The death of Lee Kuan Yew, Singapore's founding father, on Sunday night reminded the world of the debate around the Singapore development experience, a country whose citizens are now ranked the third richest in the world by the IMF, despite reservations about the form of democracy the country has applied. Does democracy bring about economic development, or does high growth induce democracy? This was also a question that the Economic Research Forum attempted to answer at its 21st annual conference, which ended on Sunday in Tunis. Adam Przeworski, a professor of politics and economics at New York University and an important theorist of democratic society, told conference participants that it was hard to tell whether democracies grew faster than non-democracies. While not a single study since 1980 has shown that non-democracies grow faster than democracies, he said, “we cannot assert that democracies grow faster than non-democracies.” At the same time, “almost all tigers are autocracies and all disasters are autocracies,” he added. He also said that it was just as hard to reach a conclusion as to whether economic development generates democracy. However, one thing he believes is certain is that once it has been established in a wealthy, high-income society democracy is certain to survive. This view was reiterated by Larry Diamond, a senior fellow at the Hoover Institution at Stanford University, who said that high-income democracies “do not back-slide,” or turn back into autocracies. Przeworski added that growth in democracies was not easily shaken by incidents like riots because democracies provide for a system where coalition and consensus is built in, unlike autocracies where such events may cause a crisis. “Experience of economic development is much more stable in democracies. Real disasters cannot happen in democracies,” he said. He argued that while economic growth is important for democracies, their survival does not hang on it. A factor such as unemployment could affect democracies more deeply than economic growth, he said. Tarek Masoud, an associate professor of public policy at Harvard University's John F. Kennedy School of Government, said that the form of political institutions, whether parliamentary or presidential, was not selected for long-run economic optimality. Instead, it was up to what a given regime wanted. “Political institutions are chosen by politicians more interested in validating power than in thinking about economic output,” Masoud said. However, he argued that the economic and social structures of a country play a greater role than political institutions in determining whether a country is democratic or not. He referred to the example of Egypt and Tunisia, with Tunisia enjoying higher urbanisation, GDP per capita and literacy rates than Egypt, to demonstrate that it is economic and social structures that determine outcomes. Following the revolution in Tunis, the transition was smoother than it was in Egypt. Shantayanan Devarajan, World Bank chief economist for the Middle East and North Africa Region, told the Weekly that a consistent relationship between democracy and economic development was difficult to find. “You have cases where democracy has increased growth, and others where it has not,” he said. “Suppose we did have a robust relationship that said that democracy was bad for growth, then would we go out there to try and stop democracy?” he asked, adding, “There is an intrinsic value in people having a voice.” Ibrahim Al-Badawi, director of the Macroeconomics Research and Forecasting Department at the Dubai Economic Council, told the Weekly that democratic consolidation was good for the stability of society. But, says Ahmed Galal, managing director of ERF, it should not be a question of one or the other — economic development or democracy. “Just like the need for water and oxygen, there can not be a tradeoff,” he said. According to Wafik Grais, a prominent economist and international expert on Islamic finance, examining the relationship between democracy and economic development and trying to find a connection between the two can help to guide Arab countries in transition, including Egypt and Tunisia. “But at this point we are in a transition, and in a transition we need to move,” he said. “When you are in charge you need to move. If you do not move and create momentum, people will not believe in what you are doing, and if people do not believe you are going to lose your way.” However, he stressed that the authorities “should avoid taking decisions that will jeopardise the future. But you need to move and create facts on the ground that are positive, in terms of economics, investment, increasing employment, creating debates and allowing people to express their opinions with mutual respect between the different parties.” Eva Bellin, a professor of Arab Politics in the Department of Politics and Crown Centre for Middle East Studies at Brandeis University, said that identifying the lessons of what has worked elsewhere would not provide a definitive roadmap for the Arab countries' successful transition to democracy. She believes that what favours democratic transition is the presence of powerful players committed to democracy. “Democratic transition is a human process that requires persuasion. At a critical juncture, leadership is everything.” Bellin said there was still hope for democratisation in the Arab world provided Arab countries build institutions of accountability, foster civil society and empower people. “Initiative and persistence can make these things happen. The door is not closed on Arab democracy,” she said. John Roemer, a professor of Political Science and Economics at Yale University, had a warning for the conference participants. He said that in democracies as they exist today, even in the developed world, “the very rich continue to control the levers of power.” In order for popular views to carry more weight, there needs to be a reduction in the concentration of wealth, he said, adding, “A very wealthy class has as its primary goal to protect its wealth against confiscation.” He said that the Nordic countries had worked to limit the power of capital through taxation, thus providing better welfare for their people. He called for sharp increases in income and wealth taxes on the wealthy, but added that this could require mass social movements to bring about. Only when the state has the interests of the vast majority at heart will substantial progress be made in terms of equality of opportunity, he said. Reflections on the EEDC ON THE SIDELINES of the Economic Research Forum's 21st Annual Conference this week, the Weekly sounded out opinions on the outcome of the Egypt Economic Development Conference (EEDC), which took place in Sharm El-Sheikh earlier this month. Some $60 billion in deals resulted from the conference, mostly in the energy and real estate sector. The conference was also an opportunity for the government to showcase its planned economic reforms, as well as a number of the mega-projects it has planned. “One of the issues the EEDC did not sufficiently cover was the political aspect. We covered the economic aspect thoroughly. However, investors do not make decisions based on the economy alone. They aim to stay here for at least 20 years, and therefore if they do not expect political stability any number of new investment laws will not be enough. We should have dedicated more time during the conference to talk of where, in terms of political reform, Egypt is heading and our efforts towards becoming more democratic. This should have been just as important as talking about the economy.” Ahmed Galal, managing director of the Economic Research Forum “Though one should not attach too much attention to conferences because they come and go, they do create momentum, in addition to the real resources they mobilise. That momentum is as important as resources because it motivates people to act, whether they are domestic or foreign investors. The question is whether the authorities will have the stamina to pursue the reforms they have started. “Mega-projects are generally less good at generating employment over the long term than small- and medium-sized enterprises and industrial and service projects, but they are mobilisers, not only of people but also of minds. They are important to show people that things are happening at the same time as reforms are underway. The mega-projects will be the starting point and with reforms other types of projects will follow.” Wafik Grais, a prominent economist and expert on Islamic finance “If real estate development is geared towards the working class and providing affordable housing, this will improve welfare and eventually promote growth. But if it promotes upscale private housing the development effect will be doubtful. It should generate opportunities for growth because it is not only for unskilled workers but also for professionals such as designers and engineers. The investment should lead to more employment and not contribute to an enclave that does not trickle down to the rest of the economy. “Building infrastructure is very good for increasing the capacity of tradable activities. If the infrastructure projects stemming from the EEDC do that and target building an industrial base, this will open up opportunities for job creation. But the private sector has to have a role. Industrialisation should not be something totally carried out by the government.” Ibrahim Al-Badawi, director of Macroeconomics Research and Forecasting at the Dubai Economic Council “Investment in real estate is tricky. Most foreign direct investment (FDI) in the region is biased in favour of real estate and extractive industries, not only in Egypt but also across the region. This is a persistent problem. This kind of FDI does not create jobs or transfer technology. For that to happen you need FDI into the manufacturing sector. Furthermore, when there is political instability not only does FDI fall, but the composition shifts even more in favour of extractive industries and real estate. So I am a little worried, given that the region is going through more instability. We may have a bigger problem now.” Shantayanan Devarajan, World Bank chief economist for the Middle East and North Africa Region
