Democracy and economic growth

Max Webber, in his book The Protestant Ethic and the Spirit of Capitalism, maintains that Britain succeeded to become the workshop of the world because of its religious values and practices, which forced the people to carry out their duties scrupulously. J.A. Tickner, in Self-Reliance versus Power Politics, based economic development on the blending of traditional values with economic exigencies.

S. Durlabhji and E. Marks in The Cultural Environment of Japanese Business strongly believe that the Asians, particularly Japan and the Asian Tigers, succeeded in programming their development through following the teachings of Confucius and Zen.

People today are more secularised and less dependent on the religious sentiments and values cherished so fervently by their forefathers. Apparently, the only common denominator that runs across countries in our day is that governments are appointed through periodical reference to the electorate.

Yet, Adam Smith's An Inquiry into the Nature and Causes of the Wealth of Nations was written when governments were appointed by monarchies. Karl Marx's reaction with his first volume of Das Kapital appeared when a partial representative democracy had been functioning for 35 years in Britain.

Marx's other volumes were published posthumously by his friend Friedrich Engels. After Engels died, Karl Kautsky, the leading Marxist at the time, published another three volumes of Marx's writings under the title Theories of Surplus Value. By that time democracy continued to grow and flourish in other countries.

Whereas Smith was balanced and objective in his analytical approach, Marx stressed that it was labour that created wealth and propagated the idea of labour power. This paved the way for a more extreme socialist atmosphere.

It found fertile soil in Russia when two formidable political leaders - Ulianoff, who called himself Lenin, and the Jew Bronstein, who had taken the name of Trotsky - initially assumed all political power after the Czar was forced to abdicate. Ultimately, it was Lenin who became the sole authoritarian.

The USSR became the flagship of Communism when people were forced to vote for one party. Particularly after World War II, it forced most of Eastern Europe to follow its tutelage through espionage and sheer military might. Other countries in Asia, the most prominent of which was China, adopted a Communist system of government.

Thus, for over 80 years of the last century, the world was finely divided in two major camps: those countries that believed and practised democracy, mostly identified with the United States and Western Europe, and authoritarian states which administered the country and managed the economy through central control.

Eventually we had two contrasting superpowers through the US and the USSR, practising completely different political ideologies. Both made it a point to compete in technological breakthroughs, military dominance and expanded political influence.

When the Asian Tigers, on account of their phenomenal economic progress from the Sixties onwards, started to climb the economic ladder through consistent high rates of economic growth, some people were led to believe that progress is better achieved through centralisation and imposition without reference to the people.

It has also been pointed out that these countries are not burdened with any welfare contributions that, in democratic countries, divert potential investment from sources of economic development and growth.

True, in Communist countries unemployment officially did not exist, as it was expected that each citizen should contribute to the country's economic well-being; problems of underemployment or hidden employment were rarely taken into account. In such a situations, financial handouts were extremely limited. But it was certainly unproductive to save on welfare and then not fully exploit human resources.

If welfare systems are properly managed they should help and not hinder economic growth as financial handouts are deemed to be a temporary measure to help people in need. The weakness in democratic countries has been that many politicians have been inclined to pamper their constituents with allurements, sometimes even at the expense of the exchequer.

They are conscious of the fact that the people have to confirm them in political power and authority so they try to assess people's wishes and follow those whims accordingly. Knowing that voters are influenced by present and recent events, many governments tend to carry out populist policies in the last two years of their term. That is just playing with people's feelings and not adhering to democratic principles.

Over the years, particularly since the Seventies, this has also been seen in Malta. For decades we had a bloated public service and many government entities were created so that they could serve as vehicles for political patronage. In fact, we still have public corporations with surplus labour. Their inefficiency has to be made good by the taxpayer, causing a further distortion in potential productive investment.

Similarly, the welfare system has been completely mismanaged. It was a gross mistake to round up the pension fund, ignore its investment in gilt-edged securities and transfer it to the consolidated fund. It was even worse to base innumerable benefits and allowances on national insurance contributions.

It is a pity that taxpayers had to foot the bill, through additional taxes, and made up for those political vested interests and the many abuses that only now are being discovered. So much for accountability, transparency and a sense of responsibility!

Truly, democracy in Malta has been misused and abused. This does not mean that democracy and economic growth do not go together. The clearest proof is that Communism and extreme socialism collapsed as the economies where they were practised dictated that economic management was bad and unsustainable.

The Eastern European countries not only discarded their ideologies but have been queuing to join the European Union. Some of them have already done so. China, too, though not completely abandoning its political ideology, has introduced the market economy because it too discovered that the way it used to manage the economy was very restrictive and did not allow it to flourish.

The Asian Tigers are moving to democratic practices and their pattern of high growth rates is hardly affected. So their economic miracle cannot be attributed to an authoritarian style of government but to a number of factors, which contributed to their economic success.

Democracy and economic growth do go together. Through democracy all can avail themselves of the opportunities that come their way. If this is coupled with the blending of traditional values, economies should flourish.

Dr Borda is an economist specialising in the economic development of small states.