A question of linkage: capitalism, prosperity, democracy....

• Author: Stelzer, Irwin

THE SIMULTANEOUS explosion of economic growth in still-authoritarian China and economic collapse in increasingly democratic Russia rekindles an old debate concerning the relationship between democracy, capitalism, free markets, and economic development. There can be little doubt that the economy and the polity interact with each other, but the nature of that interaction is elusive.

We begin with the conventional, conservative formulation. Crudely stated, it goes something like this. Market capitalism is the greatest engine for economic development the world has ever seen, what Peter Berger calls a "horn of plenty that heaped...immense material wealth and an entrepreneurial class, on the countries in which it originated." By creating a thrusting entrepreneurial class, impatient with government restrictions on its adventures, and a middle class clamoring for consumer goods, education and choice, capitalism creates counterpoises to government authority, eventually forcing the acceptance of democratic institutions. In short, by producing economic wealth and an entrepreneurial class, capitalism inevitably produces democracy. And since democracies don't start wars or have expansionist proclivities--forget, for the moment, Theodore Roosevelt and imperialist Britain--capitalist-democratic development contributes to security and to world peace.

There is much to be said for this view, especially that portion that relates prosperity to market capitalism. Certainly, it seems to be validated by our own recent experience. Entrepreneurial capitalism became more dominant in the America of Ronald Reagan than it had been before, and job growth and record-breaking prosperity followed. In Britain, Margaret Thatcher reversed almost four decades of socialism--only the pace, but not the direction, of increasing government involvement in economic affairs changed when pre-Thatcher Tories alternated with Labour as Her Majesty's ministers--and changed her country from the sick man of Europe into one positioned for long-term, non-inflationary growth. Meanwhile, the Soviet economy was shown to be like the Wizard of Oz--an imposing facade, but impotent and powerless at its core. Put these events together and you have an unassailable proof that capitalism produces a level of economic welfare that a planned economy simply cannot emulate.

Add to that the apparent relationship between capitalism, prosperity, and democracy, and you have reason for self-satisfaction with the American political-economic system, at least in the broad. After all, in recent years a more-or-less free market capitalism in Chile, South Korea and Taiwan has produced, first, prosperity and, then, democratization. In Russia it may be the other way around: democratization (glasnost) preceded economic restructuring (perestroika). No matter: it all comes out well in the end--capitalism, democracy and prosperity march hand-in-hand into a bright, and therefore secure, future. Knowledge (or faith) that this is so informs several aspects of domestic and foreign policy.

Swings and Roundabouts

UNFORTUNATELY, ALL is not as simple as it first seems: the linkages between economic and political structures, and between economic structures and economic performance are not quite as clear as the foregoing recitation suggests. And because they are not, we may have to do more to secure ourselves from external threats than wait for some inevitable historical tide to produce prosperity, democracy and world peace.

Consider America's experience. Nicholas Eberstadt, in his Foreign Aid and American Purpose, points out that, in 1787, when America adopted its Constitution, "life expectancy in the United States was almost certainly significantly lower than in sub-Saharan Africa today."(1) And per capita income some one hundred years later was "substantially lower than the figures currently imputed to such places as Algeria, Jordan, and Mexico." Yet America, poorer than many totalitarian countries are now, opted for democracy and made a spectacularly good go of it. Many years later, Cuba, then enjoying a standard of living far above those of nearly all its Latin American neighbors, embraced Fidel Castro's totalitarian socialism. "...|M~aterial prosperity might be desirable for a variety of reasons," concludes Eberstadt, "but it is neither a prerequisite for free and democratic rule nor a guarantee against those forces that might undermine such rule from within." To which his colleague at the American Enterprise Institute, Joshua Muravchik, would say, Amen. "...|W~e should not expect we can create democracy by fostering development," writes Muravchik in Exporting Democracy: Fulfilling America's Destiny, "the relationship between economic and political development is too indeterminate."(2)

Certainly, the experiential evidence concerning this relationship is ambiguous--totalitarian China is in the midst of a boom, undemocratic Singapore prospers, while newly somewhat-democratic Russia is on the brink of economic collapse. So...