Monday, June 12, 2006

Democracy and Infrastructure

At the Indian Economy Blog, Nitin Pai asks "Is there something in the nature of democratic governments that constrains the building of good infrastructure?", and says "When authoritarian governments decide to do it they often do so quite well."
I think he has Singapore in mind, but I think he simply being unfair to democracy. For contrast, consider the track records of North Korea, the GDR, China under Mao (remember The Great Leap Forward?) or Cuba.
One would expect right-leaning dictatorships to be more successful at managing an economy, as they would at least permit businesses to flourish, and the histories of Spain under Franco, Chile under Pinochet, and Portugal under Salazar suggest that this is true. Of course, the people of those countries paid a high price for this growth.
I think that whats happening is more subtle. Small countries under authoritarian regimes reflect their rulers. Thus, a benevolent despot can guide them to prosperity, though he cannot teach them to govern themselves once he is gone. In larger countries, however, authoritarianism results in increasing anarchy at the periphery, as the lawlessness at the center spreads outwards. The Undercover Economist describes a visit to Liberia, and the rampant corruption that he saw there- not attributable to any excess of democracy.
Democracy works exactly like any other market-place. Together with a free press, it provides feedback, and puts checks on producers (politicians).
The problem in India is not democracy, but that there has not been sufficient checks on the consumers (citizens). Russia is in a similar state, though they are much, much worse off than we are- 70+ years of communism, along with the sham of the "privatizations" of the 1990s has had the result that citizens mistrust businessmen, and look to the government for security. People fear change, and politicians can thrive by promising security and re-distribution rather than growth. What solutions? Not to abandon democracy, but to agree that the government has limits to its powers. When government stops trying to change society, it may be able to concentrate on promoting economic growth, and we may find that this is more effective at promoting social change than any direct attempt to re-engineer society.

4 comments:

Nitin said...

Rajeev,

Actually, my comment was in reference to post-Deng China. And I qualified the reference to authoritarian states by saying that 'when they decide to' build infrastructure, they do so quite well. There is little evidence that North Korea and Maoist China ever decided that infrastructure was a priority.

Also, the fact that authoritarianism (with or without infrastructure) comes at the cost of freedoms is definitional. The purpose of my post was not so much as to pass value judgements on democracy or authoritarianism as systems of government, but rather, examine why democratic countries appear to suffer from an inability to invest in infrastructure.

(Congratulations on starting your blog!)

Rajeev Ramachandran said...

Yo Nitin.. thanks for the welcome! I take your point, but then democracies that have good infrastructure are several: the US, the former FDR, Switzerland, France..Indeed, the danger is too much spending on highways: http://www.dynamist.com/weblog/archives/001090.html
Almost by definition, wealthy countries are democracies. The question is: what incentives do politicians have to develop infrastructure? Infrastructure projects take years to fructify, and who knows whether I will still be in power then? Easier to instigate ethnic hatred.
I think Lee Kwan's great achievement was to make it impossible for parties to compete on ethnic/religious lines. That eliminated any chance of a politics of re-distribution. When they could no longer compete along those dimensions, politicos had to compete in terms of growth, and the PAP has a proven track record on that. So, i guess my point is that democracies can invest, but you must make it impossible for politicians to take the easy way out.
Thats the good thing about blogs- gets you to clarify your thinking.

Jay said...

Infrastructure projects might take inordinately long to frucitfy for the users but doesnt necessarily have to be the same for the politicians , i think they would prefer a minor finger in a 10,000 crore infra project ( one project to deal with and people anyways expect them to cost a lot), get the money upfront whether the project gets done or not is immaterial , thats where there is no incentive.

Rajeev Ramachandran said...

Yo Jayan.. why would a politician prefer 5% of a 10,000 crore project rather than 100%? I think a robust democracy is good at preventing the latter. However, it may be even easier for him to instigate trouble (religious, caste), and then say "sure i am corrupt.but I am corrupt for you- i am robbing them to share the spoils with you". Sound familiar? :-) What Lee Kwan did in Singapore was make such bhavior impossible.