Why Do We Need Human Rights? (36): The Economic Case Against Democracy

Democracy is a human right. But how do we justify this right? One common argument is that democracies tend to be wealthier than non-democracies. However, there’s some disagreement about this argument: not about the goodness of wealth and wealth-enhancing institutions, but about whether democracies are in fact such institutions. Impressive economic growth rates in non-democratic countries such as China have planted doubts in many people’s minds.

Some time ago, I offered a rather “philosophical” argument against the view that democracies perform worse economically than some types of authoritarian government (i.e. China-style). But in fact we’re dealing with empirically verifiable hypotheses here. So I looked for some numbers and found this article by Dani Rodrik:

The relationship between a nation’s politics and its economic prospects is one of the most fundamental – and most studied – subjects in all of social science. Which is better for economic growth – a strong guiding hand that is free from the pressure of political competition, or a plurality of competing interests that fosters openness to new ideas and new political players? …

Democracies not only out-perform dictatorships when it comes to long-term economic growth, but also outdo them in several other important respects. They provide much greater economic stability, measured by the ups and downs of the business cycle. They are better at adjusting to external economic shocks (such as terms-of-trade declines or sudden stops in capital inflows). They generate more investment in human capital – health and education. And they produce more equitable societies.

Authoritarian regimes, by contrast, ultimately produce economies that are as fragile as their political systems. Their economic potency, when it exists, rests on the strength of individual leaders, or on favorable but temporary circumstances. They cannot aspire to continued economic innovation or to global economic leadership. (source)

The darling of the “authoritarian=efficient” crowd is, of course, China. China has indeed performed extremely well economically under a rather authoritarian government. However, that government is much less authoritarian than it was during the post-WWII decades of stagnation and extreme poverty. So maybe it’s the relative move towards greater freedom that is the true cause of China’s economic performance, rather than its authoritarian government per se.

Moreover, China has done very well in terms of growth and poverty reduction, but in terms of levels of prosperity it’s still way behind most countries that are much more free. Its astounding progress is partly due to the very low starting point that was engineered by its authoritarian rulers.

And finally, the supposed economic success of authoritarianism in China – if it exists – isn’t necessarily proof of the economic ability of authoritarianism in general (authoritarian disaster stories are unfortunately far more common than authoritarian success stories). It may not even be proof of the economic ability of authoritarianism in China, since correlation doesn’t imply causation, especially not if there are only very few observations: China’s economic success may be due to other factors – and maybe this success would have been even greater without authoritarian government.

The economic case for authoritarianism is a bit like this: usually, people don’t return from the dead. But there’s this one guy, Lazarus, who did. Some claim that there was this other fellow, Jesus, who done the deed and made Lazarus walk again. There are no other Jesuses around, and this one Jesus only did his trick once. Nobody quite knows how he did it. Some say he just happened to be around when it occurred and people put one and one together. Lazarus would have walked anyway, perhaps even sooner had this other fellow not stolen all the attention.

Economic Human Rights (35b): What’s So Funny About Charity?

I’ve stated before why I believe charity helps to prevent poverty, and why it’s better than government welfare, at least in principle. The welfare state, in my view, is a fallback option when charity fails (as it often does).

The usual argument against this view is that charity is bound to fail because it’s crowded out by the welfare state. People don’t and won’t assist others because they think that they already do enough by paying taxes, whatever the effectiveness or fairness of the tax system. The evidence for the occurrence of crowding out is, however, unclear, and that’s a “charitable” interpretation of the evidence.

Another criticism of charity is closer to the mark:

Charity is counter-cyclical. When the economy is booming and there’s less need, there’s also more capacity. When the [economy] is worse and there’s more need, donations dry up and there’s less capacity. That’s not a criticism of charities: It’s hardly their fault. And nor is it a criticism of the people who donate — or stop donating — to charities. When you’re worried about paying your mortgage, it’s harder to help other people pay theirs. But it’s a big part of why we need a robust, federal safety net that’s immune … from the ravages of the business cycle. (source)

Indeed, as the need for charity rises, the supply diminishes, and vice versa. That is why a theory of poverty alleviation that depends solely on charity is incomplete. However, implicit in this argument is that the welfare state is immune to the business cycle, which is obviously incorrect. A recession means a drop in tax revenues and a simultaneous increase in demand for welfare transfers (there are more unemployed etc.). Hence, a recession means a weakening of the capacity of the welfare system. That’s exactly the same mechanism that makes charity unreliable.

