Markets and democracy in the transition region

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Markets and democracy

Why have some countries in the transition region succeeded in building sustainable democracies, while in others political reform has stagnated or even gone into reverse? Evidence suggests that countries with higher per capita income are more likely to develop pluralistic political systems and less likely to experience a reversal in this process, while large resource endowments impede – or at least slow – democratisation. Earlier and more vigorous market reforms may also help to consolidate democracy.

The fall of the Berlin Wall in 1989 was seen by many as a defining moment in the evolution of political systems, crowning the “third wave” of democratisation, which was famously described by Francis Fukuyama as “the end of history”.¹ Fukuyama argued that liberal democracy had prevailed over all other systems of political organisation and was the inevitable endpoint for all societies.

Many countries in the transition region have since become consolidated democracies, while others have at least made significant strides in building robust democratic institutions, lending support to Fukuyama’s assertions. However, the experience of transition in some countries has been more erratic, with reforms stagnating or even going into reverse.

Why do some countries succeed in building sustainable democracies, while others do not? What is the role of economic development in this process? Does transition to a market economy strengthen the medium and long-term prospects for democratic transition and consolidation?

The answers to these questions are particularly relevant to those countries which have yet to fulfil their democratic potential, as well as newly democratising states in the southern and eastern Mediterranean (SEMED).

The academic literature is filled with theories and explanations of what makes democracy work. The overall expansion of democracy and global wealth has been fairly evident, but the causal mechanisms remain a contested area among social scientists, and exceptions to the pattern of growth and democracy are too large to overlook.

The existence of a sizeable middle class – allegedly a bulwark of democracy based on its own interests, incentives and values – does seem to be associated with the presence of democratic institutions. Why, then, do some transition countries become “stuck” with imperfect market-based economies, reasonably large middle classes and non‑democratic (or only partially democratic) political systems?

This chapter reviews some of the literature addressing these questions and submits some of the main insights to empirical testing. Using data from the EBRD/World Bank Life in Transition Survey (LiTS), it looks at where the demand for democracy is strongest and weakest, and how that might compel or constrain democratic reform. It then looks at specific cases within the transition region that may shed further light on the relationship between economic development, demand for democracy and democratic outcomes.²

1. The term "third wave" was coined by Huntington (1993). The thesis on the end of history was first outlined in Fukuyama (1989) and was developed further in Fukuyama (1992). [back]
2. For an earlier treatment of these topics, see EBRD (1999) and EBRD (2003). [back]

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