A new article by Michael Mandelbaum, a professor at the Johns Hopkins University School of Advanced International Studies, looks at the links between free markets and democracy. He says a free-market economy is not just an important component of democracy, but is an essential precursor to the rise of a democratic political system.
“The principal source of political democracy,” Mandelbaum says, “is a free-market economy. While there have been, and continue to be, countries that practice free-market economics but not democratic politics, no country in the 21st century that is a political democracy lacks a free-market economy.”
He makes what seems to be a good case that the tremendous expansion in the number of democratic countries during the 20th century is tied closely to the increased prosperity brought about by the spread of free markets.
But World on Fire, a 2003 book by law professor Amy Chua, raises some concerns about that happy confluence in a detailed examination of how the collision of free markets and universal suffrage in third-world countries can lead to serious problems, specifically an “ethnic backlash” when a newly empowered minority clashes with what she called a “market-dominant minority” in which most of the country’s free-market wealth is concentrated.
I’m wondering what this information means for the 21st century, specifically the 70 or so members of the United Nations that are not democracies, and who seem pretty entrenched in their non-democracy ways. Should groups (government and nongovernment) that are interested in promoting democracy focus more energy on economic reforms? And what about the risk of “ethnic backlash” that Chua raised? Can we find ways to keep the world from catching on fire?
Comments (5)
Kim Bettcher
13 June 2008 at 18:08 EDT
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I wholeheartedly agree with Prof. Mandelbaum’s points about the importance of free markets to democracy. Chronologically, there may still be something of a chicken and egg problem, since there are many different trajectories toward democracy.
It’s been awhile since I looked at Prof. Chua’s book, but as I recall she was describing situations with poor governance and narrow economic opportunity overlaying ethnic conflict. Look at Kenya’s recent troubles: bad governance (corruption) combined with an unfair election and a winner-takes-all system (because the government dominates the economy) was a recipe for conflict.
Aleksandr Shkolnikov
16 June 2008 at 17:32 EDT
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I would come back and ask - can you truly have a market economy without democracy? and vice versa? Think about rule of law, which is just as important in a market economy as it is in a democratic system. Can you separate it to have rule of law in a market place but not within political institutions? Can you allow true competition within markets but restrict it in a political system? The point here is that market economies and democracies are inter-related and it is difficult to try to separate them and say – first you build a market economy and then you can have democratic governance, or the other way around.
The question of “which one comes first - democracy or market economy?” continues to spur many debates. These debates have been summed up nicely in Tom Carothers’ work on sequencing of reform.
Personally, I look at it from the institutional stand point. Institutions that underlie countries’ political, economic, and social systems are not stagnant - they evolve and change over time. Just as democratic institutions impact economic outcomes, economic outcomes, in turn, impact democratic institutions. In other words, good governance leads to more positive socio-economic outcomes and positive socio-economic outcomes reinforce good governance. Alternatively, bad governance leads to negative socio-economic outcomes and negative socio-economic outcomes reinforce good governance.
There is often a tendency to look at economic outcomes, rather than economic institutions to dispel the notion that market economies and democratic governance are related. But there is a danger here of falling into a trap. Although market economies lead to positive economic growth, the fact that countries do experience economic growth does not mean that they have a market economy in place. Hence, if we observe non-democratic regimes with high degrees of economic growth, that does not necessarily dispute the notion that market economies and democracies are related.
Jean Rogers
16 June 2008 at 18:48 EDT
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Part of the distinction lies in a mis-conception of Professor Chua’s use of “free market” terminology. Most of the countries she discusses do not, in fact, have free markets. They have markets rigged in favor of “market dominant groups” or they have markets that are so corrupt that their rules are meaningless. “Free” markets aren’t the same as a “free for all” market melee; they are supposed to be underpinned by a system of fairly applied and enforced rules. How do those rules become fairly applied and enforced? Through the policy input and redress systems found in democratic governance. This is why markets and democracy are symbiotic — they help reinforce one another, though which gets the ball rolling when both are nascent is a tougher question. It is often overlooked that economic reform *is* political reform –because it changes power structures and refines the political system through its very use to implement proposed reforms. And political reform, by allowing greater input, tends toward greater equality of opportunity or benefit distribution so that all constituencies become vested in the system they help design through their vote choices and advocacy.
Ashok Narayan Pandit
11 July 2008 at 00:23 EDT
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It’s been awhile since I looked at Prof. Chua’s book, but as I recall she was describing situations with poor governance and narrow economic opportunity overlaying ethnic conflict. Look at Kenya’s recent troubles: bad governance (corruption) combined with an unfair election and a winner-takes-all system (because the government dominates the economy) was a recipe for conflict.
cade
24 February 2009 at 00:42 EST
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well look at post soviet russia, the economic reforms preceeded Yeltsins democratisation in the early ninties, and look what happened there the most rampant and institutionlised organised crime in the new world