Economic development and democracy: theory

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Markets and democracy

The expansion of democracy around the world coincided – albeit imperfectly – with the industrial revolution and global growth. The first major study demonstrating the relationship between economic development and democracy was undertaken by Lipset (1959), who found that a range of development factors – including wealth, industrialisation, urbanisation and education – were statistically associated with the emergence of democratic political systems.

Lipset hypothesised that, together, the changing social conditions of workers (who became free to engage in political activity), the rise of a wealthy and politically active middle class and the creation of social capital and intermediate institutions generated conditions that supported robust democracy and demand for it.

His ideas are central to a branch of the literature known as “modernisation theory”, which continues to attract attention and more sophisticated empirical testing. Since Lipset, many studies have claimed that development – mainly measured through per capita income – increases the likelihood of transition to democracy and increases the stability of democracies.¹

However, critics of modernisation theory have challenged Lipset’s central claim that development leads to democracy. For example, some have argued that development does not influence the probability of a country becoming democratic, though the risk of democratic reversal does recede as levels of economic development rise.²Others have claimed that when proper statistical controls are applied, per capita income has no effect on the likelihood of a country becoming or staying democratic, and that democracy and development are both the result of “critical historical conjunctures” that took place more than 500 years ago.³

While the debate continues among scholars, there is an emerging consensus that development has indeed had a causal effect on democracy, but that this is conditional on specific domestic and international factors.

Long time series data starting in the early 19th century (when hardly any countries were democratic; see Chart 2.1) show income having a positive and significant effect on the likelihood of democratic transition and consolidation. However, the effect diminishes as income grows and vanishes in richer countries that have already become democratised. In addition, economic development does not generally lead to democracy in resource-rich countries, and democratic institutions imposed by colonial powers or international organisations tend not to last.

Importantly, the impact of economic development on democracy may take between 10 and 20 years to materialise. In the short term, faster economic growth increases the likelihood of political survival for a non-democratic leader, while higher income levels do not usually prompt a breakthrough to more democratic politics until after an incumbent leader has left office.⁴

The literature on the mechanisms that bring about democracy and stabilise
it can be classified in two broad schools of thought on the basis of the assumptions made by authors about the reasons why individuals support democratic regimes.⁵ The first makes democracy dependent on the liberal or democratic beliefs or values of its citizens. The second, conversely, claims that key political actors will support democracy when it is convenient or rational for them to do so.

1. 
See Przeworski and Limongi (1997). Some have claimed that this is true mainly for richer democracies; see Dahl (1971), Huntington (1991), Barro (1999), Boix and Stokes (2003), Epstein et al. (2006) and Heid et al. (2012). Frye (2003) and Jackson et al. (2013) have shown how the introduction of private property rights and the creation of new private businesses in Russia and Poland have generated greater support for pro-reform parties and the holding of elections. [back]
2. See Przeworski et al. (2000). [back]
3. See Acemoğlu et al. (2009) and Moore (1966). [back]
4. This summary is based on Barro (1999), Boix (2011) and Treisman (2012). See also Glaeser et al. (2004), Epstein et al. (2006) and Miller (2012). [back]
5. For a critical review, see Geddes (2007). [back]

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