Wednesday, May 25, 2005
The Democracy Conundrum
Virtually every Indian who has an opinion on the subject of economic development has wondered why there is such a difference between the growth trajectories of India and China. Of course, China has a headstart on India in that Deng's reforms began in 1977, while Indian reforms took off only in 1991. Nonetheless, all discussions on the subject eventually come down to the price India pays for having a functioning democracy in place. The reasoning is that it's a lot easier to enact tough reform measures under an authoritarian government than in a noisy democracy. After all, practically every poor country that went through rapid industrailiasation in the post-war period were all under some form of authoritarian government (Singapore, South Korea, Malaysia, China etc). Taiwan may be the exception that proves the rule. In its last issue, the Economist discussed a similar set of issues and presented some interesting ideas.
As with “tigerish” rates of economic growth, the “miracles” in reducing poverty have occurred almost exclusively in dictatorships. But so have the disasters—sometimes in the very same dictatorship. Amartya Sen, an Indian-born Nobel-prize-winning economist, has noted that democratic India, unlike its colonised predecessor, has avoided famine. China, on the other hand, suffered in 1959-61 probably the worst man-made famine in history, in which 30m may have died.
Why might democracy militate against poverty reduction in poor countries? Mr Varshney has two suggestions. First, democracies have a bias towards “direct” methods of tackling poverty, such as subsidies and hand-outs, which, in the long run, are less effective than “indirect” methods—ie, those that generate faster economic growth. In India, this seems undeniably true. Governments have built up whopping budget deficits, thanks largely to subsidies. Many farmers, for example, receive subsidised or free fuel, fertiliser, electricity and water. But little public money is spent on improvements that would do most to lift the growth rate: in infrastructure, primary education and basic health care. Everybody wants better roads, and nobody votes against them. But every politician promises to build them and hardly any do. Cutting subsidies, on the other hand, is a sure vote-loser.
Second, the poor are not necessarily a homogenous group. In a democratic system, they may organise themselves along lines other than economic class and “the shared identities of caste, ethnicity and religion are more likely to form historically enduring bonds”. If you are born poor, you may die rich. But your ethnic group is fixed. In India, with its myriad linguistic and caste-based groups, the upshot is a dispiriting beggar-thy-neighbour politics. Just as subsidies are easier to deliver than are roads and schools, so are affirmative-action schemes, giving jobs to members of specified castes.
As with “tigerish” rates of economic growth, the “miracles” in reducing poverty have occurred almost exclusively in dictatorships. But so have the disasters—sometimes in the very same dictatorship. Amartya Sen, an Indian-born Nobel-prize-winning economist, has noted that democratic India, unlike its colonised predecessor, has avoided famine. China, on the other hand, suffered in 1959-61 probably the worst man-made famine in history, in which 30m may have died.
Why might democracy militate against poverty reduction in poor countries? Mr Varshney has two suggestions. First, democracies have a bias towards “direct” methods of tackling poverty, such as subsidies and hand-outs, which, in the long run, are less effective than “indirect” methods—ie, those that generate faster economic growth. In India, this seems undeniably true. Governments have built up whopping budget deficits, thanks largely to subsidies. Many farmers, for example, receive subsidised or free fuel, fertiliser, electricity and water. But little public money is spent on improvements that would do most to lift the growth rate: in infrastructure, primary education and basic health care. Everybody wants better roads, and nobody votes against them. But every politician promises to build them and hardly any do. Cutting subsidies, on the other hand, is a sure vote-loser.
Second, the poor are not necessarily a homogenous group. In a democratic system, they may organise themselves along lines other than economic class and “the shared identities of caste, ethnicity and religion are more likely to form historically enduring bonds”. If you are born poor, you may die rich. But your ethnic group is fixed. In India, with its myriad linguistic and caste-based groups, the upshot is a dispiriting beggar-thy-neighbour politics. Just as subsidies are easier to deliver than are roads and schools, so are affirmative-action schemes, giving jobs to members of specified castes.
