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May 07, 2006


Gabriel Mihalache

Well said! This is not mentioned enough. Democracy without property rights is little more than mob rule.


This is right on. Also, discussions of this kind leave out an important, negative aspect of democracies- the tendency to vote in whatever law/politician is popular at the time, without regard to long term conseqences of this populism. An understanding of what a government can provide needs to guide the decisions of voters. In other words, people need to recognize that government can only provide a few things and the need for limited government.

Almost all discussions of democracy skip over the fundamental fact that democracy is a means, not an end. The end being individual liberty and prosperity, with democracy merely being the best known means to bring this about. This is why LIMITED democratic government is so important. Power tends to get more and more concentrated, as time goes on, in the name of public good if no one (the president, congress, the supreme court, or voters) decidedly stops this concentration.

As a dictator wishing to encourage prosperity, the obvious choice to institute capitalism first, then democracy (but only after the institutions of capitalism take effect), is best. Also, institutions need to be put in place that will destroy the institutions of the dictatorship as well, to ensure that once economic freedom, then personal and political freedom come about the state will not revert back to a dictatorship.

Unfortunately, nothing obvious springs to mind about how to do this quickly without creating legal and market chaos. A large group of people need to be dedicated to the switch from dictatorship to democracy because the transition is slow (the learning curve has to extend to most, if not all of the population) and will be filled with fits and starts.

Negative creations of democracies abound, with Iraq only being the most recent. Without the proper capitalistic institutions in place, particularly property rights, Iraq will fail as a democracy.

A quick glance around the globe can confirm this, as most countries these days are democracies, but fail to limit concentration in the hands of a few politicians and bureaucrats. I can't believe that this is not obvious to people that the concentration of power in the hands of the few, and the weird reverence people have for those with this power (instead of mistrust) is the root cause of nearly all misery around the world.


On this topic, a relevant paper is Do Institutions Cause Growth? by Glaeser, et al.

Abstract: We revisit the debate over whether political institutions cause economic growth, or whether, alternatively, growth and human capital accumulation lead to institutional improvement. We find that most indicators of institutional quality used to establish the proposition that institutions cause growth are constructed to be conceptually unsuitable for that purpose. We also find that some of the instrumental variable techniques used in the literature are flawed. Basic OLS results, as well as a variety of additional evidence, suggest that (a) human capital is a more basic source of growth than are the institutions, (b) poor countries get out of poverty through good policies, often pursued by dictators, and (c) subsequently improve their political institutions.

Mike Huben

Three significant objections to this post.

First, the false dichotomy: there are lots of other alternatives. The big one is education, as the US founding fathers noted in many places. And as the paper James cited notes (available online here.) That paper finds human capital, meaning primarily education, to be the most significant factor in growth. And educated populaces do not come from markets: they come from socialism in every first world nation and second world nation.

"Capitalism creates a stable middle-class, and this is essential for the long-term health of any society."

The key thing to note about this vague promise is that the stable middle class might be very tiny, with the rest of the population in poverty. As opposed to the mixed economies of the first world, which are the only majority middle class economies ever to have existed.

And finally, the pernicious idea that democracy is less desirable: both democracy and regulated capitalism are useful tools in constructing a good society, and we need not choose between them. Modern constitutional representative democracy is the second invisible hand, invented by liberals at very much the same time as capitalism. Both hands working together are much more effective.


And educated populaces do not come from markets: they come from socialism in every first world nation and second world nation.

I think that you have the causality wrong, wealth creates an educated society, not educated society increases wealth. There are several, very successful, education systems in the world that do not rely on govt run schools. Denmark, recognized as one of the worlds best systems, is voucher based. Additionally, the US became the wealthiest nation in the world before it socialized its education system.

Mike Huben

Chris, each of your points is wrong.

Near-universal literacy in the US was achieved in the 19th century because of socialized schools. Long before our per-capita wealth rivalled Britain's.

Voucher-based schooling is still socialism, government paying for the schooling rather than individuals.



Government funding isn't the same thing as socialism. Maybe you've seen this site before? A socialized school would be one where the people who work there own it. If you like socialized schooling so much, I'm surprised you haven't yet mentioned the virtues of home schooling which meets the criterion of worker ownership far more closely than a nationalized industry.

You (and Glaeser) are right on about human capital being an important driver of growth. I wonder why you don't believe free actors who are permitted to keep the returns to capital will appropriately invest in this class of capital goods though. I also wonder why you think restating your position (re: causation and socialized schooling) is sufficient to rebut chris...


Near-universal literacy in the US was achieved in the 19th century because of socialized schools. Long before our per-capita wealth rivalled Britain's.

Simply restating your assertion doesn't prove your point. Correlation doesn't necessarily prove causation. As the nation was growing wealthier fewer children were required to work which allowed them to be educated.

Doug Nydick

This is a great topic - do cpaitalism first or democracy first? I would suggest that the pretty successful rise of some deomcratic/capitalistic states in the Far East - Japan, Taiwan, South Korea, seem to follow the model Miron suggests. Perhaps China and Russia are lurching in that direction. One could go around the world and argue the case from history ad infinitum. I think Miron's thesis would bear out in at least a majority of the cases. That is, introducing elections without economic reforms is usually not successful; while building up a solid middle class is a likely route to a developed democracy. Of course there are many distinctive factors in each case.

Query: is our hypothetical dictatorship in a nation-state? That is, do the vast majority of the people in the country belong to the same ethnicity? (As in Japan, where over 90% of the people consider themselves "japanese," or Korea, where . . . . ) OR, is this a pluralistic state fractured on hostile, tribal/religous/llinguistic/historical lines, like a Rwanda or Nigeria or Iraq? My superficial observation would be that we don't have a road map to democracy for such states, which is why so many of them today remain in chaos or degradation, at least until the hatred washes out of their ethnic hostilities, as in, say, Ireland.

What, then, is the path for an Iraq or Rwanda or Nigeria?

Doug Nydick

Ok, clearly I have too much time on my hands, but as I re-read Miron's post something else occurs. His description of a society that is "not a democracy" includes, in his words, "Well-defined property rights and a system of courts for enforcing these rights.  Plus, laissez-faire economic policies, and many kinds of political freedoms (speech, press, assembly, religion, and so on).  But not elections."

Hmmm. What would you call a 4-legged black and white striped ruminating equine which has a sign saying "horse" on it? I would ignore the sign and call it a zebra. Events of the last century have adequately proved that elections alone do not create a democracy, certainly not without guarantees of personal freedoms.

So what does define a democracy? Arguably, exactly the rule of law and personal freedoms and protections that Miron would put in his "dictatorship." If people are truly free to criticize the dictator, this is no dictatorhip. Recall that Thomas Jefferson said that if he had to choose between government and newspapers, he would choose newspapers. With a truly free press and freedom from government persecution, how long will the dictator last? Anyone seen Gorbachev lately?



"So what does define a democracy? Arguably, exactly the rule of law and personal freedoms and protections that Miron would put in his 'dictatorship.'"

As I understand the term (and Miron's meaning here), democracy means that government policies are determined by majority approval, either directly or indirectly. Not property rights, or free speech (a special case of property rights) or the rule of law or anything else. In many cases, people seem to like using majority votes to undermine these other institutions.

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