Necessary conditions for economic growth and the varnished truth

These were the headline, standfirst and opening paragraphs of the story in the Straits Times.

30 May 2008
Straits Times. Link

'Good governance' vital to country's prosperity.
Nobel winner and head of panel identifying economic success stories says liberal democracy not necessary.

Washington - A commitment to good governance is key to a country's prosperity, while the form of government is less important, says Nobel Prize-winning economist Michael Spence.

As the leader of a panel which last week issued a report identifying the winning features of successful economies, he has annoyed some Western economists by failing to mention the holy trinity of liberal democracy, a free market and privatisation.

[truncated]

How convenient that there's now a Nobel laureate saying exactly what Singapore's ruling People's Action Party has been saying all along -- the importance of "good governance" and the uselessness of liberal democracy. 

As with so many local media reports, it left me with the uneasy feeling that the news story was a blend of fact and propaganda. I decided to look at some other news reports of the same commission's findings to try to tell them apart.

What I found was that Michael Spence had chaired the Commission on Growth and Development, an independent body supported by the World Bank, Australia, Sweden, the Netherlands, United Kingdom, and the William and Flora Hewlett Foundation. Its aim was to study countries that have achieved sustained high growth rates and to unlock the successful strategies deployed, in order to provide better advice for poor countries.

The commission's website carries a short letter by Spence himself outlining its key findings. See the first box at right.

The World Bank's website had a much longer write-up explaining the needed priorities:

The Growth Report identifies some of the distinctive characteristics of high-growth countries and highlights the importance of leadership and governance, economic security, competition, sound fiscal and monetary policy, and public investment in health and education.

Transport in Africa - what happens after decades of under-investment in public infrastructure

 
You don't find Spence's letter or the World Bank's summary dissing democracy the way the Straits Times did.

On the right are three reports, from the Wall Street Journal, the online portal Finfacts and the Guardian newspaper. As you can see, they all focussed on the two-pronged recommendation of the commission: internal governance with the right priorities and keeping economies engaged with global markets and technology.

The Wall Street Journal's story led with the point about the folly of closed markets and protectionism. Further down, it reported, like the World Bank's write-up:

The commission said the 13 economies that had grown rapidly for a 25-year period ... had five policies in common. They "exploited" the world economy, maintained macroeconomic stability, and had high levels of savings and investment, flexible domestic markets and "credible" governments.

-- Wall Street Journal, 22 May 2008, Measuring the ingredients of economic growth.

Deeper in Finfacts' story, the point was made that for sustained economic growth, one key measure appeared to be that total public and private sector investment should amount to at least 25 percent of GDP, with emphasis on infrastructure, health and education. 

Looking at these various reports, the Straits Times' version is a bit of an outlier, in that whereas all the others focussed on the commission's big recommendations, the Straits Times' headline immediately trumpeted the Singapore government's favourite phrase ("good governance") and the sub-header quickly put down advocates for democracy ("liberal democracy not necessary"). The story contains no falsehood, but it leaves one with no doubt that the editorial motives were more political than journalistic.

Keep this example for future reference.

There was one more unique feature of the Straits Times story - the emphasis placed on governmental salaries:

But Prof Spence said the effectiveness of government depended on well-trained and well-paid civil servants.

And as the reports put it: 'An elite civil service may not come cheap. But poorly-motivated, ill-prepared civil servants are tremendously costly.'

-- Straits Times, 30 May 2008, 'Good governance'
  vital to country's prosperity.

This angle was not considered important enough for inclusion in any of the other news reports that I checked.

Commission's findings were meant for poor countries

The 13 countries that fit the criteria for study are a mixed bag, as seen from this table:

 
The point to note is that all the countries studied began their growth phase when their income per capita was no more than US$3,500 (in Year 2000 US$ equivalents), often far less. Some, despite 25 years or more of growth, have still not gone past that level, despite years of growth.

This is particularly relevant to the aim of the commission's work, which was to provide pointers for poor countries: 

The commission urged poor countries to lash themselves tightly to the global economy as a way to boost jobs through exports and to import technology and investment.

