Correlation between Democracy and Economic Development

Which is most essential for the emergence and maintenance of democracy: economic development or non-economic factors? Illustrate your argument with empirical examples.
Another way of simplifying the question is to determine if, and to what extent, there is a correlation between democracy (measured by the Democracy Index – DI) and economic development (measured by the Human Development Index – HDI). Any correlation does not necessarily rule out the causal relationship of non-economic factors. Before examining the correlation, the essay will look at Modernization Theory by Lipset (1959) as well as Przeworski’s influential study on the link between economic development and democracy. Finally, the essay will look at some anomalies in this correlation such as China, Iran, Saudi Arabia, the Holy See and Brunei.

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Before the 1970s, economic
development was defined in terms of indicators such as GDP, GNP, trade balance
etc. Nobel prize winner Amartya Sen and Pakistani economist Mahbub ul Haq
argued that economic development should be measured with other indicators to
reflect the totality of economic development. Their work led to the Human
Development Index in 1990 which measured four factors. By 2010, the HDI had
been revised and combined three factors;
life expectancyeducationgross national income (GNI) per capita
Today, the HDI is the most commonly
used indicator of economic development.
Trying to come up with a definition
of democracy, or what constitutes a democracy, which all academics agree upon
is fraught with difficulties and there is certainly no consensus on how it
should be measured (Kekic, 2007). For the sake of
using a working definition for this essay, we can define a democracy as;
“practices and principles exercised by a government equally and fairly to all its citizens without benefitting one group or set over another”
If we work with that definition,
then the most accurate measurement to date is the Economist Intelligence Unit’s Democracy Index which measures
democracy based on five categories using 60 indicators examining 167 countries
and territories. Democracies are classified as;
Full democraciesFlawed democraciesHybrid regimesAuthoritarian regimes.
The field of research that examines the link between democracy and economic development was first popularised by Seymour Martin Lipset in Some Social Requisites of Democracy: Economic Development and Political Development 1959. His most famous summarization was, “the more-well-to-do a nation, the greater the chance that it will sustain democracy” (Lipset, 1959). Lipset was able to argue what has since been regarded as conventional wisdom; there is a correlation to how well an economy is doing and the type of democratic institutions it has.
By conducting a comparative empirical study on the subject, Lipset was
able to show the factors like industrialization, urbanization, wealth, and
education are closely correlated with the politics of a state. Lipset insisted
that for any democratic regime to survive it must achieve continuous economic
development. According to Lipset, economic equality invariably leads to an
effective democracy because “a society divided between a large
impoverished mass and a small favored elite would result either in oligarchy (…) or in
tyranny” (Lipset 1959, 75). When
workers are granted economic rights, they become more tolerant towards
democratic rights and indeed expect it.
Since Lipset’s research, most studies have found the same positive
correlation between democracy and economic development while a few haven’t. Whether a relationship can be
established or not has often depended on several factors which have skewed a
majority of empirical studies. That is to say that the correlation between
democracy and economic development has often depended on the following;
What
countries were included in the research and when it was carried out;Whether
countries were examined in one snap shot (cross sections) or over a longer
period of time (time-series);What
indicators were chosen for economic development (e.g. GDP, trade surplus,
education) and what definition was used for democratic states (the
conceptualization of democracy).
Lipset’s work
remained the foremost authority on the subject until Przeworski et al revisited
the question of economic development and democracy by conducting a much larger
study forty years later.  Przeworski et
al examined 135 countries and looked at their dataset from 1950 to 1990 with
the view to discovering if economic development encouraged democracy (endogenous
democratization) or merely maintained an already existing democracy
(exogenous democratization). In other words, if a country passes a certain
economic benchmark/threshold, Przeworski et al argue that their democratic
institutions will be maintained and it is inconceivable that the country will
revert to a non-democratic state.
In other words, Przeworski et al believed
that economic development maintains democracies but does not necessarily kick
start them therefore exogenous democratization of economic development holds
true. According to Przeworski et al, economic development makes democracies
endure but not emerge. Some of the most interesting arguments made by Przeworski
et al is that democratic states occur because of a configuration of random
factors therefore every state or territory faces a similar chance of
development regardless of how they started out. The gap in this argument is
that there is no explanation as to how they arrived at this assumption.
Since the seminal study by
Przeworski et al, others have examined their data to challenge some of their
assumptions. Welzel (2006) examined the same set of data and calculated the
ratio of regime shift to democracy and regime shifts to autocracy for varying
levels of GDP per capita. Welzel concluded that it would appear that economic
developments do seem to make democracies appear practically contradicting the
conclusions reached by Przeworski et al. Epstein et al (2006) also analysed the
dataset of Przeworski et al and concluded that economic development does
encourage democracies to emerge and indeed sustains them.
If we are to go back to the original question, current standardized
measurements make it a lot easier to address the problem; measurements that
were absent when Lipset first proposed the Modernization Theory. After a
