In a previous post I commented on the beneficial influence of prosperity on democracy – democracy being one human right among many. Here are some reasons why democracy is good for prosperity. The squeaky hinge gets the oil. Only in a democratic society in which human rights are protected, can an economic injustice be exposed and can claims for its abolition be heard and implemented. People can use human rights to call on the government or the international community to fulfill its duties and to implement certain economic measures. Most governments, including democratic governments, act only when they are put under pressure. The freedom of expression, the freedom of assembly and association (associations such as pressure groups, labor unions or political parties) and the right to choose your own representatives are instruments in the hands of the economically disadvantaged. They can use their rights and the democratic procedures to influence economic and social policy. Poverty must have a voice.
It is true that without a minimum degree of prosperity, human rights and democracy lose a lot of their value. If you have to struggle to survive, then you do not have the time to form an opinion, let alone express it. “Primum vivere, deinde philosophari”; first you make sure you live, and only then can you philosophize. However, life is more than just living. In a situation of poverty, it is indeed difficult to use rights and democracy, but without rights and democracy it is much more difficult to fight poverty.
If there are no free flows of information, no accountable government that needs to justify its actions in order to be re-elected, and no free press, then you are likely to have more corruption, more embezzlement of public funds and more people who acquire an unfair advantage from the proceeds of natural resources and other sources of prosperity. The rule of law and the openness of government, which are typical of democracy, limit not only corruption but also the ineffective management or outright squandering of natural or other resources by untouchable governments.
Economic development is supported by free flows of information and freedom of movement, both typical of democracies. A free press encourages the economy because it allows entrepreneurs to make informed decisions.
Democracy also guarantees the rule of law, which means legal security and predictability. The number of investments – foreign and local – will grow when investors are certain that their contracts are guaranteed by the law and enforceable by a judge, when oppression does not cause violent revolt and when investors are relatively certain that their property will not be stolen without punishment or will not be nationalized by some new revolutionary government.
The rule of law creates a limited state and a society that is relatively free and independent of the state. This means that economic activity is also relatively independent. A certain limit on state interference in the economy is traditionally considered as beneficial for economic development. In a free civil society, everybody can be economically active. In many authoritarian states, only a handful of privileged persons can be economically active, and these persons are not always the ones most suitable for this kind of activity (for example: large landowners, members of the official “nomenclatura” etc.). A free civil society, guaranteed by the rule of law, which in turn is guaranteed by democracy (although not only by democracy), allows everybody to be creative, to cooperate and to exchange on a relatively level playing field. This increases the chances that the best man is in the best place, which in turn encourages economic development. Furthermore, by pumping in as many people as possible in the economy and by letting them move and communicate freely, the economically most efficient and profitable transactions can take place.