-- Wall Street Journal, 22 May 2008, Measuring the ingredients of economic growth. (emphasis mine)

In the course of the study, it found that

Democracy isn't essential for growth. Autocratic governments that allow "vigorous debate" internally on economic policies are sufficient, the report said. Free trade isn't a prerequisite either. Some fast-growing economies kept high barriers to imports, even as they promoted exports, the report said.

--ibid

Was it fair and accurate for our local media to make this point about the non-necessity of liberal democracy without contextualising it with dire poverty?

 
How important is liberal democracy?

I wouldn't deny that democracy is relatively unimportant in the early stages of economic development. In fact, I got into trouble with a bunch of Burmese activists about 3 years ago because of this very point. I was speaking at a forum in Bangkok, and during question time, a Burmese emigré asked me which I would choose for Burma if there were two half-satisfactory choices: a clean but dedicated government with authoritarian instincts like Lee Kuan Yew's, or a full-fledged democracy with uncertain results?

Replying, I said I'd take the clean, dedicated authoritarian government. For the sake of the millions currently eking out a living below the poverty line, which I have seen with my own eyes, democracy can wait. After some years, when you have a biggish middle class, I said to him, then you can set aside time and resources to agitate for political freedoms, and by then you would also have the numbers to achieve success. Alas, I don't think it was the answer he wanted to hear.

This is not to say that the choice is that simple in reality; you never get such clean hypothetical choices and you can never predict how a government, autocratic or democratic, will perform. Also, authoritarian governments, once entrenched, are hard to get rid of. Then the commission itself noted:

That growth is a long-term challenge that requires leadership, persistence, stamina, pragmatism, transparency and the support of the population.... growth must be inclusive. The Report highlights the importance of sharing the benefits of globalization, providing access to the underserved, and dealing with issues of gender inclusiveness.

-- Finfacts.ie (emphasis mine)

How does a government check that it has the support of the population for the sacrifices it asks them to make for their long term future? How does a government motivate itself to make sure that growth is inclusive? Free and fair elections, surely.

Nor are democracies always ineffective:

But democracies can nonetheless preside over remarkable passages of growth. Today’s India is the most prominent example. But Ireland and Australia also provide some instructive lessons.

[snip]

The report says that these latter cases show that democracies can be surprisingly far-sighted. Rival political parties can, for example, agree on a bipartisan growth strategy, which they each promise to follow when it is their turn in power. Even if a formal pact is never made, a successful growth strategy, commanding the confidence of the public, may outlast the government that introduced it.

-- ibid.

India, together with Vietnam, almost made it into the list of high, sustained growth countries. They have had growth accelerations in the past 10-15 years, according to the commission.

As for the worst ills suffered by Brazil and Indonesia, causing them to drop out of their growth phase in 1980 and 1997 respectively, they were not due to democracy. Brazil turned protectionist and allowed inflation to get out of control under a series of military and authoritarian governments. Indonesia's cronyism and corruption under Suharto did it in when the Asian financial crisis hit in 1997. But recently, both countries have begun to revive themselves (Brazil far more strongly than Indonesia), and have done so under fully democratic governments. 

Thus, it is misleading to frame the issue the way we have in Singapore: that liberalism and democracy must be sacrificed if we want "good governance" for a good life. In truth it really isn't an either/or choice.

While economic growth and state resources that accrue from it are obviously necessary to satisfy the bottom two tiers of Abraham Maslow's hierarchy of needs, they are not quite pertinent to the upper tiers.

Starting from social needs, and most certainly the uppermost tier -- self-actualisation -- the necessary conditions must be liberty and political participation. Thus, far from being mutually exclusive, good governance and liberal democracy are complementary with different weights at different stages of development.

Clearly, Singapore is not at the same stage as most Sub-Saharan countries, so we shouldn't assume that the commission's finding that democracy is not a necessary condition for growth, is relevant to us. I would argue that we're past that, and that it is wrong to keep using this line to deny us the full flowering of our social and collective self-actualisation when we have a per capita GDP approaching most developed countries'.

© Yawning Bread 

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