Do Democratic Countries Engage in Economic Diplomacy Differently from Non-Democratic Countries - Essay Example

Economic Diplomacy in Democratic and Non Democratic societies Introduction Economic policies refer to the laws, rules and regulations that set by a ruling body as a means of controlling the economy. In most countries these policies are administered by the government and they act as a control mechanism by which the behavior of the economy is put in check. Democratic countries refer to countries where the citizens have elections and elect their respective leaders. In these countries elections are conducted regularly and the candidates have to have an economic blueprint in their manifesto and therefore the citizens will have to choose which candidate has better economic plans for them. Given this scenario, is the citizens who decide which economic policy that will be adopted by the country because they have the opportunity to compare and contrast various options. In non-democratic countries, the citizens do not have any control over the economic policies that are in use. The ruling body is not chosen by any of them and therefore they are not answerable to the people in terms of performance. Such types of countries include nations that are ruled by dictators and those that are ruled by a monarchy. In most dictatorships, the ruling body came into power by use of force and in most cases their presence is not a representation of the wishes of the people (Chatnani, 2010). They can therefore do as they wish and this is reflected in the policies that are din use in such a country. These policies usually reflect the aspirations of only a few people and it is them that benefit while majority of the population suffers from their actions. In a monarchy, the ruler is not elected by the people but is handed power by right upon birth. As such, they might not have the best interests of the people at heart as long as the economic policies that are used by the state benefit them they may be comfortable. However, this is not to say that all the policies in a democratic government benefit the citizens or that all the policies in nondemocratic government have negative impact on the citizens. There are various ways by which the effect of various economic policies is measured and this is through the use of normative and positive economics. Positive economics tries to give an explanation about how a certain economy works in regards to the economic policies that are in use without looking at the overall terms in regards to which results are most beneficial to the country. The hypotheses that are developed when using positive economics can be tested before hand and this will decide whether they are accepted or rejected by the county. An example can be the assumption that an increase in money supply can directly lead to an increase in the general level of prices. Such a hypothesis can be easily tested by comparing the relevant data that relates to money supply and price levels (Jenkin, 2001). This falls under positive economics. On the other hand, in normative economics, there is the use of value judgments which are used to assess the specific performance of a certain economy and its economic policies. Unlike positive economics, there is no means by which we can test the hypotheses in case of normative economics. An example is a hypothesis that states the rate of inflation is on an all time high. In this case, a judgment in regards to the value has already been made and so there is no way by which this can be tested and confirmed or disputed. This has often led to disputes among various economists as they attempt to come up with ways to justify their statements and assumptions. Discourse The goals of economic policies Any policy that is set by the government or any other ruling body has certain goals that it aims to achieve both in the long run and in the short run. Some policies are put in place for only a short period of time so as to deal with a specific problem that may arise while some have a long term view of what should be achieved. Some of the known benefits of economic policies are outlined below. Economic growth is the most important goal of economic policies. Economic growth refers to a scenario where there is an increase in the general income of the population and firms over a period of time. This is after taking into account inflation which occurs regularly and might influence the value of money in the economy. Another goal of economic policies is to try and attain full employment in any given society. Full employment occurs when any individual who lives in a country and has the ability to work can be able to secure employment if they so wish. in such a country everybody is able to provide for themselves and they is limited demand for support and aid from the government. This economy will prosper greatly than a country where the rate of employment is low and people have to rely on the government or the limited working class to be able to provide for them and guarantee their daily needs. Finally, economic policies should ensure that there is stability in the prices in a given economy. The policies should be able to prevent ad hoc increases in the prices within the economy, commonly referred to as inflation while at the same time preventing deflation. This is a decrease in the prices within the given economy. An economy that has stable prices is more likely to attract more investors because it is very easy for them to calculate their anticipated earnings and expenditure unlike in an unstable environment where they can incur huge loses at such a short notice. Type of economic policies Research shows that the economies of various countries are not constant but fluctuate over a period of time. This occurs along three phases, known as the expansion phase, the recession and finally the recovery phase. In the expansion phase, there is widespread growth in the economy with increased output, greater opportunities fro employment and an increase in income for the general population (Dean, 2005). At this time, the economy is doing well and it is considered a growth phase. This phase is common in both the democratic and non democratic societies because even dictatorial governments can push for production