Effect of Democracy on the Economy - Research Paper Example

Effect of Democracy on the Economy In the modern world, it has become the norm for the perpetuation of the link between economic performance and democracy. This is mainly because of the fact that most of the countries which are developed in the world are all democracies and it is for this reason that this theory has continued to be propagated. Democratic development is the direction towards which the entire global community is turning and it is for this reason that a large number of countries are aspiring to turn their systems of government into a semblance of democracy. It has been found that democracy is one of the reasons for the political stability that is necessary for conducting any form of constructive business. Without democracy and the political stability that comes with it, it is a fact that the economy of a state would be in jeopardy because the people would concentrate more on ensuring that their faction comes to power than on the development of their country. The development of a strong democracy is therefore a determinant factor for the emergence of a strong economy as seen in such countries as South Africa (Jervis 760). In this country, although it is categorized as a developing country, the democratic system of government that was adopted after the fall of the apartheid regime in 1994 has guaranteed its continued economic growth to such an extent that it has become recognized as one of the emerging economies alongside Brazil, Russia, India, and China. Thus, it has been proven that the development of a democratic system not only creates an environment suitable for economic development but it also ensures that there is an incentive for both local and international investors to invest within it. One of the biggest effects of democracy on the economy is that it gives foreign investors the confidence in the political stability of the country to invest in it. Democracy is one of the guarantors of political stability and this is mainly because of the fact that it brings all the people of a country together in a process of electing their leaders. After the election, it is possible for leaders to focus in the economic development of the country without any fear of risks towards their authority. The fact that the elected leaders have security in their constitutional term in office provides them with the opportunity to put their policies in place without any interference that might come as a result of political instability (McKay 121). It is the stable political conditions that develop as a result that attract foreign investors into the country and it provides them with the chance to invest in all of the lucrative sectors in the economy without any fear for their investments. The democratic system in a country also makes it the economy prosper because the elected leaders tend to be concerned about fulfilling their mandate as a means of ensuring that they are reelected in subsequent elections. In democratic systems, it is a fact that many of those leaders whose performance does not meet the expectations of their citizens tend to lose their leadership positions and it is mainly because of this that they have to make significant efforts to ensure that their economic policies are compatible with the needs of their people. Democracy is one of the factors which ensure that there is an environment which is conducive where business can be conducted. This is because all democratic systems allow for universal participation among its entire people in the political processes of the country as well as ensuring that they all have equal opportunities for advancement. Unlike in autocratic systems, where power is vested on only a few individuals who are not accountable to their people, and their main purpose is to secure their power, in democratic systems, it is normally possible for political and economic reforms to be conducted in an organized manner (Entessar, 1346). The ability of democratic systems to be organized in the way that they conduct their daily business guarantees that there is a stable environment for economic growth. It works towards the realization of the desired economic prosperity of the people of a particular country while also ensuring that they have the opportunity to freely engage in whatever business ventures they would like without any fear of losing their investments. In the western countries, there is variety of reasons showing that the citizens are not politically equal in the political systems. For instance, citizens that are better-off and well-informed have formulated and well informed inclinations as compared to the poor who are not educated. Therefore, the well informed individuals are likely to turn out to vote and meet public officials and even throw in to the political movements that they favor the most. In political systems, individuals that have good income and wealth distribution are likely to vote well because they have knowledge, social position, access to the officials among others because they are distributed in unequal manner. This leads to the continued dominance of the political system by those who are well-to-do to the disadvantage of those who are not. In such situations, while there is continued economic growth because of the democratic system, there is also the propagation of the gap between the rich and poor since the opportunities for advancement for the latter continue to be limited. It has been stated that democracy ensures that there is the development of the equal distribution of wealth and income among all the people in the countries that practice it. One would however argue that while this has been the case, it is not necessarily universal as seen in some developed countries where the direct opposite is taking place (Benhabib and Przeworski 274). The form of the income allocation in western countries has altered and the achievements in income are outpacing those of the middle and low earners. The various political processes, on the other hand, have evolved and become disadvantageous to the welfare of the civilians who are of modest means. This is because lobbying activities have been enhanced by corporations and businesses, including professional organizations and these activities have accelerated to such an extent that they have outgrown the interests of the public. An example of this is seen in the situation where political inequality has been well documented in the disparity present between the rich and the poor and how they participate in politics. The dissimilarity in involvement is motivated by the presupposition that participating has a consequence for representation. There is a strong connection between constituents’ policy preference and the representative policy choices in western countries. Politicians in western countries are likely to respond to the views of people who are wealthy that those that are of less than average means. There is consistency in the difference across various political contexts, opinion measures, issues and also the magnitude of disparity especially in the response to the rich and poor in these countries. It is a fact that this responsiveness by politicians for the rich is brought about through the differences that have emerged in the distribution of wealth and income. There is, therefore, a relation between public opinion which will relate to the conscious efforts of the elite, policy makers and the interest groups in ensuring that they balance their own economic interests with those of the rest of the nation. One of the most significant effects of democracy on the economy is that democratic countries normally have easy access to loans from international institutions which can be used for further economic development (Kurtz 267). In addition, democratic states are normally more confident in dealing with others on the international scene because they do not have anything to hide concerning their economies. This confidence in their economies as well as their economic transparency ensures that they become acceptable partners for trade agreements with other countries which contribute to their economic growth. One would argue that it is the democratic process, through the propagation of the idea of free trade which pressure countries in one way or another to develop policies that cause economic integration to be witnessed. The integration strengthens countries that want their economies to participate more in world economy in terms of increasing their exports as well as having access to loans which will bolster their economies. The trend towards openness in international economy has become self-enforcing and has been able to draw many countries into its orbit. Developed countries, all of which are democracies, have put in place policies for growth that are able to provide equitable opportunities for the access to economy to a large segment of their population. This practice has tried to merge sources causing inequality and have made the probability of other countries to progress economically to depend on them becoming more equitable on social and political grounds. Prospects for them to progress on this basis have become subject to national political condition, ensuring that there is more agitation for democratic systems that also encourage economic growth. Without the necessary political reforms that lead to more participation of the people in their government, it is a fact that the economies in some countries end up remaining stagnant since there is hardly ever any motivation for growth. It is a fact that the development of a democratic system in the modern world is normally in line with the aspirations of western nations which normally support these moves especially among developing countries. One of the main reasons for this support is that it ensures the development of a stable environment within which business and free trade can be conducted as a means of encouraging economic growth (Ringuet and Estrada 233). Many of those countries that are ruled under an autocratic system currently face or are already facing massive economic sanctions to ensure that they conduct the necessary democratic reforms to be able to be part of the globalised world. The imposition of sanctions has been among the most devastating actions for the economies of these countries because they have brought about their stagnation and at times their near collapse. However, in most cases, these sanctions have not been able to help bring about democratic transition and instead having the opposite effects. This has been seen through the leadership of these countries, such as Syria, becoming insecure and more repressive towards their own people to ensure that they retain their power. The lack of democracy in these countries has led to the near collapse of their domestic economies as their people do not have the opportunities that are needed to ensure that they actively participate in the economy. The ability of autocratic rulers to treat the states that they rule over as their private properties has led to a situation where it I difficult to convince them to undertake the necessary reforms to ensure not only political but also economic growth. This unwillingness to adopt democracy has resulted to the lagging behind of their economies on the global scale and because of the sanctions and asset freezes that have been imposed on these countries because of their repressive policies; they have come to utterly fail at an economic level. The democratic process is one of the greatest determinants of whether a country will likely experience a capital flight or not. This is mainly because of the fact that there is normally a fear by potential investors that any form of political instability, brought about either by rebellion against an autocratic government, might lead to the loss of their investment. Thus, in an undemocratic state, it is the normal trend for individuals to move their money out of the country whenever there is any looming political conflict or a change of government policy which might affect their investment. Democracy and the development of free trade have become among the prerequisites of economic growth (Islamaj, 1970). However, this has also led to the development of a high rate of economic nationalism that include high protectionism barriers, exclusion of foreign capital and even technology, which have hampered the rate of economic growth. In addition, it is a fact that the social and political stability that has been made possible by democracy has also caused a difference in the distribution of income in some countries. However, it is also a fact that the presence of uncertainty because of social strife and conflicts lead to situations which are normally not conducive for economic growth and this is mainly because there is no security for investments. People tend to shy away from risks even though economic advancement requires gambling on various aspects of the future. They include making new investments, adoption of new technology, improvement of land and even schooling. The political inequality witnessed in various countries not only leads to both social and political conflict but also depresses the economy of the country. It is a fact that the education of the younger generations concerning the importance of developing democratic principles is one of the reasons for the creation of the relationship between growth, policy measures and the formation of human capital which are necessary for economic growth (Swanson 208). Successful growth stories in countries such as Ireland and Taiwan came about mainly because they not only made significant investments in education but also in the development of democratic institutions for their people. Democracy not only allows for people in various states to become active participants in political activities but it also contributes to their participation in various modern economic activities and contributing to economic development, which also largely depends on the advancement of education. They also relate to improvement in social indicators such as housing and health, which are important for the security of a country’s population. As seen above, democracy has both positive and negative effects on the economies of those countries within which it is practiced. One of the biggest effects of democracy on the economy is that it gives foreign investors the confidence in the political stability of the country to invest in it. It is also one of the factors which ensure that there is an environment which is conducive where business can be conducted. It has been argued above that democracy also ensures that there is the development of the equal distribution of wealth and income among all the people in the countries that practice it, hence the need for the furtherance of the development of the democratic system all over the world. Another one of most significant effects of democracy on the economy is that democratic countries normally have easy access to loans from international institutions which can be used for further economic development. Moreover, the development of a democratic system in the modern world is normally in line with the aspirations of western nations which normally support these moves especially among developing countries. Finally, it has been found that the democratic process is one of the greatest determinants of whether a country will likely experience a capital flight or not. This comes about because there is normally a fear by potential investors that any form of political instability, might lead to the loss of their investment. Thus, a stable, democratic government is essential for the development of a strong and sustainable economy that can weather most of the economic crises that arise in the global economy from time to time. Works Cited Benhabib, Jess, and Adam Przeworski. "The Political Economy of Redistribution Under Democracy." Economic Theory 29.2 (2006): 271-90. Entessar, N. "The Political Economy of Human Rights in Armenia: Authoritarianism and Democracy in a Former Soviet Republic." Choice 49.7 (2012): 1346. Islamaj, E. "The Globalization Paradox: Democracy and the Future of the World Economy." Choice 48.10 (2011): 1970. Jervis, David. "The Global Economy and Democracy in South Africa." The American Political Science Review 93.3 (1999): 760-1. Kurtz, Marcus J. "THE DILEMMAS OF DEMOCRACY IN THE OPEN ECONOMY: Lessons from Latin America." World Politics 56.2 (2004): 262-302. McKay, Iain. "Democracy and Economic Planning: The Political Economy of a Self-Governing Society." Anarchist Studies 19.1 (2011): 121-2. Ringuet, Daniel Joseph, and Elsa Estrada. "Understanding the Philippines' Economy and Politics since the Return of Democracy in 1986." Contemporary Southeast Asia 25.2 (2003): 233-50. Swanson, Jacinda. "The Economy and its Relation to Politics: Robert Dahl, Neoclassical Economics, and Democracy." Polity 39.2 (2007): 208. Read More