Jan.
22
2014

There is no future for economic success without democracy

Unless the European national democracies eventually form a pan-European democracy, the economic and financial union will dissolve, says one of the world’s most famous economist and Professor at the Institute for Advanced Study in Princeton – Dani Rodrik, who is also expected to be among the potential candidates for the Nobel Prize. According to the Turkish-American scientist, those who believe that the authoritarian regimes are more successful than liberal democracies are sorely wrong.

While some countries like South Korea and Taiwan produced high growth under authoritarian regimes, many more dictatorships in Latin America and Africa have led to economic collapse. All efforts are doomed to failure that are made to strengthen authoritarian rule in Turkey, Hungary, Russia, and China. At the same time, internal radicalization threatens the Western European countries because economic integration cannot continue without political integration. Countries refusing this are acting against their own long-term interests, which might have serious consequences, warns us Rodrik.

Zentai Péter: “The heroes of the global economy” – the term you use in your extremely successful work The Globalization Paradox (published in 2011), in which you predicted that a global crisis would occur soon. Who, which countries, or which governments are the real heroes of the global economy today?

In fact, there are only countries that are doing less badly than most of the others. These governments share a number of characteristics. Firstly, they are not moving back from democracy and not becoming more autocratic. Secondly, they do not have very large external imbalances – either current account deficits surpluses – and are paying down their debt systematically. Thirdly, there is a fair and constructive dialogue between the government and the private sector. In this regard, I would name South Korea and – despite its growing problems – Brazil as good examples. I am also quite optimistic about Uruguay and Mexico.

In this part of the world, in the middle of Europe, neither the political elite nor the public gives any credit to liberal democracies as a source economic success. They would rather prefer an autocratic form of government, where the real power lies in the hands of the political leader. The new examples are Russia, your home country Turkey, Singapore, Thailand, and mainly, China…

Those who are looking at authoritarian countries as long-term successful examples are making a very big mistake. It is true that certain types of authoritarian regimes, like those of East and Southeast Asia, have managed to engineer high rates of economic growth. But eventually, all of them have faced the paradox: it is very difficult to prosper without significant political democratization. Only those countries can show sustainable, long-term growth patterns, which have eliminated or are eliminating dictatorial rule, such as South Korea and Taiwan. However, those that stick with autocratic leadership or establish autocratic leadership, sooner rather than later, suffer through various social and political crises. Turkey, Venezuela, Argentina, and China are going through one right now. China will not be able to continue on its economic development path without becoming politically more open, which might lead to global crisis.
So the lack of democracy or the elimination of key democratic rights – in order to increase economic efficiency – is creating instability and insecurity with unpredictable consequences the medium-term.

Western-type democracies are often criticized over corruption. Are autocratic regimes better than democratic ones in this respect?

Democratic regimes avoid the extremes by nature. It does not mean that all of them are pure, transparent, and free of corruption; but the fact that free speech, civil liberties, independent media, separation of powers, elections, and competition exist, sets a necessary limit to how much corruption there can be. In an authoritarian system, in effect, the authority can do anything. There is no real limit to corruption, which may become uncontrollable.

What about Singapore? It is an autocratic regime; however, it is the least corrupt country in the world.

Occasionally, a leader can take charge who is obsessed with corruption and has an ambition to end it. This is the case of Singapore. Fairness and transparency are, however, very unnatural and unrealistic in a dictatorship as the system relies on its self-establish clientele. As a result, the existence of corruption is much more likely than the lack of corruption. An authoritarian regime can become a “Congo” as it can become a “Singapore”. And this is something in which the people have no voice at all. Maybe a democratic regime does not guarantee them a country like Singapore but it certainly ensures that they avoid a far worse fate.

Still, the number of countries in Europe that are heading toward autocracy – authorized by the people – is increasing. How would you explain that?

What we are seeing in countries like Russia, Turkey, and Hungary are examples of what has been called illiberal democracies or competitive authoritarianisms. Although the legitimacy of the power is unquestionable because the leader is elected, these are not real democracies. They lack the most important attribute of exercising power: civil and political liberties. The branches of power are not separated and the freedom of the media is restricted by economic and other coercive tools, even if opposition media exists. At the same time, elections are held regularly and the leaders are exercising the power in a superficially legitimate way – as having succeeded at the polls. This is a very worrying trend.
The big question is: is this linked in any way to the transformation of the world economy or the requirements for success in the market economy and for growth? On this point, the links are loose as we can see in the case of Turkey. Globalization has created greater inequality within a lot of countries, and autocratic leaders – by weakening the branches of power – are exploiting the frustration and disappointment of the people who feel like the losers of globalization. Leaders respond by turning masses back to some national and/or religious myths of origin and identifying opposing powers, foreign powers, countries, and investors as enemies against whom people can direct their discomfort and fury. I certainly see this happening in Turkey, and as far as I know in Hungary, as well – just less efficiently than in my home country.

Far-right parties which blame globalization and the European Union for their economic downturn forge ahead even in Western countries with developed democracies…

The European Union, more specifically, the Eurozone is suffering due to an internal failure, a probably long-lasting political crisis. This is the main reason why euroscepticism and anti-European Union sentiments are strengthening. The paradox is that certain political institutions and systems providing for social solidarity, for welfare, for dealing with issues of inequality – that used to work well or still work well within some countries – are not developing at European level. At the same time, financial integration has deepened. A very big gap has opened between the political and financial-economic integration.
What happens in the Western European political arena is the consequence of this paradox. National politicians say that they are not able to respond to the challenges globalization has created, such as high level of unemployment and immigration, because their hands are tied and only Brussels has sufficient power to solve these issues. In fact, Brussels does not have any instruments as the needed fundamental institutions across the Eurozone do not exist. There is a kind of political vacuum in which nationalist and anti-European sentiments spread.

And this power vacuum is not shrinking. In the meantime, doubt, skepticism for the euro and the EU, and national egoism are strengthening. European nations do not want to have a political union. Might this lead to serious conflicts, by chance to war between the Member States of the European Union?

I hope not. The European Union, which achieved the fastest, most successful internal economic and financial integration of all the leading regions of the world, now, shows signs of huge imbalances: the political integration lagged behind the development of the economic area.
The strain became great.
Europe has two ways to choose. The first option is to take steps toward some kind of political union where nation states make a democracy union-wide – the same way they have turned their market economy union-wide. In order to do this, nations involved need to make some sacrifices but, eventually, the internal balance would be restored and a growing, competitive Europe would be created. The other scenario is that Europeans give up their ambitions for the political union; however, this would inevitably involve the dissolution of the economic union.

Where are we now?

There is some movement along the fiscal and banking integration within the Eurozone. Many people accept certain amount of political integration, as well. At the same time, various forms of “crisis survival models” are established in the European countries.
You are right that most of the European nations, the public opinion refuses the idea of a fully-fledged political union, although this would be necessary for the continuous real economic growth. It is not clear how long ordinary people can put up with the economic consequences of this incomplete union, which is high levels of unemployment, worsening of social circumstances, and as a result, radicalization within nation states.
So my answer is yes, I do think that there are very serious risks involved in the current situation of the European Union.

Photo: bif.rs