Capitalism, Economic Growth & Democracy
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Capitalism, Economic Growth & Democracy The Harvard community has made this article openly available. Please share how this access benefits you. Your story matters Citation Friedman, Benjamin M. 2007. Capitalism, economic growth & democracy. Daedalus 136(3): 46-55. Published Version http://dx.doi.org/10.1162/daed.2007.136.3.46 Citable link http://nrs.harvard.edu/urn-3:HUL.InstRepos:4481500 Terms of Use This article was downloaded from Harvard University’s DASH repository, and is made available under the terms and conditions applicable to Other Posted Material, as set forth at http:// nrs.harvard.edu/urn-3:HUL.InstRepos:dash.current.terms-of- use#LAA Benjamin M. Friedman Capitalism, economic growth & democracy Two parallel developments in world of these developments has been univer- affairs that dominated the latter years sal, traditional Communist societies of the twentieth century, each of which committed to both one-party political gained momentum with the disintegra- systems and centrally planned econo- tion of the Soviet Union a decade and a mies have suddenly become a rare spe- half ago, have continued into the new cies, limited to isolated sightings like era. In politics, many of what had been Cuba and North Korea. one-party Communist states gave way Especially at the time of the Soviet col- to multiparty electoral democracies, in lapse, many observers in the West sim- most cases with signi½cantly expanded ply assumed that the rejection of Com- political rights and civil liberties for munism reflected an eagerness to em- their citizens. Thirty years ago, only for- brace both Western politics and Western ty countries were politically ‘free’ by economics. Russia and most of the other conventional Western standards; today former Soviet republics quickly adopted there are ninety.1 At the same time, what many aspects of Western modes in both had been centrally planned and directed dimensions, as did the former Soviet ‘command’ systems for organizing eco- dependencies in Eastern Europe. But it nomic activity and distributing the re- soon became apparent that imitation of sulting product made room for a sharply Western ways was not the sole, nor al- increased role for private initiative, in- ways even the primary, motivation. On cluding private ownership of assets and the positive side, the mere desire for in- accumulation of wealth. While neither dependence, and on the negative, old- fashioned nationalism, turned out to be Benjamin M. Friedman is William Joseph Maier important drivers as well–sometimes, Professor of Political Economy at Harvard Uni- as in the former Yugoslavia, with disas- versity. His publications include “Day of Reckon- trous consequences. ing: The Consequences of American Economic Policy under Reagan and After” (1988) and 1 Data are from Freedom House, a private non- “The Moral Consequences of Economic Growth” pro½t research institute. The increase from (2005). forty ‘free’ countries in 1975 to ninety in 2007 modestly overstates the extent of the change, © 2007 by the American Academy of Arts in that the total number of countries rated in- & Sciences creased from 158 to 193 over these years. 46 Dædalus Summer 2007 Moreover, Western-style economics Even within the Western world, how- Capitalism, economic and Western-style politics do not always ever–where electoral democracy and a growth & go together. Russia, for example, has pri- market-oriented economy are mostly democracy vatized large parts of what was once a taken for granted–parallel movement tightly controlled economy steered by does not automatically imply a causal Gosplan under successive ½ve-year plans linkage. Do the two necessarily go to- adopted at the highest levels of the Sovi- gether? And if so, what is the causal et state. And since 1991 Russia has con- mechanism? ducted several rounds of elections, for the national duma as well as for the pres- Half a century ago, the open question ident of the republic, that were substan- was whether central planning or a de- tially open and genuinely contested. centralized private market could better But President Putin’s government now deliver ef½cient production of goods seems to be cementing its grip on pow- and services, investment in new capital er in many forms, and prospects for the resources, and gains over time in pro- future of democracy in Russia remain ductivity and therefore, ultimately, in uncertain–especially since Putin’s re- a population’s standard of living. Rich- election in 2004. ard Nixon’s famous ‘kitchen debate’ China presents an even larger ques- with Nikita Khrushchev, in 1959, attract- tion. Beginning with Deng Xiaoping’s ed so much interest at the time not just reforms in 1978, China has moved stead- on account of the surrounding theat- ily away from central planning toward rics but because the question about private economic initiative. Even