in one area where they are most likely to benefit and this will lead to increased production. The wealth is trickled down to other members of the economy and as such everybody has a higher income. However, at some point the economy will not be able to support the increasing prices and interest rates. At this point the growth curve will slope negatively and the economy will be seen to drop (Gale, 1999). This is known as a recession and this also occurs in all types of societies, whether they are democratic societies or they are nondemocratic societies. At this time, the economy slows down and there is vey limited growth. It is usually marked by falling interest rates, a decrease in the output of a country, rising unemployment and reduced incomes fro the general population. The last phase is known as the recovery phase and at this point the economy will attempt to rise again to its previous high. This is usually as a result of certain measures by the government to try and curb the drop in the economy and to ensure that there is a recovery. This phase is usually marked by an increase in the employment levels and general output of the economy (Field, 2008). Generally, the reaction to these changes is dependent on the type of system that is in place in any given economy. In most non democratic systems, these changes might not exist. This is due to the fact that all the economic factors in the economy may be under the control of a few individuals whose mandate is to plan or everything. This might be an advantage because they get to influence all the factors and therefore the economy cannot go to extremes in terms of recession and growth, they have some element of control on the market as it does not depend on the market places. As long as leadership is not elected by the people there is a high possibility that the market forces will not apply. In a democratic society, the economy is influenced by the various elements and as such there can be extremes on both sides, the role of the government is therefore to find ways by which these effects can be minimized and they be come beneficial to the people. These policies that such a government uses to deal with extreme situations are known as stabilization policies and most of them are based on the works of the economist, John Keynes. In his works he states that the cycle was a result of an increase in the total demand for goods by businesses, individual households and even the government. The aim of such policies is to ensure there is an increased demand in times of recession while reducing demand for goods and services when there is excessive growth. In a democratic society, the government has two ways of dealing with these changes and this can be by the use of monetary policy and the fiscal policy. These are used to stimulate and contract the economy at given times depending on the governments’ aims at that particular period. The Fiscal Policy This refers to a change in the tax regime of the government and in their spending. The aim of these policies is to affect the aggregate demand. When there is a recession, the government will decide to adopt expansionary policies. This will involve the lowering of taxes by the government so that goods and services will be cheaper to the mass market while at the same time increasing the government spending so as to increase the money supply in circulation. In case of excess growth in an economy, the government will increase the rate of taxes while lowering the amount of spending. This is in an attempt to reduce the money supply in a given economy and reduce the demand for goods and services. However, both of these policies should be used carefully and more suitably in extreme circumstances. This is because if due care is not taken, there will be huge deficits that can be created that can have adverse effects on the economy. These policies are known as discretionary fiscal policies. On the other hand there are nondiscretionary fiscal policies which are also referred to as automatic stabilizers. This is by use of the tax system and the spending patterns of the government. Taxes that are levied on the people are a major source of income to the government and these can be used to stabilize the economy based on the phase, whether recession or increased growth. These policies can be used electively to increase and decrease the demand for goods and services at various times. In the United States, there was a recession in the year 2008 / 09. At this time, the deficit stimulus that was generated due to the use of automatic stabilizers was much larger than the amount of stimulus that was generated by changes that were made in the legislation in regards to spending and taxes (Field, 2008). The monetary policies are totally discretionary because they are under the control of the central bank. The central bank has the sole mandate to use the money supply and the interest rates to try and affect the aggregate demand of goods and services within the economy. In times of a recession, the central bank will reduce the interest rates while putting in place measures to try and increase the money supply while in times of unprecedented growth, the bank will increase rates and put in place measures to reduce the money supply in the given economy. Even though these changes may be effected immediately, the overall impact on the economy will be seen over a period of 6 months or more. Inmost democratic societies, the monetary policy is the one used to deal with these changes on the economy. There is a sharp difference in the economies of democratic and non democratic nations. I will look at the economies of two nations both of which have differing ideologies. This is China and the United States. China as a nation is a communist country and is currently one of the largest economies in the world. Despite its authoritarian rule, it is expected to be largest economy in the world in 10 years, far exceeding the economy of the United States and European countries. This therefore raises the question as to whether this type of democracy is more likely to promote economic development than the democratic societies. Given the occurrences in Europe and in United states in regard to government intervention, there is a general reasoning that democratic