The theme of this panel – the relationship between democracy and prosperity
in Europe’s East – raises many difficult questions. What is the relationship between democracy and development? Is development a necessary precondition for democracy? Is democracy, in turn, necessary for development? Does democracy have to produce development – does it need to deliver, in other words – in order to have legitimacy with the population? And how do democracy and free markets affect economic and social equality?
In some regions, such as East Asia and the Iberian Peninsula, economic development was certainly a key factor in the emergence of stable democracy. This is not to minimize the role of democratic political struggles in, for example, South Korea, Taiwan, and Spain. But these struggles succeeded in good part because significant economic growth had produced a strong middle class and an educated population that demanded political participation and respect for fundamental human rights. And economic success provided a solid foundation for consolidating democratic institutions.
This differs from what happened in Central and Eastern Europe, where communism was an obstacle to economic development, and the challenge facing the new democracies in the region after the fall of communism in 1989 was to make the transition to a market economic system that could achieve European levels of productive development.
The transitions in Europe’s East were hardly smooth. The elimination of price subsidies, government-sponsored employment, and state-owned enterprises produced great shocks, with poverty and inequality increasing dramatically in the initial phase of transition. In time, market liberalization led to investment and growth, and democracy helped countries navigate and cushion the impact of economic dislocation. As Mitchell Orenstein notes in his contribution to Poverty, Inequality and Democracy, the latest collection of articles from the Journal of Democracy, democracy provided channels for public pressure to ensure that social-welfare expenditure was protected, and it helped countries “organize their social-protection programs in ways that correspond with a broad array of public demands and interests.”
It is not surprising that democracy played that kind of a protective role in the region’s transitions. There is a vast literature linking democracy to the economic well-being and social protection of the population. This is what the Nobel Laureate Amartya Sen has called the instrumental and protective functions of democracy. These consist of holding government accountable and preventing the abuse of power; promoting economic growth; encouraging governments to be alert to the needs of their citizens and to promote the health, education and overall welfare of the population; and defending people and their human rights against the cruelties of autocratic regimes. Sen has also identified what he calls the constructive role of democracy, which is to help people learn from one another through public discussion, thereby facilitating the definition of societal needs, priorities, and duties.
Some of the latest research bears out Adam Smith’s 250 year-old prescription for prosperity: “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes and a tolerable administration of justice, all the rest being brought about by the natural order of things.” According to Pillars of Prosperity, a new study by Timothy Besley and Torsten Persson of the London School of Economics, the absence of political conflict, equitable and legitimate taxation, and the rule of law are the keys to explaining what the authors call the world’s “development clusters,” which are characterized by high per capita income and effective state institutions. The rule of law enforces contracts and property rights, while representative government facilitates popular consent from a broad base of the population to reasonable levels of taxation. Such institutions also ensure levels of inclusiveness that give legitimacy to democratic government and enable society to avert civil conflict.
Another recent study, Why Nations Fail: The Origins of Power, Prosperity, and Poverty by Daron Acemoglu and James Robinson, makes the similar point that “Inclusive economic institutions that enforce property rights, create a level playing field, and encourage investments in new technologies and skills are more conducive to economic growth than extractive economic institutions that are structured to extract resources from the many by the few.” Such inclusive economic institutions, they write, reinforced by inclusive political institutions, allow citizens to “unleash” their potential, and empower and protect citizens’ abilities to innovate, invest, and develop.
Yet democracy also has its vulnerabilities and dilemmas. Three of them that I would like to discuss briefly here today have to do with legitimacy, equality and morality. With respect to legitimacy, it is commonly agreed that democracies are not as dependent as are dictatorships on economic performance because, unlike dictatorships, they have the political legitimacy that comes from governing with popular consent. Yet that legitimacy is not invulnerable, and it can be weakened by severe economic problems.
A report issued in December by the European Bank for Reconstruction and Development concludes that the global economic crisis has eroded support for democracy and free markets in Central and Eastern Europe, with popular backing for democracy declining most sharply in Slovenia and Hungary, as well as in Slovakia, where it fell by over 20 percent. The reason for the fall off was that people blame the significant reduction in consumption on markets and democracy, as well on the established Western democracies where the crisis began. Interestingly, the popularity of markets and democracy actually rose in the post-communist countries of Central Asia, Armenia and Belarus where democracy had not yet been introduced and, therefore, could not be blamed for economic difficulties.