within which they were arguing was genuine- the economy’s industrial sector, where ly under dispute. Americans’ memories state-owned enterprises were once dom- of the 1930s were still strong; Soviet liv- inant, the share of production still car- ing standards were reportedly improv- ried out under direct state ownership or ing rapidly; and the Soviets had only control has shrunk to 42 percent. Most recently demonstrated their scienti½c citizens are now free to decide where to prowess by launching the Sputnik satel- work, whether to start a business, and lite into orbit around the Earth. Later, whom to hire. Private wealth accumula- when Khrushchev said that the Soviet tion, including ownership of productive Union would ‘bury’ the United States, assets as well as residential real estate, is he was not threatening nuclear war (as not just allowed but encouraged. many at the time misinterpreted him to But at the national level the Chinese imply) but predicting that the Soviets, government remains a one-party dicta- with their superior economic system, torship; and there is little publicly ex- would eventually overwhelm the West pressed interest in multiparty politics, economically and therefore politically. broader freedom of expression, or oth- Khrushchev was wrong. And as more er elements of Western-style democra- and more people living under Commu- cy. Whether a country with one-½fth of nism came to realize the error of that the world’s population and (soon) the prediction, change ensued in fairly short world’s second-largest economy can sus- order. Mao’s China gave way to Deng’s tain the combination of market-oriented not as a matter of ideological preference economics and nondemocratic politics –quite the contrary–but because Chi- is one of the most signi½cant open ques- nese citizens did not want to live in pov- tions in world affairs today. erty forever and China’s rulers feared the Dædalus Summer 2007 47 BenjaminM. consequences of forcing them to do so. But the important fact remains that, Friedman on Similarly, a key trigger of the demise of ever since the Industrial Revolution, de- capitalism the Soviet Union and its empire was that centralized market economies have had & democ- enough people there and in Eastern Eu- a proven record of delivering rising liv- racy rope–importantly including practical- ing standards over sustained periods of ly all of the nomenklatura–eventually time. Asking whether a market economy understood that, notwithstanding the and democracy go together is therefore of½cial propaganda, they were falling tantamount to asking whether economic ever farther behind Western living growth and democracy go together. And standards. In 1990 the average Soviet thinking of the matter in that way sug- living standard was only one-third that gests a mechanism by which the connec- of the United States, even after allow- tion between the two might indeed be ing for differences in the cost of living. causal. The comparable ratio for Poland ver- sus (West) Germany was one-eighth. The experience of many countries sug- Perhaps ironically, an even more dra- gests that when a society experiences matic demonstration of the superior ef- rising standards of living, broadly dis- fectiveness of market-oriented econom- tributed across the population at large, ic systems is Korea. At the time of its it is also likely to make progress along partition, at the end of World War II, a variety of dimensions that are either what became South Korea was the poor- part of the very de½nition of democracy er, more agricultural part of the Korean or closely associated with democracy. peninsula; most of the industry was in These include not just open, contested the north. Incomes and living standards elections to determine who controls the were meager to negligible by Western levers of political power but also politi- standards. Today the South Korean stan- cal rights and civil liberties more gener- dard of living is more than half that of ally; openness of opportunity for eco- the United States, modestly ahead of nomic and social advancement; toler- Portugal’s, and more than twice Rus- ance toward recognizably distinct ra- sia’s. South Koreans enjoy levels of life cial, religious, or ethnic groups within expectancy, nutrition, and literacy com- the society, including immigrants if parable to Americans’ (and the South the country regularly receives in-migra- Korean child mortality rate is lower). tion; and a sense of fairness in the pro- North Korea, by contrast, remains a vision made for those in the society who, desperately poor country where people whether on account of limited opportu- regularly starve in signi½cant numbers, nities, lesser human endowments, or malnutrition is widespread, and those even just poor luck in the labor market, who can manage to do so sneak across fall too far below the prevailing public the border into China in search of either standard of material well-being.