Democracy, institutional development and economic progress

The writings of Amartya Sen, the Nobel Laureate economist of Bangladeshi origin, are spread over vast areas of economics, often encroaching other academic disciplines, especially ethics and philosophy. Beyond being an academic of highest distinction, he is also a public intellectual and his overriding concern in both these roles is about how to promote public action and influence public opinion towards achieving an equitable and just society, which particularly addresses the needs of the underprivileged and offers human dignity to all. It is no wonder, therefore, that his ideas are of great relevance for developing countries that are striving to achieve economic growth with equity and social progress. This is obviously more so for India, and also for Bangladesh – the two countries that provide the socio-economic settings for much of its empirical works: hence the choice of the subject-matter for this write up, which is also meant to be a tribute to this great economist-philosopher of the contemporary world. This is the second part of the ongoing series.
 

In the recent book co-authored by Jean Dreze and Amartya Sen, entitled An Uncertain Glory: India and its Contradictions, they make the strong assertion that "the history of world development offers few other examples, if any, of an economy growing so fast for so long with such limited results in terms of reducing human deprivations". They contrast this performance with Bangladesh's "astonishing achievements" in certain aspects of social progress as discussed earlier (although they hasten to add that Bangladesh remains one of the most deprivation-ridden countries of the world with the same kinds of policy failures as in India). In fact, Bangladesh's contradictions lie elsewhere; its institutional development has thus far lagged far behind its achievements in socio-economic progress. 

Bangladesh now ranks among the few fastest growing economies in the world while it scores very poorly in most indicators of economic and political governance including the World Bank's "Ease of Doing Business Index" and the World Economic Forum's "Global Competitiveness Index". While a close association between the quality of institutions and economic performance is now widely recognised, the moot question is: how far can Bangladesh sustain progress without commensurate institution-building towards better governance?

A related question is: what happens to economic performance as the formal structure of "multi-party electoral democracy" shows signs of regress, as has been happening in many new democracies including Bangladesh (e.g. the so-called mixed or hybrid democracies).

The answer to these questions can be sought only indirectly from Amartya Sen's writings on related topics, which are more concerned with how to make the already established democratic institutions (as in India) more responsive to the demands for social justice, or about how institutional and human capabilities interact with economic growth in high-performing economies that already have fairly strong formal institutions of governance, albeit of very different kinds (e.g. the contrast between India and China).  At the risk of being too simplistic, one could summarise his views as follows. 

Before China introduced market-oriented reforms in the late seventies, it had already in place economic and social conditions that were conducive to respond to such reforms towards broad-based economic expansion, such as land reform, near-universal basic education, provision of basic public health, high female participation in labour force and a functioning system of local governance. The achievements of the same pre-reform conditions may explain the success of other East Asian "miracle economies" (e.g. South Korea, Taiwan, Singapore, and also Japan in the earlier period) in achieving broad-based economic growth by adopting market-oriented policies. Sen laments that India was nowhere near achieving these solid foundations of broad-based economic expansion.

However, India had a well-established democratic institutional structure at the time of the introduction of market reforms in the late 1980s and early 1990s, and its success in accelerating economic growth in the post-reform era helped to dispel an earlier notion that democracy may not be conducive to, or even can be a hindrance for high economic growth. Sen believes that the Indian democracy is seriously compromised by high inequality and the lack of voice of the disadvantaged, and that democracy does not stand for electoral politics or civil liberties alone. But even in its compromised state, Indian democracy in his opinion offers enough scope for popular movements, agitation and public discourses to flourish and resist the neglect of interests of the underprivileged; hence his passionate advocacy for exploiting the democratic space for "public reasoning" in the form of argumentation, discourses and agitation towards achieving a more just society.

Amartya Sen clearly prefers the democratic, rather than the authoritarian way of achieving economic development for several reasons. Civil liberties and democratic rights are desirable goals by themselves as "constituent components" of development, irrespective of the extent to which these are also conducive to economic development. 

There is also no evidence, supported by serious studies, that democracy is inimical to economic growth; so there should not be a split in the choice of whether one wants development instead of democracy. As long as the economies are booming and the economic fortunes of all classes go up, democratic rights may not be that important; but at the time of any economic crises, the political and economic rights may be desperately missed by those whose livelihoods are severely affected, which in turn may lead to disruptive regime changes.

Sen thus argues that the potential capacity of democracy in providing economic security to the vulnerable population may in fact be more extensive than famine prevention (e.g. his thesis of why famine does not occur in a functioning democracy). All these observations have profound implications for the so-called "hybrid democracies" regarding the directions in which they should try to achieve social and economic development.

Beyond Amartya Sen's writings, there is, of course, a large amount of academic literature seeking to explain the economic success of the East Asian economies; there is also a growing number of more recent studies about how the new democracies (created from the so-called third wave of democratisation) flourish or decay and how the nature of ruling regimes - democratic, authoritarian or a mix of the two – effect quality of economic performance. 

It is now well accepted that developing countries can achieve high economic performance both under democracy – as in India – and under authoritarian regimes, as in contemporary China and the erstwhile East Asian countries. The common element shared between these contrasting regimes is a system of 'accountability' at all tiers of governance, which lies behind the more proximate preconditions for good economic management such as efficiency and the primacy of public good over private gains through rent-seeking. 

 The way accountability in the governance system is ensured in a well-functioning democracy is too well-known to need elaboration, but the issue is more complex in the case of the successful authoritarian regimes. In the case of the erstwhile authoritarian regimes in East Asia, the key to ensuring accountability lay in their quality of economic bureaucracies which were "technically insulated" from patronage politics and whose policies were subject to performance-based scrutiny. 

In China, the governance reforms introduced in the wake of economic liberalisation have put in place a hierarchical system of strict accountability within the communist party's bureaucracy regarding achieving economic targets. As one commentator on China has aptly brought out the contrast in the structure of performance incentives under democratic and authoritarian regimes: in democracy, politics is interesting while bureaucracy is boring; in China, the reverse is true.     

The new breed of authoritarian democracies may try to deliberately pursue an approach of "technical insulation" of economic policymaking, as Malaysia did under Mahathir's previous regime; but these regimes generally lack the kind of governance effectiveness or party cohesion that is needed for mimicking the purely authoritarian mechanisms of accountability. At the same time, the regimes have the advantage of having some of the democratic accountability mechanisms even with poorly functioning democratic institutions. So long as the ruling regimes face periodic well-participated elections, they are aware of the risk that even flawed or rigged elections may be lost; this may happen if the extent of corruption in high places and the excesses of patronage politics cross certain thresholds of public tolerance. The voice of the opposition party even in a weakly-functioning parliament of elected representatives may sensitise public opinion against excesses committed by the ruling regime. 

In case of rigged elections and non-functional parliaments, the watchdog bodies and the judiciary can act as a fall back, even when the integrity of these state institutions is compromised to an extent. