Should the experience of China silence those who think that democracy is good for

growth?

In order to answer this question one must first understand what democracy is; the
Cambridge dictionary defines it as the belief in freedom and equality between people, or
a system of government based on this belief, in which power is either held by elected
representatives or directly by the people themselves. From an economic view point, it
can be argued that democracy allows for economic liberalism, more economic decisions
are controlled by the people economic sovereignty is controlled by the masses rather
than a government with a political agenda. As such one may be led to believe that
democracy and capitalism, an economic system wherein the factors of production are
privately owned, are strongly linked and therefore democracy will facilitate growth.
However, the recent success of a non democratic country, China, can be argued to
refute this claim. China has the worlds second largest economy, a GDP of $8.227 trillion
(IMF) as well as the fastest growing economy in the world with rates around 10%.
Interesting, this economic growth seems to follow Chinas economic, social and political
revolution called the the Great Leap forward from 1958 to 1961 led by Mao Zedong.
Chinas communism is made evident by the banning of privately owned farms, a move to
agricultural collectivism especially during the 1960s, but the extent to which this
benefitted Chinas economy, along with whether modern day China is truly communist
will be discussed. It will be argued that in fact the presence or absence of democracy may
not affect economic growth as much as one would think; rather it can be argued that
Chinas recent growth is due to the adoption of a more capitalist system.

Firstly one must evaluate the growth of China, a non democratic country, comparing it
to the relative economic success of democratic countries such as the USA and the UK.
China experienced an average economic growth rate of 13% from 2003-2007 compared
to the average economic growth rate of 2.37 %; this has been achieved partly by the
Chinese governments policy of keeping an artificially undervalued exchange rate by
pegging its currency against the US dollar. This keeps Chinese exports high while ensuring
that the price of imports stay low, thus improving the balance of payments and
facilitating `economic growth. However, how much of this is due to the Chinese
governments authoritarian stance? It can be argued that a non-democratic government
allows a country to be more efficient and more effective when setting and completing
economic, political and social goals. A democratic country will often be limited by such
thing as: public opinion, votes and labour unions, an act which may have been beneficial
to the countrys economy in the long term, such as building a new airport, would have its
development stymied by those who were worried about social factors such as noise
pollution. While in China this is not as much of an issue, the countrys second major
airport in South Beijing is set to be completed in 2018 and business spending on air travel
is set to increase by 14.7% in 2013 to $224 billion. A strong government is needed for
growth, especially if one believes infrastructures factors of production are intrinsic to
economic growth.

However, it can be argued that Chinas growth is an exception and tells us very little of
the link between democracy or lack of democracy and economic prosperity. Democracy
has always been linked with liberalism and capitalism; liberalism in turn allows the
citizens of the state greater freedom to command their own wealth. It can be argued to
an extent that democracy promotes the emulation of a free-market which in turn allows
for the most efficient allocation of resources based on market forces, this is impossible
with the level of government intervention seen in non democratic states such as China.
It is no coincidence that out of the 20 largest economies sorted by nominal GDP,
seventeen of them are democratic states with the only exceptions being Russia, China
and Saudi Arabia. However, it can be argued that there is dissonance in the relationship
between democracy and capitalism, this is demonstrated by a quote by Adam Smith from
The Wealth of Nations; Every individual is continually exerting himself to find out the
most advantageous employment for whatever capital he can command. It is his own
advantage, indeed, and not that of the society which he has in view. A capitalist
economy thrives on the fact that humans are self-interested while capitalism is based on
the assumption of consumer sovereignty, in reality the firm consumer dichotomy
allows for the firm or investor to profit or to exploit the consumer. While democracy
ensures that the well-being of the consumer, the layman is protected and thus since
democracy strives for communal interests and capitalism strives for individual interests,
they will always contradict. This contradiction is not present in non democratic
countries, an authoritarian government need not concern itself with the freedom of its
people.


