How Democracy Influences Growth

07.02.2013
Botswana, which has been democratically governed since independent, has also been one of the most stable and fastest-growing economies in Africa.
Botswana, which has been democratically governed since independent, has also been one of the most stable and fastest-growing economies in Africa. (Photo: Wikimedia Commons)

The relationship between government and commerce can seem fractious at times. Companies eager to please their shareholders and regimes eager for popular support each vilify the other. Socialists place too little value on the role of the private sector while laissez-faire advocates place too much. Ultimately, however, the two are not nearly so divergent. In fact, democracy turns out to be the form of government that inspires the most economic growth. It is at the intersection where the most fertile ground is discovered.

Dr. Boris Begović, a longtime CIPE partner, understands this better than most. As a chief economic adviser to the federal government of the Federal Republic of Yugoslavia for 15 months during 2000-2002, he helped guide the country through an economic liberalization process and to fast growth. He believes that democracy has certain advantages for the private sector; namely, it is a stable form of government that creates predictability in the institutions necessary for growth. Democracies allow more individuals to enter the market, ultimately helping to mitigate individual risk, increase creativity, and inspire competition.

Article at a glance

• Democracy results in higher rates of economic growth over the long term because democracies have more stable and predictable institutions and tend to implement policies that are conducive to private enterprise.

• Since they are accountable to the public rather than to elites, democracies produce more public goods, invest more in human capital, maintain the rule of law, and protect private property rights.

• Though democracies are more likely to engage in large-scale redistribution than autocracies are, the dampening effect of redistribution is offset by the fact that democracies have lower barriers to entry, promoting competition, and innovation.

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