societies are more likely to fall behind in terms of economic development. Research shows that the incentives given by democratic governments in this day and age are most likely to lead to a collapse of their economies in the long run. This is because the economic policies that are put in place are these that are popular with the people and do not consider other long term effects that can occur in the economy. Some of these policies are irresponsible and can lead to the economy becoming bankrupt as has been shown various times in instances of economic crisis. On the other hand, it can be argued that the success of the Chinese economy has nothing to do with the form of leadership but with the large population. China has a population in excess of 1.3billion people making it the most populated country in the world. Due to this fact, it is expected that the amount of goods and services that are produced to meet the demand by this population will automatically make it the largest economy in the world. America on the other hand has a population of 310 million and this is a sharp contrast. In the past, the communist government had adopted atrocious policies and as a result the country was very poor. However, the country embraced competent stewardship in regards to economic affairs that embraced economic development by increased production in Chinese industries. The regime managed to direct the efforts of the people towards production in these industries has resulted in the country being a major supplier of goods throughout the world and this has resulted in an increase in their economy. However, in terms of individual wealth of the citizens, American individuals are richer than their Chinese counterparts. This is true in regard to other democracies such as in the European nations. This can be used to indicate that inasmuch as authoritarian regimes might embrace policies that lead to the growth of a given economy, most of the wealth generated is distributed to only a few people while majority of the population have to contend with basic wages (Nagarajan, 2005). This means that democracies are not the only way by which economic growth can be achieved. However, it has been proven that in a democratic environment, there is a better system of governance and therefore this type of economic growth can be easily maintained and the wealth distribution is fair to all parts of the economy without favoring some individuals. Some researcher have argued that political freedom will reinforce the economic rights of individuals and this can lead to more economic development in the country. According to this argument, when individuals are free, there are able to embark on other economic ventures and therefore will embrace trading activities with each other and this translate to a better economy. However, the government can introduce some policies such as redistribution of income and this can severely affect the economic growth of the country. Given this factors, it is correct to say that what hinders the growth of the economy is not the type of the leadership but the extent of interference of the leadership into the economy. In some instances, it has been shown that development in the economy will lead to democracy but it is this same democracy that will hinder economic progress in preceding years. This implies that there is a direct relationship between democracy and the economic level of a given economy but on the other hand there exists an inverse relationship between democracy and economic growth (Neumann, 2010). This is because most countries could have achieved economic progress for some reason or the other but after the introduction of democracy there was a decrease in the rate of this progress in these countries. It is important to note that most major economies in the world, the United States, Russia, Japan and even Germany had faster periods of growth before they embraced democracy. In all these countries, there was a reduction in this rate of growth after the introduction of democracy. This can be used to indicate that dictatorships are important in the economic process. This shows that at lower stages of the economic process, democracy will hinder this process. However, at a higher economic level, democracy is more beneficial to the economy as it will promote economic development more easily (Meredith, 2012). However, both democracy and non-democracy have harmful and beneficial effects on the development of the economy. There are there kinds of stability that are crucial for economic development and these include, legal stability, ownership stability and social stability. Therefore, it depends on whether both of these types of democracies have an impact on these factors that will determine the economic development (Field, 2008). Ownership stability refers to the rights of people in any given society to own property. For any property rights system to be productive it will depend on several factors, such as the manner in which the rights are assigned and the extent to which they are enforced by the governments. It all depends on which system has a greater role of influence on these factors. In democracies, there can be pressure from the low income earners for equal distribution of income in the economy. However, in a nondemocratic society this can be strongly refuted by the government as they control and can determine the ownership rights as they so wish. This can result to the ruling majority taking advantage of this situation and stealing wealth and property from public institutions as no one will have the authority to question these actions. Actions such as these will result to a contracted rate of growth of the economy. Legal stability implies the stability of the rule of the law in any given society. When the legal system is stable, it is easier to not only attract but to retain economic investments. This will result in the increase of the economy of a given region. Democratic societies are expected observe the rule of law but in most cases enforcement of the rule of law in these countries may be weak and there this is not observed. On the other hand, non-democratic societies have more stable legal system as it will be in the best interests of the rulers to have such a system in place. However, in