Democracy and Economic Prosperity

I wanted to actually talk about the linkage between Democracy and Corruption in this post, but it is informative to first analyse the link between democracy and economic prosperity of a nation.

Is prosperity directly proportional to the level of democracy in a country ?

What do you think ?

Many countries had capitalism and business interests first, before they reached the status of full democracy. European countries are prime examples. Does this mean that capitalism and prosperity are linked, and democracy is just an after thought ? Does democracy really promote prosperity for all citizens, or it provides a playing field for corrupt political and business interests to dominate a society and leads to inequitable distribution of wealth ?

These are questions to ponder over. Seriously.

Many people at the middle and upper strata of society do not even bother, as long as their personal interests are taken care of. Who really go to vote for in an election, in a country wherein voting is not compulsory ? The poor people. They decide which government comes to power in large countries, such as India. But what does the government do ? They listen to the business people and industrialists. They listen to the IMF and the World Bank. Only few governments are known to launch poor-friendly programmes, to lift millions from the clutches of poverty.

So who cares about the government ? As long as one is allowed to carry on an economic activity peacefully ?

This is the dilemma of democracies.

In a totalitarian society run largely by a single government, such as China, the freedom of decision-making is taken away from the common man for what is supposedly collective good. There is no democracy to speak about. But a good government or a good dictator ensures that the people are benefited economically.

But does this practice lead to all round “economic” and “social” development of the people ?

No, not really. This is why China has high economic growth rate, but poor economic development.

India is no better. The challenge in India is to ensure that the different strata of society get equitable benefit from economic growth.

So, what is the conclusion ?

Unless there is a system for equitable distribution of wealth, it does not matter whether people have political freedom or not. Democracies and totalitarian regimes fail equally in this respect. Democracy might be a necessary requirement but not a sufficient requirement for economic prosperity of people. Well, I am not even convinced of this statement !

Even in the U.S., which is supposed to be a beacon for all democratic ideals, there is lobbying and decisions are made against larger interests by the Congress using influence. It is legal for business houses to pay the parties contesting elections as political donations, just to influence future government policies.

Given all this background, I come to the inevitable conclusion that there is no direct proportionality between the form of a government and its peoples’ prosperity level. Ultimately it depends on a government’s governance capability, and the standards it sets for electing qualified, educated legislators, who could potentially decide on what is right and wrong for its citizenry. There is no short cut to prosperity with economic development. You need good governance.


Vijay Srinivasan
14th November 2010


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