The 2011 Prosperity Index of the Legatum Institute also reports that, as a result of the economic crisis, East Europeans now “express not only lower tolerance for immigrants and minorities but also less satisfaction with their freedom of choice.” In addition, the most recent Freedom House survey of press freedom reports that the blend of illiberal politics and grim economic prospects in the region is shrinking the space for independent media. Hungary, Romania, and Bulgaria are now rated only Partly Free on press freedom, while the integrity and independence of news media are also being challenged in Latvia, the Czech Republic, and Poland. This downward drift, according to the Freedom House report, could hobble “these states’ ability to achieve further democratic reforms.” It further notes that “Major overhauls in the fields of health, education, and economic management could go awry without sensitive media scrutiny, and making headway in the fight against corruption – a corrosive problem throughout the region – would be all but impossible.”
The disturbing growth of extremist groups openly hostile to ethnic minorities, the Roma especially, is an ominous sign that populism and malignant nationalism could harm the region’s still robust political institutions. An article in the Journal of Democracy collection mentioned earlier, this one by Dorothee Bohle and Bela Greskovits, concludes ominously by saying that “Across Central and Eastern Europe, radicalizing political forces and desperate constituencies alike seem ready to complete the scapegoating of their neighbors on ethnic or other grounds…As to the fate of the region’s fragile polities, grave economic and political instability is likely to speed up the already-rolling processes of massive disenchantment with centrist solutions, dramatic declines in popular participation, and rising radical voices.”
Democracy’s second vulnerability has to do with equality. Free markets involve an inevitable degree of economic inequality that democracies try to ameliorate through programs of social protection. They do so in response to public pressure and also because inequality can exacerbate social ills such as drug abuse, criminality, poor health and other problems. It can also cause social division, leading to conflicts that can set back economic growth and increase political instability.
But efforts to use social policy to address problems of inequality can have negative, if also unintended, consequences. Income transfers to the poor can reduce incentives to work and cause dependency – a feature of the welfare system in the United States until it was reformed in 1996. Such transfers and related entitlements can also worsen fiscal strains, a problem faced today by Greece and other European democracies where low birth rates and higher life expectancy have combined to reduce national revenues and raise pension, medical and other costs. The result has been growing budget deficits and the prospect of national bankruptcy. There is no easy solution to this problem, which will dominate political debates in advanced democracies, including the United States, for the foreseeable future.
Finally, there is the issue of morality. Many of the people who have reflected most deeply about democracy – I have in mind such thinkers as Alexis de Tocqueville, Czeslaw Milosz, Vaclav Havel, and Leszek Kolakowski – have stressed the importance of religion to the health of democratic societies. Tocqueville believed that religion is essential to democracy because it shapes the moral character – what he called “the customs of the community” and “the habits of the heart” — that is necessary for democratic citizenship. Milosz worried that such cherished liberal values as honesty and human dignity, which have their foundation in religion, might not survive “if the bottom is taken out.” Havel, too, worried about the death of religion, which he felt would separate modern man from “his transcendental anchor,…the only genuine source of his responsibility and self-respect.”
Like Tocqueville, Kolakowski saw religion as a restraint on humanity’s dangerous propensity to greed and materialism. “During the last few decades of rapid economic growth,” Kolakowski said in 1991, “we got used to the idea that all of us moderns could have everything and, indeed, that we deserved everything. But that is simply not true.” Religion, he said, “has taught us to limit ourselves, to place a distance between our needs and our wants.” But with the decline of religion, that limit is now in danger of disappearing. “It will be a cultural catastrophe,” Kolakowski warned, “if we lose the ability to maintain this distance between our wants and needs.”
Democracy can produce prosperity, and it can also derive great benefits from economic progress. But affluence itself it not enough, and if it is accompanied by the death of religion, the consequences could be dire. That is Kolakowski’s message, and it is a sobering one: “The survival of our religious heritage,” he said, “is the condition for the survival of civilization.” We should bear this message in mind as we reflect on the many challenges democracy faces in this region and, indeed, throughout the world.