Blending Capitalism and Democracy (Part 5 of 5)
(This article is Part Five of a five-part series on "The Clash of Capitalism and Democracy in East Asia." For an introduction to the series, please see Part One.)
Throughout this series, the potentially harmful effects of big business, international institutions, and corruption on democracy have all seemed surmountable but for one thing: a lack of resources. How can a poor government resist the lures of corporate billions? How well can a weak nation negotiate with a powerful IMF holding tempting purse strings? And how does a country without the resources to pay its police officers a decent wage prevent them from supplementing their salaries with bribe money?
Obviously, it is possible to have both a healthy economy and democracy; the United States, Western Europe, and many others have achieved it. For the purposes of this essay, I would like to call these nations, generally the OECD nations, "Group I" (see chart). Some nations, such as several of Asia's "Newly Industrialized Nations" (or NIEs) have managed to develop their economies at the substantial cost of holding back democracy or democratic reforms. Indonesia falls into this category, Group II, as does China and the South Korea of a decade ago. Group III, "poor democracies," is comprised of nations that have a healthy democracy, yet have not managed to begin or maintain healthy economic development, such as India. Group IV is the traditional "underdeveloped world," nations like Rwanda or Bangladesh, which enjoy neither democratic nor economic progress.
Although a few may disagree (Malaysia's Mahatir comes to mind), the overwhelming opinion of the world is that Group I is the place to be. Some nations, like South Korea, are moving gradually toward that goal. Yet many remain stuck firmly in their group, and are having difficulty developing either their economies or democracies. How can nations move from one group to another?
Naturally, the measures that must be taken will vary depending on where a nation is, and where it wants to go. To move from Group II to Group I, a nation needs to develop its democracy without significantly sacrificing economic growth. Contrary to the opinions of some leaders of the People's Republic of China, moving toward democracy does not always automatically hurt economic development. The two key policies necessary are protection for human rights and deregulation (but not, as I will discuss, "unregulation").
Human rights are a key function of democracy. Without the guarantees of freedom of speech and political opinion, potentially harmful policies fomented by the national bureaucracy may go unchallenged, and actually pose a threat to the nation's growth. Without the rights of a free press and assembly, the public cannot obtain the information that is vital to both economic growth, and on a less tangible level, personal and spiritual growth.
Kim Dae Jung, the newly elected leader of the Republic of Korea, knows these facts all too well. Himself a former political prisoner for his outspoken opposition to Korea's military dictatorships of the 1970s and 80s, Kim recently released 2,300 prison inmates, including 74 political prisoners. He also expunged the records of 5.5 million Koreans who had committed crimes such as praising Communism or listening to North Korean radio broadcasts. Young Jack Lee, who runs the Maryland-based Korean Institute for Human Rights told the New York Times that releasing political prisoners right away would " distract" from Korea's economic program. "First things first," Young said, "First we must rebuild the economy."
Kim was wise to disagree, and release the prisoners. Even though hundreds of political prisoners still remain behind bars in South Korea, Kim knows that without the right to express free beliefs, his nation runs the risk of excluding points of view which may be valuable. Indonesia's President Suharto, who issued a ban on student protests on the wake of last month's riots, has not learned this lesson. Despite his relaxation of the ban, it seems that he is not about to listen to the opinions of his countrymen. If the continuing demonstrations turn violent, Suharto, who is no stranger to crushing rebellion violently, will learn just how much more dangerous it is to allow the clash of discourse to occur between gun-toting soldiers and rock-throwing students, as opposed to a debate between candidates. Without basic human rights, Indonesia will not be able to move into the group of elite nations, and both its economy and its democracy will suffer.
Nations also need to deregulate their industries in order to move from Group II to Group I. When government controls an overly high percentage of goods and services, a ceiling of productivity is reached where economic development begins to slow. China is a prime example of a nation that needs to privatize in order to maintain its high rates of growth. "Unless China's state-owned industries are eventually privatized, and the weak ones shut down, they will never be properly run or profitable," writes Thomas Friedman of the New York Times. "China's leadership needs to keep moving the country closer and closer to free markets and free-market standards in order to maintain economic growth, which is the sole source of legitimacy now for the Communist Party."
But the nation must be careful not to mistake deregulation for unregulation. Badly executed deregulation in the American savings and loans industry in the early 1980s led to some egregiously bad results in the mid- to late 1980s. If China were to sell off its large state enterprises immediately and widely, not only would millions of workers become unemployed overnight, but vital industries such as banking would be dumped into the laps of managers with little prior experience in managing private banks. If the government then abdicated its oversight responsibility, the ensuing debacle could (in the Chinese context) eclipse even the harms of the US savings and loans crashes.
