Democracy and Asian Development

September 22nd, 2015
in Op Ed

by John West, Asian Century Institute

The Chinese authoritarian juggernaut is now wobbling forward, sideways and backwards. Could in the end democracy be the best political system for fostering Asian development, asks John West?

Follow up:

The economic success of authoritarian regimes, like Singapore and China, and Korea and Taiwan before democratization, has led many observers to argue that authoritarian capitalism may be the most efficient system for fostering Asian development and modernization. The contrast with chaotic democracies like India or the Philippines, or even deeply polarized America, has naive appeal.

But more recently the Chinese behemoth has been stumbling, while incredible and democratic India has rediscovered some dynamism, and is now growing faster than China. And looking back, the spectacular rise of Japan from the ashes of World War 2 shows that democracy (albeit imperfect) and successful development can go hand-in-hand.

Let's examine some of the many issues involved.

Good and bad dictators

It is true that some authoritarian regimes like Singapore and China have had "good dictators" who have been able to rush their countries up the development ladder by enlightened leadership and effectively investing in human and physical capital. But a key element of their leadership has also been expanding economic freedom, for trade, investment, entrepreneurship and tourism. They are less authoritarian than they are often portrayed.

It is equally true that Asia and other regions have had just as many, if not more, "bad dictators" like North Korea's Kim family or the Philippines' former President Marcos. Bad dictators can inflict immense damage on their economies and societies. It is also usually very difficult to get rid of them. While the "People Power" revolution of the Philippines brought down the Marcos regime, our North Korean friends have been suffering for over six decades from the Kim family dictatorship.

For its part, China has not always had good dictators. Mao Zedong did make important achievements, like reestablishing the territorial integrity of China, land reform and some liberation for women. But as the Cultural Revolution and Great Leap Forward testify, Mao was most certainly a very bad dictator who inflicted massive suffering on the Chinese people.

It is not yet clear whether President Xi Jinping, as he centralizes power more than any president since Mao, will ultimately be a good or bad dictator. China's militarization and assertive behavior under Xi's leadership may lead to unfortunate consequences for the Chinese people if it results in conflict with their neighbors. And it is also not clear that he will be brave enough to implement the widespread market-oriented reforms that the Chinese economy so desperately needs.

Social contracts

In Singapore and China, the authorities now attempt to govern on the basis of a "social contract", rather than pure authoritarianism. The deal has been that they can retain their virtual one-party systems thanks to their competence in delivering economic growth and their ability to respond to the concerns of the citizens ("performance legitimacy").

But even a mutually-beneficial social contract does not always seem to be enough. Despite their mythological attachment to Confucianism, educated and middle class Asians seem to want freedom. This can be seen in the growing migration of middle class Asians to countries like the US, Canada, Australia and New Zealand, along with their massive investment in real estate in these same countries. Countries like China and Malaysia are suffering from massive illicit financial outflows -- more than $1 trillion over the past decade for China -- a sure sign of lack of confidence in their regimes. And as we write, capital is flooding out of China.

As one justification for a social contract fades, like the recent weakening in the Chinese economy, authoritarian regimes look for other justifications, like nationalism. Authoritarian regimes must convince their populations to support them. So the Chinese government has been ramping up its nationalist rhetoric and propaganda, and asserting itself in its relations with its neighbors.

In a democratic system with freedom of the press and a well-developed civil society, citizens can openly debate the pros and cons of tricks like hyper-nationalism. Governing parties can be replaced in elections, in the same way that the Republicans were ejected from the White House after the failure of George W. Bush. But this is not possible in authoritarian systems. Social and political dissent, of which there is much in China, only leads to more repression.

Singapore case

The good, and relatively soft, dictatorship of Singapore has Asia's leading economy in terms of GDP per capita, and has a remarkably strong and effective state. It has the world's second best infrastructure, and third best institutions, according to the World Economic Forum. It also ranks 9th in the world for rule of law, according to the World Justice Project.

Indeed, Singapore may be the world's most successful example of authoritarian capitalism. Its GDP per capita of over $80,000 is among the highest in the world, and is more than 50% higher than the US. Its youth are among the world's very best educated, according to the OECD.

In short, Singapore's citizens should have every reason to be happy with their lot. The social contract of the city-state should be ironclad!

