Democracy and Economic Development – Complementary or Contradictory?

Background

The history of modern economic development is full of successes and failures.  The failures seem to be more than the successes; from the many African nations that have never truly improved their condition since independence 60 years ago; to the Middle East, rich with oil but stagnant democratically; to the mixed bag of Latin America nations, where some countries are doing great while others are still struggling to lift-off.

The one region that is the absolute example of success is east and south-east Asia, where the infamous Asian Tiger economies have thrived over the past 40 years.  Japan, Hong Kong, Singapore, Taiwan, and South Korea, all had and some still have questionable political regimes in power during their economic rise.  Singapore is still run by a one-party system, while Japan and Taiwan were ruled for the longest time similarly by one party.  Hong Kong was ran by an oligarchy, while South Korea had a dictatorship until the late 1980’s.

The most recent member of the economic development success stories is of course China.  China, with its one-party rule and authoritarian capitalism model has been achieving record-breaking levels of economic growth, pulling almost half of its 1.4 billion people out of poverty in under 30 years time.  Compared to other parts of the world, and taking into consideration China’s low start level in the 1970’s, that is nothing short of a miracle.

Then came the global financial crisis which shuttered the confidence of the world on market economics, free trade and the free movement of capital.  On the other hand, China has emerged almost unscathed from the global financial crisis.  The success of China in shielding its economy from the global financial virus has further emboldened the Communist Party that China’s authoritarian capitalism (capital controls, a fixed currency, government planning and heavy financial regulation) is the true path to economic development.

Now, the nations of the Middle East are going through some major changes to their regimes and future system of governance.  Which model of development should the emerging and existing regimes follow: the western model of free trade and open markets, or the eastern model of government control and regulation of the economy?  Can western style democracy lead to economic development, or is the existing authoritarian capitalism model of East Asia the only viable path to success??  Or, is there a way to combine the best of both worlds – the democratic principles and respect of civil liberties of the west with the economic policies of the east???

Federalism or Regional Integration vs. Authoritarian Capitalism

I believe that a federal system of governance is better at both safeguarding democracy and the rights of the people, while promoting economic growth and development because it better facilitates the formation and growth of the market while at the same time producing a more efficient government that better preserves the rights and needs of the people.  Furthermore, regional integration agreements (like custom unions or common regulatory policies or common currencies) also promote economic growth and development, as is demonstrated by the success of the European Union (current sovereign debt issues not withstanding).  National governments with federal style separations of power and checks and balances, coupled with regional trade agreements could be the key to achieving economic growth and development throughout Africa and the Middle East.

On the other hand, China’s development strategy is no different from the one implemented by Japan and the other Asian Tigers.  In three decades time, China has surpassed Germany and Japan to become the second largest economy in the world, relying on an export lead growth strategy and a strict control of the political system.  China’s Communist Party created ‘special economic zones,’ industrial parks where foreign manufacturers were encouraged (by favorable land and energy deals and availability of cheap labor) to move operations, valuable technologies and now even R&D.  Despite the remarkable economic growth of China, recent developments around the world lead me to believe that authoritarian capitalism is not sustainable in the long run.

We the People…

The purpose of this web-site is threefold: 1) to evaluate the potential of implementing federalism as a system of governance to select developing nations; 2) to assess the potential for further regional trade integration among developing nations in Africa and the Middle East; and 3) to address the potential impact of China’s growth on regional economies and political regimes.

In future posts I intend to unfold the benefits of federalism and regional integration, while highlighting the impact of China’s growth on developing efforts in the Africa and the Middle East.

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About Nasos Mihalakas

I am an Assistant Professor of International Business and Government policy, and a former U.S. Government policy analyst. I have over nine years of experience with the U.S. government as a trade policy analyst, and U.S.-China trade relations. I have worked for both a Congressional Commission advising Congress on the impact of trade with China and for the U.S. Department of Commerce investigating unfair trade practices. However, my education has been on constitutional and comparative law, with an LLM from University College London, and a JD from the University of Pittsburgh. Currently I am writing a book on the evolution of Federalism in the U.S., and the application of Federalism as a form of governance around the world. You can contact me at: nasos.mihalakas@gmail.com
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