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Political Systems as Factors of Economic Growth Essay

In the 20th century, many events that transformed the global political structure had occurred: the collapse of the bipolar system of international relationships, development of independent sovereign states with the communist historical background, regime changes in the countries of Latin America, Africa, and Asia. However, dissemination of democratic values and institutions can be regarded as one of the most significant phenomena that took place in the past century.

It is traditionally considered that democratic practices and economic growth are interconnected. However, throughout the time, the authoritarian political systems functioned in many countries which underwent the periods of rapid economic advancement. For this reason, the question about what leadership style and political factors foster economic growth is now of great interest. In this paper, we will evaluate the given topic and will attempt to resolve this issue by reviewing distinct theoretical perspectives.

According to the classical model of democracy, the wealthier the state is, the more opportunities it has to establish and maintain the democratic regime. As in the case of many Western industrial nations, modernization of the economy made an impact on the social-cultural sphere and provoked the formation social conditions that consequently resulted in the development of a favorable environment for the performance of democratic practices.

From this perspective, the shift from economic modernization to the political one seems to be logical and inevitable. Thus, it is possible to say that in advanced economies, the consolidation of democracy is facilitated, while in developing countries, it becomes more difficult. However, in their works, Olson, Moyo, and Friedman argue about the causal relationships between the functions of institutions and the temps of economic development.

From their points of view, the concentration and accumulation of capital, unequal distribution of resources, as well as the level of political instability and economic freedom may determine the degree of economic sustainability in the country. The focus on multiple political and legal factors rather than on the leadership style seems more appropriate because, by the beginning of the 21st century, the number of authoritarian states with a low level of economic development has decreased − reasonable financial policies enabled by the leaders of those countries were the major reason for this improvement.

It is worth mentioning that while it is hard to find an economically underdeveloped democracy, authoritarian states largely vary on the levels of their advancement and tempts of growth. The differences in economies under the centralized forms of leadership can be explained by the human factor as well. In autocracies, only one person or a small group of individuals has the power and is involved in decision making. Thus, the made decisions largely depend on the personal qualities of a leader, his/her talents, intelligence, responsiveness to environmental fluctuations, and so on.

It can be concluded from Olson’s observations, that autocrats are mainly driven by self-interest, and they see economic growth of the country as an opportunity to gain profit. Nevertheless, no matter what motivation an authoritarian leader has, there are some factors that may determine the success of his or her policies. Olson states that the leadership’s time horizon may be a significant one.

However, it will be wrong to consider that economic advancement depends merely on the average time of a leader’s rule because the regular change of leadership is core to democratic countries and is regarded as a norm there. Secondly, in authoritarian states, the period of one leader’s rule can count for a few decades but does not necessarily become a prerequisite for economic growth. Thus, it is possible to say that the factor of economic stability is more significant than the factor of tenure because long-term leadership may cause stagnation, development of informal nets within the political system, and increase level of corruption.

Olson states that modern dictatorships are “susceptible to succession crises and uncertainty about the future” (572). High level of uncertainty and instability may be detrimental to economic growth. Thus, the researcher notes that the adoption of the democratic political system in the countries of Africa and Latin America may be favorable because it will reduce the risk of structural changes in the government.

It means that the political system can be considered stable in case, despite the external influences, its configuration remains unchanged for a long time. Democracy implies the legitimate, voluntary change of power and it thus is potentially associated with smaller chances for the emergence of severe social conflicts which may disrupt economic productivity within the state.

In his work, Friedman evaluates the notion of the economic freedom and its relation to the political freedom and economic growth. He defines economic freedom as both “an end in itself” and “an indispensable means toward the achievement of political freedom” (Friedman 7). His perspective is thus somewhat similar to the classical views on democracy as the major factor in economic development.

As such, economic independence can be regarded as a degree of freedom that allows an individual to be independent of other people or the state, their needs, interests, etc.; provides him or her with the opportunity to choose occupation, place of living, etc.; and allows supporting a sufficient level of quality of life. Private property may be considered the basis of economic freedom.

However, legal and political prerequisites are required to ensure economic independence of individuals from the state. If the political system excludes any chances for private property to exist in the society and the law does not consolidate the rights for private property, the economic freedom remains unrealized. Nevertheless, economic liberalism is seen by Friedman as a vital factor contributing to the thriving of the state and individuals living in it. Thus, the government should strive to enact appropriate laws, policies, and taxation which are the major components of freedom in any economic activity.

According to Moyo, excessive governmental involvement in economic activities can be viewed as the main obstacle to growth − for a long time, “rather than facilitating healthy economic expansion, it was the source of economic distortion” in many underdeveloped states (20). The researcher observes that when the governments start to invest in physical and human capital, they manage to achieve some improvements in the economic indexes. For instance, in the late 1980’s, privatization of state-owned enterprises in some African countries and a significant decrease in government stake of corporate equity has led to greater economic freedom and generation of opportunities to cover the national debts (Moyo 21).

It is possible to say that the factor of economic freedom is correlated with the factor of political and social stability. The constant changes in the political and economic system that can be caused by shifts in the leadership and power structure may limit the economic freedom of the market members, constrain their activities and, consequently hold down the economic growth. On the contrary, stability and predictability are essential to free economic performance and advancement.

Based on this, the primary responsibilities of the government, regardless of the leadership style applied by it, should include provision of internal and external safety for market participants; inviolability of private property; equal, transparent, and stable regulations of economic activities; and free opportunities for every person or entity to be involved in economic practice. Such functions of the government predetermine its refusal of special economic interests, as well as reduced or lacking involvement in economic activities.

Overall, the problem of impacts of political factors on economic growth is a complicated one. First of all, to evaluate the effect of particular political and social factors such as stability on economic sustainability, it is important to find out what regime supports these factors which are especially favorable for the achievement and maintenance of the advanced level of development. Some difficulties may arise during the analysis because each country is unique and to say why, for example, stability associated with democracy facilitates economic growth more than the authoritarian systems could be wrong.

The review of the literature revealed that political stability is an essential factor contributing to economic growth yet it can be interpreted in multiple ways. When seeing it as a period of a leader’s staying in power (in case the risk of revolt and coup d’état is reduced to a minimum), then the democratic regime can be regarded as less stable than the autocratic style because the change of power is natural in this system. Nevertheless, this assumption cannot be valid because it contradicts the reality − most of the democratic states currently take leading positions in the global economy. Thus, political stability should be defined by various political factors including policies, laws, the extent of individual economic freedom, and the government’s non-involvement in economic activities.

Works Cited

Friedman, Milton. Capitalism and freedom. University of Chicago Press, 1962.

Moyo, Dambisa. Dead Aid: Why Aid Makes Things Worse and How There is Another Way For Africa. Penguin Books, 2010.

Olson, Mancur. “Dictatorship, Democracy, and Development.” The American Political Science Review, vol. 87, no. 3, 1993, pp. 567-576.

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