Fortunately, the welfare state can bridge over recessions by going into debt, something that few private charity donors will do. This means that a welfare state can keep its anti-poverty transfers going in times of increased demand for funds and decreased supply of funds.

More on charity here.

Economic Human Rights (35): A Right to Unemployment Insurance?

Article 23 of the Universal Declaration of Human Rights provides a right to work, as well as a right to “free choice of employment and to just and favorable conditions of work”. That right protects us against slavery, forced labor, unfair wages, and unsafe working conditions. The same article offers a right “to protection against unemployment”. That clause can be interpreted in two ways:

  • it can mean that if we’re out of work through no choice of our own, we should get help to find work (either from the state or from our fellow citizens)
  • or it can mean that if we’re involuntarily unemployed, we should get some monetary compensation for the loss of salary or income and the financial stress that we suffer as a result.

It’s the latter interpretation that is made more explicit in another article, number 25, of the Declaration which mentions “the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control”.

So it seems we have a right to unemployment insurance or unemployment benefits. The obvious justification for this right is material wellbeing: the absence of poverty is also a right.

However, there are some other types of justification of unemployment insurance. Some call UI an “automatic stabilizer” in times of economic hardship: Keynes taught us that both unemployment and falling wages lower consumer demand and can lead to even greater unemployment. Stingy or absent unemployment benefits lower demand even more. In that view, which does sound plausible, unemployment insurance isn’t just a good in itself and for the individuals concerned (as well as for those who may someday suffer unemployment and who can suffer some amount of stress because of the risk), but is necessary for the periodic regeneration of capitalism and for the smoothing of the business cycle. Benefits are also efficiency enhancing because of another reason:

One of the possible advantages that is touted for more generous UI (including by Mike Konczal) is the idea that it allows for better job matching—people can wait to find the right long-term job opportunity instead of taking the first job that becomes available. (source)

It’s better to have people perform the jobs they prefer because they’re likely to be most efficient there. Hence, it’s better to give them more time to find the right job, and to give them unemployment benefits so that they have the time.

Others, however, call this right a foolish invention because it destroys incentives to work at the level of individuals, and reduces incentives to create wealth at the level of companies (because of the relatively high tax rates that come with the welfare state, that in turn comes with benefits such as unemployment insurance). It doesn’t enhance efficiency at all, on the contrary. But the evidence for this view is not so strong:

Evidence suggests that individuals do prolong their job search when they receive unemployment benefits, partly because they are looking for the best possible job. But the magnitude of this effect is likely to be small.

A recent study … compared lengths of unemployment among those eligible for unemployment insurance with those who were not eligible. Their statistical analysis suggests that extended benefits accounted for only four-tenths of 1 percentage point of the nearly 6 percentage point increase in the national unemployment rate over the last few years. (source)

Still others call the right to unemployment benefits a foolish invention, not because of reasons that have to do with overall economic efficiency, but because they believe that the unemployed have no one else to blame but themselves for their misfortune, and therefore can’t demand help from others. Those others can voluntarily decide to help the unemployed, in a spirit of charity that extends even to self-inflicted misfortune, but the unemployed don’t have a right based on moral concerns to demand such help. And indeed, there may be some logic to such a view: if we all believe strongly that we deserve what happens to us, we are likely to work hard, show discipline and self-control and hence achieve success. Conversely, those who think that the causes of their misfortune are always outside of their control, are not likely to invest much effort in their lives. However, morality and life are much more complicated than that. The best efforts can lead to disaster, and apathy can lead to success. People who are not the sole authors of their success can be required to help those who are not the sole authors of their misfortune.