Nevertheless, Singapore's government must still go to great lengths to retain its grip on power. Extreme malapportionment and gerrymandering are employed to ensure the dominance of the ruling People's Action Party (a creation of Lee Kuan Yew). As Freedom House has also observed, campaigns and activities of opposition political parties "are constrained by a ban on political films and television programs, the threat of defamation suits, strict regulations on political associations, and the PAP's influence on the media and the courts".

More generally, political and civil rights are limited, especially freedom of expression, peaceful assembly, and association. Television programs, music, books and magazines can be censored. Nearly all media outlets, Internet service providers and cable television services are owned or controlled by the state.

Not surprisingly, Singapore's elections have always been won by the PAP. But to its great displeasure, the PAP's share of the national vote fell from over 75% in 2001 to barely 60% in 2011. Singapore's brilliant technocrats, who had engineered the Singaporean miracle, began to stumble and seemed aloof and out of touch with their "client population". Public concerns included the dramatic increase in immigration, a straining infrastructure, housing shortages, yawning inequality, and rising poverty.

In a sign that the "House of Singapore" was nervous, the government called a snap election in September 2015, one year ahead of schedule, and with only nine days for campaigning. It was clearly seeking to exploit the wave of patriotism evident in the mourning of the passing of Lee Kwan Yew six months earlier ("the LKY effect"), and the extravagant celebrations of the 50th anniversary of Singapore's independence just one month before.

The government was also seeking to "cash-in" on its policies to respond to popular concerns, like restricting migration and increasing social benefits. It may also have be trying to preempt a loss of public support from the prospective slowing in the Chinese and global economy, on which Singapore is highly dependent.

The government's strategy was very successful, as the PAP won a resounding victory, with some 70% of the popular vote. Very few Singaporeans believe that the main opposition party, the Workers' Party, is capable of effectively governing. One key part of the PAP's success has been to stunt local political development.

Despite the PAP's impressive comeback, the next phase in Singapore's political development could be problematic. The PAP's current leader, Lee Hsien Loong, the son of Lee Kuan Yew, who has led the country since 2004, and will retire in the coming years, and there is no obvious replacement. The government's rising star, and Deputy Prime Minister is Tharman Shanmugaratnam. But he does not come from dominant Chinese ethnic group, he is of Sri Lankan Tamil ancestry.

It is thus easy to see a scenario with democratization pressures building up in the coming years. The moment may be arriving for a democratic breakthrough. History, like that of Spain under Franco, shows that the passing of heroic leaders can be the moment for a decisive move towards democracy. No-one can replace people like Franco or Lee Kwan Yew.

This could be a testing time for Singapore's political elites. They would be wise to open up their repressive system, and allow a real democracy to flourish, as Korea and Taiwan did. They would likely continue to win elections, at least for many years. Resisting democratization can be messy and very costly. The unravelling of the once-successful Malaysia is an example to be avoided.

Dysfunctional democracies

Many commentators who support authoritarian regimes point to the relative failure of democracies like India, Bangladesh, the Philippines and Indonesia. But a binary distinction between democracy and dictatorship is too simplistic.

In the same way that there can be good and bad dictators, there can also be good and dysfunctional democracies. And these four cases, and many others are very dysfunctional democracies. They may conduct elections. But traditional elites dominate politics, capture the state, and engage in vote-buying, intimidation and even assassination. They are also weak states which are riddled with corruption, poor rule of law, and ineffectual bureaucracies.

Moreover, they have deep social divisions between rich elites and poor people, with minimal middle classes. And beyond their elites, the level of education is very low. It is very difficult to have a well-functioning democracy without a well-educated middle class which can exert pressure to improve the quality of governance. Human capital is the bedrock for lasting democracy, as Harvard's Edward Glaeser has argued. History shows that such dysfunctional democracies can easily revert to authoritarian regimes, as the Philippines did under President Marcos, when elites take control of the state.

But Asia's dysfunctional democracies are not static. They are also very capable of improving governance. For example, in the early 1990s, India undertook substantial reforms to improve its governance, which led to a period of very strong growth. And there is hope that India's Prime Minister Narendra Modi, will initiate reforms that will ignite the national economy, as he did so successfully in the state of Gujarat. More recently, under President Benigno Aquino, the Philippines has made major efforts to improve its governance, with very positive results for economic growth. Over time dysfunctional democracies have the potential to become good democracies.