societies under dictators there might be the constant fear of political upheaval and therefore they will be limited use of time and other resources to build systems that will guarantee a stable economic future for such a state. For economic policies to benefit the economy there must be an independent judiciary that is able to uphold the rights of not only the individuals but of the individual businesses (Blaug, 2006). Only then, can the economic policies of the country be able to guide the country towards economic growth. Social stability means the presence of peace in a given society. A society of whatever nature, be it democratic or non-democratic will not achieve economic growth if there is social unrest in the form of strikes, revolts and constant demonstrations (Little, 2005). This therefore requires that the leadership have mechanisms by which this can be maintained as this is the only way by which there can be economic development. Non democracies are prone to more social unrest due to the fact that various groups might be trying to ascend to power and they can readily use force to achieve it. On the other hand, in democracies the ruling body is the choice of the people and as a result there can be more social stability. Any disagreements that arise are dealt with during elections. Economic hardships however has an impact on both types of societies and can result in the failure of both. It is therefore important that each leadership regime put in place economic policies that are beneficial in the long run. In this regard, democratic societies appear to be much more vulnerable than non-democratic societies in terms of their reaction to economic problems. Conclusion Nondemocratic societies do not result in better economic development. However, these types of societies such as dictatorships are more likely to control the variables that affect economic development and as such they can be easily directed to a more favorable outcome. Another factor that is common in non-democratic societies is social order that is strictly maintained by the powers. This is very important for there to be any meaningful form of economic development. In such an environment everybody may be required to work and the end result is that the economy may perform better than a case where people have the option of deciding whether they will work or not. The problem may arise from democratic nations that may decide to retaliate to democratic countries by restricting trade with these countries and this can result to a reduction in their rate of economic growth. This has resulted in negative economic growth in countries that have dictatorial governments such as Burma and Iran and undermines economic development in these countries (Tonnquist, 2009). In dictatorships, the decision making is in the hands of a few individuals and this makes it easier for them to come up with policies and implement them so as to be able to solve certain economic problems. In democracies, decision making is not a straight forward affair since the interests of several people have to be streamlined and considered before any particular law is passed. This implies that a ruling body that sets out to achieve economic progress will most likely do so in a dictatorial regime than under the democratic system. Another factor that can make dictatorships successful is that the leader can surround themselves with economists who have knowledge in the workings of the economy while in a democracy the leader might be forced to surround himself with popular individuals who might not have any economic knowledge and have no contribution whatsoever to the economic well-being of the country. This means that the economic development of this given society will represent the economic interests of the leader. In democratic societies, the president has to take into account party politics and the views of the people to ensure that all their interests are included in running of the government. It has also been proven that dictatorships can easily manage crisis situations better than democratic societies. In this way the leaders can declare a state of emergency and even though this might curtail certain freedoms of the citizens it is important for their overall well-being. This is due to the fact that such a leader is not accountable to anyone and will not have to be judged due to the consequences of any decisions that he might have made earlier. However, there is also the possibility that a dictator can make wrong choices in the early phases of economic development and this can affect the growth of the economy. In most dictatorial communities there is strict discipline with a sense of community being maintained strictly by the rulers. Each individual in the society is assigned a given role and they have no option but to deliver to the required standards. The notion of authority is also strictly adhered to and no one can directly oppose the ruling body. In this way, the citizens of the country can be made to engage in activities that boost the economy. It is critical to note the success of any nondemocratic leadership lies on the success of the economy and therefore these types of leaders are keen to ensure that the economy performs well. Democratic societies on the other hand also strive to maintain economic progress but this is under the influence of several factors. These types of societies have various interests that need to be considered and therefore they might adopt populist measures. Performance of the economy can therefore be affected by the type of leadership regime. None can be said to be better than the other because both of them have their positive and negative effects. What is important is that the factors that affect economic development are not interfered with. This will result to an increase in economic development regardless of the fact that the economy is a democratic one or a non-democratic society. Bibliography BLAUG, M. (2006). Economic theory in retrospect. Cambridge, Cambridge University Press.  BRUCE, A., & LANGDON, K. (2009). Economic management. CHATNANI, N. N. (2010). Commodity markets: operations, instruments, and applications. New Delhi, Tata McGraw Hill Education Private Limited. 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