This analysis is not meant to frighten those who would deregulate. Government bureaucracy has an undeniable usefulness in the early stages of guiding a budding economy into international competition. Yet soon enough, the returns of such an approach diminish, and business must be allowed to take a certain amount of initiative -- and risk -- on its own. A high degree of economic freedom is as necessary as political freedom to have a truly democratic nation.
Switching gears from Group II to Group III, we focus on a different problem: nations that have (sometimes rambunctious) democracies, but seem unable to develop economically. India certainly falls into this category, and other Asian nations such as the Philippines might arguably as well. Although there is plenty of disagreement as to the best method of economic development, three underlying factors are necessary to move "vertically" in the chart: relatively high savings rates, education, and political unity.
High savings rates are necessary to ensure that private business, the engine of capitalism, has the resources necessary to grow and develop. If the average worker spends inordinately on booze and gambling, that money is not being well invested in the future. (The worker's spouse will likely inform the worker of this fact at great volume.) But if the worker saves that money in a bank, and the bank can lend the money to companies that invest it in new machinery to make their products more efficiently, that money has been well invested. Such capital investments are vital to economic growth.
It may be possible to save too much. Japan saves roughly 30% of GDP each year, and if the banks which disburse that money get the idea that there is plenty to go around, both for good investments and risky ones, they might disburse loans unwisely. As the Economist remarked on March 21, "Saving may be important for a country's long-term growth, but the efficiency with which that saving is invested matters just as much as its scale. If savings are too ample and investment flows too freely, as Japan and the Asian tiger economies have learnt to their cost, the result may be waste, not prosperity." Despite this danger, however, it is probably better to err on the side of over-saving, which few Group III nations are in danger of doing.
Education seems like an obviously important investment for poor democracies, since uneducated voters are less likely to choose intelligent leaders wisely. Yet facing limited resources, some nations unwisely choose to allocate these resources away from children, and towards groups that offer more in return, in terms of votes or political capital.
The exact impact of education on economic growth is unclear. The World Bank attributes East Asia's high economic growth in part to high productivity growth, often the result of a highly educated workforce. Other economists, such as Stanford's Lawrence Lau, have placed less emphasis on productivity growth, and more on the capital investments discussed above. But an educated workforce almost can't help but make improvements in the way the workplace is operated. The correlation of high educational and literacy levels in Group I nations is too strong to be a mere random coincidence. Admittedly, in this case causation may be difficult to prove mathematically, but it seems almost intuitive: more educated workers yield better quality and cheaper goods.
The final point that Group III nations need to stress is political unity. It may seem like it would undermine a democracy to strive for political unity in order to achieve economic growth, but even if a bit of political unity denies the full range of choice to a nation's constituents, it may be necessary in the short term to progress economically.
By unity, of course, I do not mean that nations should strive for any sort of absolute political hegemony. Nations should not have to sacrifice the democratic gains they have made for economic growth. But, for example, India's ruling Bharatiya Janata Party is trying so hard to put together a coalition that can tolerate their extreme views that they forget that large swaths of the nation are desperately poor. The BJP needs to focus on poverty, not religion, and their politics are distracting from India's growth.
Another example of a poor democratic nation desperately in need of some unity is the Philippines. Because of a plethora of candidates, Fidel Ramos won the last presidential election with just 22% of the vote. The original presidential candidate list for the upcoming summer elections contained 83 names, whittled to a mere 11 "serious" candidates by the Commission on Elections; still the largest slate in the nation's history. "Factionalism...is clearly on the rise," Harvey Stockwin writes in the Japan Times. "The so-called political parties have lost all ability to reconcile differences within the political elite." This factionalism makes it probable that the next president will also be elected with only a small percentage of the vote, undermining his mandate to push the economy to the next level.
The above policy prescriptions, both for Group II and Group III nations, are presented here in a necessarily simplistic manner, and virtually all of them fall into the "easier said than done" category. I do not pretend to offer a complete solution, if there even is one. Furthermore, the natural progression of this essay leads to the question of how a nation can move from Group IV to Group I, but I cannot even fathom how to begin to answer this question. Those who can provide concrete and workable answers should be receiving their Nobel Prize rather soon.
In concluding this series, I find that I have more questions about the relationship of capitalism and democracy than when I started it. What happens when a democracy chooses to forgo capitalist measures? What happens when a democracy chooses what is not in the best long-term economic interests of the nation, due to the fear of short-term harms? What happens when the income stratification of a capitalist society skews democratic access? These questions are being answered right now, in a variety of ways, in nations across East Asia, and across the world. The answers are complex, subtle, and debatable, so I end this series with no more than a promise to continue focusing on these issues as I continue to analyze and explore the politics of East Asia.
Part 1: The Clash of Capitalism and Democracy
Part 2: Big Business and Democracy
Part 3: International Institutions and Democracy
Part 4: Corruption and Democracy
Part 5: Blending Capitalism and Democracy