4 April 2015

America is the world’s most successful economy because it is a democracy


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Must capitalism and democracy go hand in hand? Does a successful capitalist system need to be a democracy? Since the modern rise of China and the economic success of its authoritarian model, which blends political control with rampant commercial competition, it has become fashionable to say that democracy is over-rated.

Look at Singapore, say the advocates of this theory. It has also enjoyed extraordinary growth while being what might politely be termed only partly free.

Writing in the Financial Times earlier this year, Slavoj Zizek, international director of the Birkbeck Institute for the Humanities, encapsulated that view:

“To whom will monuments be built a century from now? Among them, perhaps, will be Lee Kuan Yew. He will be remembered not only as the first prime minister of Singapore, but also as the creator of authoritarian capitalism, an ideology set to shape the next century much as democracy shaped the last.”

He went on: “It is no accident that freedom is a weak foundation for capitalism in the west, for it is also a hollow one.”

Reading that analysis, the days immediately after the fall of the Soviet Union, when it was commonly said in the West that the model of liberal democracy had either triumphed, or would in time, seem a long way away.

But I think the democracy sceptics have got it badly wrong. Not just because in and of itself a functioning democracy is innately superior, in terms of the possibilities it offers to protect individual freedom and property, via government by consent and the rule of law.

Yes, of course, it is tremendous if countries with authoritarian governments introduce pro-market reforms. After all, economic freedom is better than no freedom.

But it is not enough, as is evidenced by the history of the most successful economy on earth. It is not a coincidence that the United States is such a success and a democracy. It is such a success because it is a democracy. Indeed, the American impulse is rooted in the rejection of tyranny and scepticism of excessive government power.

That commitment to free competition – sometimes imperfect, often producing uneven results – is what drives innovation.

It is a point made brilliantly by Guy Sorman in his latest piece for CapX, published this week. As he says, if you want meaningful innovation, the lifeblood of technological improvement, rather than copying and refining existing technology, then you need that clash of ideas that happens in a free society in which those in charge can be kicked out or established players can be outflanked by upstarts.

That was what was at work when Bill Gates or Steve Jobs struck out on their own, and began their own companies in garages and tiny offices rather than becoming company men and playing the corporate game (that came later).  My new idea is better than your idea; let’s test it in the marketplace. That’s what it amounted to.

Sorman is right. The non-democracies are good at imitation, hard work and the rapid catch up, but they are not much good at sustained innovation and invention. It is America and parts of Europe that have led the new developments in the computer revolution that amount to a second industrial revolution.

Elsewhere on CapX this week, Victoria Bateman argued that capitalism is on trial and needs a rethink. Andrew Lilico gave a defence of the moral virtues of capitalism. Dan Hannan respectfully wrote that the great Nelson Mandela was wrong about poverty. And I explained how Britain is set for a constitutional revolution in the aftermath of next month’s general election.

Iain Martin is Editor of CapX