The Economist’s survey of emerging economies (September 16) describes these economies’ impressive growth over the past five years and the effects of this growth on developed countries and the world economy as a whole. In many respects, this is a positive story. Many emerging markets have demonstrated convincingly that income growth and the conquest of poverty are possible. Developed countries benefit, too, from an expanded world economy that is providing lower-cost imports and expanded outlets for exports.
The survey also draws attention to the hardships and challenges some face as a consequence of overall growth in a competitive global economy. In the developed world, while consumers gain from lower prices and investors gain from increased productivity, workers confront stiff wage competition from overseas. In the developing world, one can easily cite disparities such as between urban and rural areas in fast-growing China. So, while the absolute and net gains are positive for both sets of economies, there are those who lose from these trends.
How can these challenges be resolved or mitigated? The Economist points out that protectionism is not a realistic solution. Closing an economy to foreign competition eliminates the broad gains from growth, reduces productivity, and ultimately accelerates the decline of weak industries and economies. More helpful responses may include temporary safety nets and education for affected workers. Additionally, as the world economy grows, opportunities arise in new sectors. Improving the business climate and increasing labor market flexibility can support job creation in these sectors. In some parts of the world, participants in the informal economy are shut out of the mainstream economy. Granting them property rights and access to the formal economy can increase opportunities for them to participate in and benefit from the global economy, directly or indirectly in a growing domestic economy.
In actuality, no single solution can address global growth pains. I believe, however, it can be said with certainty that democracies, in the developing and developed worlds, will fare better than non-democracies in addressing these challenges equitably and effectively. Democracies represent the interests of all segments of their societies while seeking a common good. They provide mechanisms for adjusting competing claims in a peaceful manner. They encourage openness and debate in the search for creative, fair, and viable solutions. They provide freedom to citizens to undertake themselves the creation of new opportunities. They allow all citizens, whatever their position in economic change, to have a say and a stake in economic and social policy.
Of course, no democracy perfectly implements the “general will”—if such a thing could be defined and measured—or satisfies all its citizens. Democracies, though, are better equipped to handle sweeping change. Through the competition of ideas and leaders, they generate alternative solutions. Through representation and accountability, they are responsive to new pressures and needs. Because of freedom and the possibility of changes in leadership, they enjoy flexibility. And because of participation in the selection of economic and social policies, they have legitimacy. These democratic advantages together add up to adaptability.
It is worth recalling Winston Churchill’s observation that “democracy is the worst form of Government except all those other forms that have been tried from time to time.” The same might be said of free-market economies. That is to say, neither is perfect, but they are generally effective and fair systems for improving overall welfare and addressing humanity’s problems. Together, they make a powerful combination of two adaptive systems that complement one another.
Published Date: October 26, 2006