- IMD Business School

The falling star called democracy

Why some ‘less free’ countries may be better off
6 min.
March 2017

Today, only 4.5% of the world’s population lives in a fully democratic country, according to the Economist Intelligence Unit’s Democracy Index. About 45% live in flawed democracies, while 33% are subjects of authoritarian regimes.

Some of us have been brought up with the accepted wisdom that, starting under the ancient Greeks, democracy has been the best system in the world. Indeed, among the top ten most competitiveness economies in the 2016 IMD World Competitiveness rankings, only two economies (Hong Kong and Singapore) are not full democracies. Yet the data shows that today the world is less, not more, democratic than it was 10 years ago; the countries whose competitiveness has improved the most in that period are non-democratic. And these—Singapore and the UAE—are role models for many public-sector officials around the world.

In “The Case against Democracy,” one of the most important books published last year, Prof. Jason Brennan from Georgetown University highlighted voter ignorance as one of the major pitfalls of modern democracies. He classifies voters into three categories: hobbits are those who do not bother to learn about politics, and therefore vote in full ignorance. A second class are hooligans, those who follow their own party with the devotion of sports fans, and who adhere to a certain party irrespective of both past performance and future plans. Finally, a significant minority of people behave rationally, gather data and vote with full information—the vulcans. Unfortunately, and because of the dominance of hobbits and hooligans, democratic outcomes are not only not representative of the majority’s true views, but also wrong and damaging to the common good.

You can in fact argue that when there are massive demonstrations in the United States opposing a recently elected president, people are protesting against a dictatorship of hobbits and hooligans.

True democracy, where all those affected by a political choice are involved in the decision-making process, does not exist anywhere. In fact, there is no reason why only citizens above 18 years of age should be allowed vote. Moreover, since the outcome of the presidential election in the United States affects all world citizens in one way or another, we should all have the right to vote in it. Another aspect of voting that is unfair is that in many instances we are punishing or hindering the choices of future generations, such as when we vote on the pension policies of people who are not yet even born.

The Brexit vote may have been a rational decision by well-informed individuals, but it certainly restricts opportunities for many UK citizens who will be unable to access a larger European market in the future—and nobody has asked them.

There are other problems with democracy: importantly, democratic outcomes can often flat out just not make any sense. Just consider the Colombian referendum regarding the so-called “peace agreement” with the FARC. Pope Francis supported a “Yes” in the Colombian referendum. Since he is protected by dogma, he must be right. But the outcome of the vote was “No”, so it must have been the wrong outcome, because the Pope is always right!

Democracy is also a very slow-decision making process. The Swiss system is the best in terms of popular participation and representation, and decisions are accepted because direct democracy is implemented everywhere. However, agreements take time — sometimes too long. A good example is a 16 kilometer rail line designed to connect downtown Geneva with France. It is estimated that the project will be completed by December 2019. However, the original project dates back to 1850, and its construction began in 1912! Such a massive delay has been caused by the difficulty of gaining consensus with all of the stakeholders involved.

Interestingly, we previously generally accepted that democracy is by nature redistributive, and therefore protects the lower class against the excesses of any ruling minority. However this premise was recently proven wrong by Doron Acemoglu and James Robinson (“Democracy, Redistribution and Inequality”, 2013) who in a large longitudinal study of more than 100 countries showed that democracy does not seem to have any significant effect on income inequality. On the contrary, inequality tends to increase under democracies when the economy has already undergone significant structural transformation, when there is high land inequality, and when the gap between the middle class and the poor is relatively small.

Therefore, we can only claim the triumph of democracy if we acknowledge the problems of any of the alternatives. Dictatorships (and epistocracies to a lesser extent) rely on a somehow random allocation of political leaders. Countries can be lucky to end up with a benevolent dictator (the UAE, Singapore) with noble intentions and selfless policies; but this is rarely the case (North Korea, Equatorial Guinea) and most times dictators are not accountable to the common good (China, Saudi Arabia).

Alternatives to democracy should be more corrupt systems but this is not always the case. The supporting group of a democratic leader has to be larger by nature, and therefore is more difficult to please. This group is what Bueno de Mesquita and Smith (“The Dictator’s Handbook: Why Bad Behavior is Almost Always Good Politics”, 2012) call the essentials, or the winning coalition. In any political system—they claim—there are three important political groups to consider: the interchangeables or nominal selectorate, which includes any person with some say in choosing the leader (in a democracy, those who can vote); the influential or real selectorate, who are the ones who truly select the leader (in a democracy, those who actually vote); and the essentials, whose support truly matters (in a democracy, the ones who vote for the winning candidate). The less democratic a system is, the smaller the latter group is, and therefore the more corrupt because the system needs to ensure the financial satisfaction of only this group. Tellingly, the ten most corrupt economies in the 2016 IMD World Competitiveness Ranking are indeed democratic countries…

While most cherish democratic countries as exemplar places to live, looking in depth at the competitiveness of nations paints another picture. As a researcher in this area, I could not recommend that any country, especially a new country, seek to be democratic at all costs; especially when one takes into account some of the seismic outcomes that democratic processes have given us over the past year.

Arturo Bris is a Professor of Finance at IMD business school and directs the IMD World Competitiveness Center.


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