivers, that is, productivity, capital, and labour. Authoritarian regimes, once they are done extracting money from the people to finance their artificial economic booms, they usually meet their inevitable ends, mainly through a violent crisis.

The lesson from history is this – while the leadership of some enlightened individuals may indeed cause economic growth without democracy, in the long-term, democratic nations will outperform the non-democratic ones. Therefore, this is not a question of either democracy or economic growth. Just as the situation might play out in Ethiopia again for us to learn: pragmatism and respect for human rights will have long-term dividends than not.