How do Countries Grow? It’s the Polity, Stupid!
When Singapore’s elder statesman Lee Kuan Yew visited newly elected Filipino President Fidel Ramos in 1992, he gave him some fatherly advice: restore law and order, build more infrastructure, and concentrate on economics, not democracy. Curious that, it sounds just like…Singapore. No doubt the advice was sincere, for this was a mixture that had turned his own country into one of the world’s most dynamic economies in the space of 40 years, making a laughing stock of the World Bank’s prediction of imminent collapse if Singapore dared to separate from Malaysia.2 However, the assumption that what is right for one country is always right for others has never been true. No doubt a Nobel Prize awaits the first economist to come up with the perfect explanation of why some countries grow quicker than others. Sadly for me, I won’t be making the trip to Stockholm, but still I find this question fascinating. What lies behind the rise of the West, the success of the ‘tiger’ economies, and the marginality of Africa? Is there a model that explains it all? Those who have searched for one agree that sustained economic growth requires a systematic reallocation of the factors of production from low-productivity activities like agriculture to high-productivity ones like manufacturing industries (not just an increase in factor inputs, as happened in the old Soviet Union).3 The key is the ability to invest so that future
output is higher than current output, and that means postponing consumption (to generate savings) or borrowing. Eventually the surplus created becomes large enough to provide for everyone’s basic needs and finance the health, education and other services that are essential to further growth and welfare. There is no other proven way of doing this other than through a market economy. The conditions necessary for capital accumulation (such as competitive individualism and land reform to boost agricultural productivity) do fracture traditional social and cultural bonds, and they uproot people both physically and emotionally. That is just tough. Governments must push the process through if they are to secure a sustained path to growth. This may involve a period of authoritarian rule, but eventually democracy will consolidate itself as the only political system capable of supporting a pluralistic market economy with freedom of information and association, under the rule of law. ‘Slow, cruel, even fearsome’ it may be, but the ‘Great Ascent’ to capitalism is ‘also irresistible, stirring and grandiose’.4 The ‘uprooted’ may not see it like this, of course, but they don’t write the theories.