While it is obvious that there is dissonance in the capitalism democracy paradigm,
this cannot be said about non democratic countries. A government which does not
need to serve in the interest of people can pursue economic goals to a greater level of
efficiency. The power that comes with authoritarian governments can lead to great
economic successes, for example the reversal of the Agricultural collectivism policy in the
1970s by China in favour of private incentives in farming allowed the government to reap
the rewards. Autocratic governments are given immense power over resource allocation
in their country and thus can manipulate all components of it with ease. However this
can also be detrimental, despite the arguable long term political benefits of the Great
Leap forward from 1958 the policy of agricultural collectivisation led to great famines
with reports of over 20 million deaths, China experienced economic regression thanks to
the policy. Non democratic governments are often led by a single leader or by a small
group of leaders, giving total economic control to a small group can have a profound
effect, the economy depends on the whims of said group. The flaw with non
democratic governments is the fact that they are vulnerable to exogenous shocks to their
political system; often their regimes are unsustainable which limits economic growth.
Noticeable examples of the instability in autocratic, communist and authoritarian
governments include Chile and Taiwan.



To better understand the flaws with the authoritarian governments, one should look at
two similar countries in order to understand the economic differences between
democratic and non-democratic countries. The most obvious example is that of North
and South Korea, both were under non-democratic regimes from the Korean war up until
the 1980s with South Korea diverging in a more democratic state, while North Korea
adapted an isolationist and an especially non-democratic policy thus it can be argued
that North Korea is in fact the best example of the antithesis of democracy in the form of
communism. Korea, as a whole, struggled economically but since the 1980s the South
has experienced rapid growth while the North simply hasnt. From 2000, South Korea
opened itself up to Foreign Direct Investment and imports which would never have been
possible to the same extent for the North. As a communist state, the North is left isolated
from many of the great economic powers of the world such as the UK and the US; it
depends on China for 61.6% of imports; so its stringent anti-democratic policy can be
argued to have prevented any potential economic growth. The North has suffered as a
result of its centrally planned economy, as a result of the inefficient allocation of its
resources by its government industrial capital stock has been stymied, there has been
gross underinvestment and Agriculture, which accounts for 23.3% of the Norths GDP,
has faced irreparable problems as a result of the inherent failure of agricultural
collectivism the same policy which failed in the early 1960s during the Great leap
forward of China.

The problems of measuring the effect of democracy on economic growth is that some
factors such as political freedom or social wellbeing are immensely hard to measure,
despite the fact that they do influence economic growth in the long run. One can simply
look at the Tiananmen Square protests of 1989 to see the effect of Chinas non-
democratic government, the protests called for fundamental freedoms, freedom of
speech and press and economic reform. Freedom of the people is indubitably limited in
an authoritarian country and it can be argued that this affects the economy. Freedom
forms a large part of overall living standards, low living standards will lead to citizen and
worker disillusionment; this will limit any potential economic growth in China. The
protest itself was counterproductive as it facilitated a move to a more conservative
approach from Chinese policymakers, Deng Xiaopings policy of moving the Chinese
economy closer to a capitalist system, while effective, can be argued to have only
contributed to the dire political situation by 1989. From this protest we can see the
paradoxical flaw with the authoritarian and communist ethos within China, while the
economic reform of 1978 did improve the Chinese economy, the fact that they were
conducted in a Machiavellian style rather than through democratic means only served as
a detriment to its success. The Tiananmen Square protest serves as a reminder that
authoritarian governments will always be unstable, rapid economic growth excessively
limited by political instability.


