Does Democracy Stifle Economic Growth?

To spice up the possibly mundane lesson on Production Possibility Frontier’s I made use of this fantastic TED talk by Yasheng Huang.

At the heart of his talk Yasheng asks the question ‘has democracy stifled economic growth’? In short some of the questions/points he covers are:

Why has China grown faster than India over the last 30 years?

China can act above the rule of law (due to its political situation where democracy is still under developed). In cities such as Shanghai significant long term planning has been undertaken with a large amount of eviction taken place.

Indian Premier is keen for Mumbai to become India’s Shanghai but is restrained by more developed democracy.

The Shanghai model of growth can be summarised as follows:

1. Infrastructure
2. Strong government
3. State capitalism and government ownership
4. Democracy stifles growth (a hindrance)

Infrastructure is often though the result of growth rather the cause of growth (especially in China)- according to Yasheng.

Further questions/points fot discussion posed during the talk include:

Is democracy bad for growth- an India vs Pakistan comparison?

Why do economists fall in love with authoritarian governments?

The face value of development data i.e. Chinese literacy rates is measured through the ability of an individual to recall 1500 Chinese characters whereas India literacy rates are based around ability to write ones name! Hence real literacy differences may in fact be far greater.

Is India a growth disaster? Of course not, it is flawed to always compare Chinese and Indian growth rates. India is the fourth fastest growing economy out of 60 developing nations.

Looking ahead…

China has raw fundamentals (large amount of untapped labour, especially in rural communities) but India has momentum (coupled with sounder institutional conditions).

There is so much that could be done with this TED talk and it is well worth a watch.