Why democracy matters

There are many reasons why democracy matters for Asian development, despite the success of authoritarian regimes like China and Singapore.

Continued economic development over time requires a process of creative destruction whereby new firms with new ideas and technologies can take a leading role in the economy, as firms that were successful in the past, but are no longer competitive, fade in importance or go bankrupt, as Daron Acemoglu from Massachusetts Institute of Technology has argued. But creative destruction can be inhibited in authoritarian systems where there are close links between established business and political powers, such as in China where state-owned enterprises and banks still play an important role in the economy. Open democratic societies are less likely to practice debilitating cronyism than authoritarian systems. In short, a level playing field is necessary to foster creative destruction, this is much more likely under an open democratic system.

In a similar vein, open democratic societies are more conducive to creativity and innovation, which are the principal drivers of all mature economies. As Michael Schuman has argued, "In order to be innovative, you need full access to information, a confidence to speak your mind and a willingness to take risks. Fear caused by political control doesn't foster an atmosphere conducive to free thinking." Democratization in Korea has played a key role in enabling it to become a more innovative nation.

People like Lady Gaga, Mark Zuckerberg and Steve Jobs would find life difficult in China, as does Chinese artist Ai Weiwei who has spent long period of time under house arrest for his politically inspired art. For China to realize its development potential, and avoid the middle income trap, it will be essential to move to an open democratic system. In the case of Singapore, the government is now trying actively to promote creativity and innovation -- when a more appropriate approach would be to allow greater freedom, dissent and diversity. Creativity cannot be politically manufactured.

Maintaining authoritarian regimes is also very, very costly. For example, social repression is very widespread in China, with typical targets being ethnic minorities like the Uighurs and Tibetans, journalists, academics and artists. The upshot is that China spends more money on internal security than its military. Despite its friendly veneer, Singapore also invests vast resources controlling its society. Another wasteful cost is that of media and Internet censorship which is widespread in Asia, along with government-owned and/or controlled media.

Non-democratic political systems are also prone to unstable leadership and regime transitions, which can be very destabilizing. In the past, this was a great problem in China. The country may have partly solved this issue by limiting presidents to two five year terms. But even today, it is still a problem in China, where President XI Jinping feels the need to eliminate his opposition figures in order to "consolidate power" -- a process which has been underway for two years, with no immediate end in sight. This suggests that authoritarian regimes like China are fundamentally more fragile than they might appear. In contrast, Prime Minister Narendra Modi had a very smooth transition to power in India thanks to the country's democratic institutions.

Perhaps the most important reason why democracy matters is that given a choice, most Asians will go for democracy, especially the younger generation. That's what Asians want, it becomes part of the intangible aspirations of normal citizens. As economic development enables people's basic needs to be satisfied, they want other things in life, like the freedom to choose one's government, high quality governance, freedom of expression and assembly, and access to information. They are less likely to tolerate the abuses to property rights and human rights that are part and parcel of the forceful and efficient decision making of authoritarian regimes.

The many naysayers, like members of Asia's elite, are wrong when they argue that Asians, and especially Chinese, do not aspire to democracy. They need only look at today's cases of Hong Kong, Taiwan and Thailand to see how much Asians want democracy. They are willing to protest and fight for democracy. Other cases in point are China´s Tiananmen Square incident, the Philippines People's Power movements, Korea´s trade union and student protesters, and even Japan´s mothers´ movement against nuclear power. And a simple conversation with a poor person in the street in India, will reveal how proud Indians feel about their democracy, especially when compared with the case of China.

The punch-line

The punch-line is that good governance, based on effective leadership, a strong state, rule of law and citizen participation, is the key to economic success. But history shows that neither democratic nor authoritarian regimes are automatic guarantors of good governance.

Authoritarian regimes like Singapore and China can implement good governance, as can democracies like Japan. Both authoritarian regimes and dysfunctional democracies can produce poor governance. But as India and the Philippines have shown, dysfunctional democracies are also capable of improving their governance, even if they are coming late to the party.

But as economies climb the development ladder, and innovation and creative destruction become key drivers of development, open democratic societies are essential -- as Singapore and China are finding out now.









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