Why Democracy?

There are two kinds of people in the world today: one who thinks that democracy is a cure for all ills and those who argue that there are no logical foundations for democracy. The second kind of people, however, can only be found in economics and public choice departments. Rightly so as normal people who hold arguments against democracy are seen with suspicion. The most popular argument for authoritarian rule was made by economist, Mancur Olson.

Olson argued that a monarch, as residual claimant of the wealth of a country, will have an ‘encompassing interest’ in protecting all the residents of the state as long as they contribute towards increasing the total revenue of the state. Monarchies are however different from dictatorships and other forms of authoritarian rule. Monarchs know that they are here to stay and when they die somebody from their lineage will take over. So effectively the time horizon is unlimited. A monarch achieves to maximize residual revenue of the state over unlimited time period. As a result, provides public goods that will be productive over the years (e.g. education, public health, food). On the other hand, dictatorships which are subject to a limited and unsure time horizon tend to be more exploitative.

Other than Olson, there are a number of theoretical arguments against democracy. Another well known argument is presented by Kenneth Arrow. He argued that when there are more than two alternatives, majority voting (one way democracy is exercised; majority voting is sometimes used synonymously with democracy that is a blatant mistake) results in cyclical voting. Other theorists have argued (e.g. Congleton) that cultural pre-requisites to democracy are essential for democracy to work.

Despite widespread theoretical argument against the stability of democracy, never in the world has democracy prevailed before as it prevails today. Almost half of the world’s population is living under one or the other form of democracy. Interestingly, however, no one seems to have a convincing argument for it.

The most powerful argument for democracy that I have come across is by Amartya Sen, surprising as it may seem. His explanation of famines in Bangladesh makes clear the importance of ‘voice’ or ‘representation’ of each and every individual in the society in the decision making process at administrative/governance levels. Very simply stated, he argued, that it is not the supply of food but its distribution, controlled by the government, which is at fault. The supply of food in any country where famine has occurred, did not fall to a point that some people have to go hungry. Some specific areas, however, may lack food supply. The government could have simply dumped the supplies in that area to lower the price of food and make it available to everyone. The reason government did not follow this solution was that the government did not have any incentive to do so. A democratic government, facing elections, opposition parties and independent newspapers, cannot help but make such an effort. The structure of democracy, through elections, opposition and independent press, makes sure that everyone gets representation at the administrative level. Sen’s view of democracy, thus, makes the efforts of empirical economists who try to measure the effect of governance on development redundant, as democracy is a pre-requisite for any meaningful development.

Theoretically the argument makes sense but in reality it is virtually impossible to create an effective representative democracy. US, one of the oldest democracies in the world, has not been able to achieve the objectives of democracy. The way US constituencies are defined leave a lot of room for political manipulation. There is a clear division between the staunch ‘red’ and ‘blue’ states. The result of this is the New Orleans in the wake of Katrina where one sees primarily the black communities left homeless or the fact that in some parts of Georgia, majority of the African American population did not have access to clean water in the 1980s in the most developed country in the world.

Concluding the above arguments, all forms of authoritarian governments are revenue maximizing while democratic government, by design, has to maximize social welfare of all the groups/individuals. The preference of democracy over other forms of government, therefore, depends on the underlying preferences of the people. Revenue maximization under authoritarian government, for example, may lead to trickle down and increase welfare of the society overall. Or it may lead to social unrest and overthrow of the dictatorship.