Eight of the World’s 10 Most Competitive Economies are Democracies

10.17.2013
Democratic Switzerland is the world's most competitive economy. (Photo: Wikimedia Commons)
Democratic Switzerland is the world’s most competitive economy. China doesn’t make the top 10. (Photo: Wikimedia Commons)

The World Economic Forum has just released its latest Global Competitiveness Report, which assesses the competitiveness of 148 economies around the world. This year’s top ten includes few surprises, but does illustrate an important fact: eight of them are democracies and rated “Free” by Freedom House’s Freedom in the World index. (Singapore, which ranks second, and Hong Kong, which is under Chinese sovereignty and ranks seventh, are both rated “Partly Free.”)

Why is this important? At CIPE, we believe that democratic and economic development go hand in hand: strong democratic institutions support strong market institutions, and vice versa. But this belief is not shared everywhere. There is a growing contingent who feel that “strong” leaders in charge of highly directed economies can lead poor countries to prosperity, and that elections and debate simply get in the way.

This is certainly not a new idea, and in fact was quite popular throughout the developing world (on both the right and the left) in the 60s, 70s, and 80s. The result was abject failure everywhere this sort of policy was attempted, with the exception of a handful of Southeast Asian countries that quickly democratized once their economies began to take off.

Today, this idea is once again in resurgence, thanks in large part to continued strong economic performance in China and, to a lesser extent, Russia. The chaos following the 2008 financial crisis also made the democratic governments of the advanced economies look weak and ineffective, while many less-democratic emerging market countries, which had built up large reserves and had relatively underdeveloped financial sectors, escaped mostly unscathed.

Reports like this one are an important corrective to the view ¬†that democratic institutions don’t matter when it comes to economic performance. The Global Competitiveness Report is particularly suited to illustrating this point because it includes more than just institutions — it also looks at infrastructure, education and public services, the macroeconomic environment, labor markets, the financial sector, and innovation; in short, everything that makes an economy function.

The basic facts are indisputable: every single large, wealthy, economically well-functioning society on Earth is run through some form of democratic government. And while some authoritarian countries, like Singapore, can perform well (provided exceptional leadership and a large dose of luck), the vast majority of authoritarian countries remain mired in poverty and economic dysfunction. Even countries blessed with vast resource wealth have found it difficult to translate that gift into broad-based, sustainable prosperity in the absence of democratic institutions.

As the recently-ended government shutdown here in the United States shows, democracy is not always easy. But it’s worth it in the long run.

Jon Custer is Social Media / Communications Coordinator at CIPE.