However, despite supposed political instability China has continued to grow following
the economic reforms of 1978, which led to the Tiananmen protests, Chinas economy
has only improved. Then the question must be asked how the obstinately non-
democratic has remained relatively politically stable? All large non-democratic,
communist countries since the 1950s have eventually ceded to democracy, notable
examples include Bhutan in 2008 and Vietnam in 1986. These two cases are similar to
China many ways, both countries were non-democratic, Bhutan an absolute monarchy
and Vietnam a Communist state; however, while democracy rose in most of South East
Asia through socio-economic and political reforms as a result of protests, China has
remained Communist. Therefore the question must be asked, is China really
communist? The official ideology of the Communist Party of China is that of Socialism
with Chinese Characteristics, China has in fact been assimilating aspects of Capitalism
since 1978. Unlike in an ideal communist state where an emphasis is put on economic
collectivism, the private sector accounted for 70% of Chinas overall GDP in 2005 in
order to achieve economic success China had to step away from their communist
ideology. The Chinese government has accommodated private ownership in order to
facilitate economic growth thus it can be argued that the lack of democracy is not the
cause for it, rather Chinas adoption of pseudo-Capitalism has allowed it. Friedrich Engels,
the creator of Marxism along with Karl Marx, said that through societys taking out of
the hands of the private capitalists the use of all the productive forcesall the evil
consequences of the present running of large-scale industry will be done away with. It is
obvious that Marxism does not approve of private ownership so it is hard to consider
China as a communist state. It is not democratic but is certainly contains many aspects of
democracy, especially in Hong Kong while China owes a lot of its economic success to its
partial adoption of capitalism from 1978 unto the present day. However, one can see
from the graph that Chinas economic growth has reached unparalleled levels of success
since the 2000s, this may be due to the time lag associated with Socialism with Chinese
characteristics or one can argued that recent policies such as an emphasis on the
protection of private property laws. The biggest cause of the growth may have been the
concept of Grasping the large, letting go of the small; the policy strived to corporatize
state owned companies and to reduce the size of the public sector. Whether the trigger
for economic growth was in 1978 or 1996, it is obvious that growth was at least partially
due to an emphasis on privatization, a cornerstone of capitalism.

It should be noted that there is a correlation between a countrys economic success and
its probability of developing a democratic system, as an economy gets bigger its middle
class gains in magnitude and prominence. With more money in an economy, people are
more likely to seek greater civil liberties and with greater liberties in the form of
democracy it can be argued that an economy can only grow. However, it could be argued
that democracies do not form because of economic growth but rather can only be
sustained in economically prosperous countries. One can look at Ghana as an example of
democracy failing in an economically underdeveloped country, elections were useless as,
following its independence in 1957, political parties would simply pass legislation
outlawing opposition parties. Democracy is only possible in developed countries after a
country has become prosperous, after its citizens have become educated, thus
underdeveloped countries tend to be non-democratic and developed countries tend to
be democratic. Undeveloped countries have more room to grow compared to developed
countries so other examples of non-democratic countries growing rapidly is probably not
inherently linked to the political ideology in place, rather the overall economic situation.
China is an exception as the government was able to adopt capitalistic notions whilst
maintaining an authoritarian and non-democratic state, this may seem odd as democracy
and capitalism are linked but China acts as an example that it is possible to use capitalism
in a non-democratic system and, in Chinas case, it can lead to economic prosperity.

In conclusion, it is not correct to say that the experience of China silences those who
think that democracy is good for growth. Democracy can be good for growth, as is the
case in a capitalist democracy such as the United States but China shows how democracy
is not a prerequisite for growth. Rather the reason why so many democratic states have
succeeded over the last 100 years and the reason why China has done so well over the
last 30 years is capitalism. While no country exists in a truly free-market the adoption of
capitalist ideals, namely privatisation (namely agricultural privatisation in China) and
allowing resource allocation to be governed by market forces, have allowed certain
economies to prosper. Capitalism has its own flaws but one can look at Chinas economic
failings from 1958-61 to see how other economic systems such as an especially non
democratic command (centrally planned) economy can fail quite easily. It is obvious that
there is a dissonance between Chinas economic policy and political ideology, the latter
of which has had its potential effect on the economy limited by what Huan Yasheng,
author and economics professor, called Capitalism with Chinese characteristics.
Democracy can be good or bad for growth but one should not overstate the effect of it,
China shows how a country can have contradictory policies but still succeed. It is highly
likely that economically prosperous countries will eventually accept democracy so it
remains to be seen if China can maintain their economic success while also constantly
emanating non-democratic policies and ideologies. So the experience of China should not
silence those who believe that democracy is good for growth but it should warn people
that other, non-democratic political systems can facilitate economic prosperity.

WORD COUNT: 2,442

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