plethora of studies in this field of research, it has become much easier to use
statistical methods and standardized datasets to see if there is a correlation
between economic development and democracies. With standardized datasets
collected by non-governmental agencies, establishing the relationship is a lot
more straightforward. However, explaining causality is still difficult because
examples are always present that do not follow the correlation.
As explained earlier, defining democracy is difficult and measuring it
even more so. However, the Economist Intelligence Unit’s Democracy Index is the best measure
available. The 2016 Democracy Index shows that half the countries in the world
are not even considered democracies with only 19 countries out of 160
considered “full democracies”.  In
this essay, I compiled a list of the top 30 countries in the Democracy Index as
shown in Figure 1 in the second column.
Earlier, I explained the significance of the Human Development Index as a
proxy for economic development. Figure 1 also has a list of the top 30
countries on the HDI 2016. Now a simple comparison of the two indices shows
that there is a significant correlation between the two. It is clear that
barring a few countries, most of the countries in the Democracy Index are also
in the Human Development Index. The outliers have been highlighted in red.
Figure 1. Democracy Index vs Human Development Index
One has to note that the HDI does not completely capture economic
development but merely a proxy that is weighted more towards education and life
expectancy as economic indicators. In fact one could argue that these are
non-economic factors therefore the HDI has twice as many non-economic factors
as economic factors. This limitation is the reason that several countries that
do not appear in both lists and actually contradict some of the research
findings cited above. Be that as it may, HDI is still the standard measurement
for economic development.
China presents a very interesting case that easily contradicts every
study cited so far and the assumption that economic development makes
democracies emerge and endure. In fact China, proves the contrary. Since 1949,
the People’s Republic of China has been a communist state
and has developed economically to the point that it is the second largest
economy in the world, some would argue the largest economy in the world based
on purchasing power parity. In fact according to Joseph Stiglitz who received
the Nobel Prize in Economics in 2001, China has overtaken the United States as
the world’s largest economy[i].
Furthermore, China has surpassed the US as the world’s largest trading nation,[ii]
China is the world’s largest holder of
foreign currency reserves[iii],
China is the world’s largest exporter[iv],
and China has lifted more people out of poverty than any other country.[v]
Despite these developments, it is still not in the top 30 countries in the
Human Development Index. China’s economic development is
unquestionable and yet it still remains a non-democratic country. Another
country that could be classified as such is Saudi Arabia that has a high
economic development but still remains an absolute monarchy. Iran and the Holy
See are in equally similar positions; theocracies that have attained a high
economic development.
Despite all the theories presented about the correlation between economic
development and democracies, there are still no answers as to what is the most
essential to the emergence and maintenance of democracies. Lipset et al have
shown that economic development is essential to the maintenance of
democracy and few would argue with that given the preponderance of data to
suggest that. But what contributes to the emergence of democracy is a
little hard to answer. Przeworski et al.
have clearly argued that economic development is not needed for the
emergence of democracy. Even looking at examples around the world, we can see
that there are communist states and theocracies that have achieved economic
development and are clearly nor democracies. Undoubtedly, there will be more
examples in Asia and Brunei is another example of an absolute monarchy with a
high economic development. The truth of the matter is that Lipset’s Modernization Theory still hold true today;
economic development is likely to maintain democracies but we are no closer to
the explanation of what causes democracies; economic development or
non-economic factors?
References
Acemoglu, Daron and James A. Robinson. 2001. A Theory of Political Transitions. American Economic Review. 91:938-963. URL (cited 7 April 2017): http://www.jstor.org/stable/2677820. Arat, Zehra F. 1988. Democracy and Economic Development: Modernization Theory Revisited. Comparative Politics. 21: 21-36. URL (cited 7 April 2017): http://www.jstor.org/stable/422069. Boix, Carles and Susan Stokes. 2003. Endogenous Democratization. World Politics. 55: 517-549, doi:10.1353/wp.2003.0019. Lipset, Seymour Martin. 1959. Some Social Requisites of Democracy: Economic Development and Political Legitimacy. American Political Science Review. 53 (March): 69-105, doi:10.2307/1951731. Muller, Edward N. 1988. Democracy, Economic Development, and Income Inequality. American Sociological Review. 53: 50-68, doi:10.2307/2095732. Przeworski, Adam, Jose Antonio Cheibub, Michael E. Alvarez, Fernando Limongi. 2000. Democracy and Development: Political Institutions and Material Well-being in the World, 1950-1990. Cambridge: Cambridge University Press. URL (cited 7 April 2017): http://books.google.co.uk/books?id=8uocGV0fptMCSiegelman, Lee. 2006. Top Twenty Commentaries: The American Political Science Review Citation Classics. American Political Science Review. 100: 667-687, doi:10.1017/S0003055406212565. Welzel, Christian. 2006. Democratization as an Emancipative Process: The Neglected Role of Mass Motivations. European Journal of Political Research. 45: 871-896, doi:10.1111/j.1475-6765.2006.00637.x. Welzel, Christian and Ronald Inglehart. 2008. The Role of Ordinary People in Democratization. Journal of Democracy. 19(1): 126-140. URL (cited 7 April 2017):

[i]
http://www.vanityfair.com/news/2015/01/china-worlds-largest-economy
[ii]
https://www.theguardian.com/business/2014/jan/10/china-surpasses-us-world-largest-trading-nation
[iii]
http://www.bbc.co.uk/news/business-22567974
[iv] https://www.weforum.org/agenda/2016/06/8-facts-about-chinas-economy/
[v] Ibid,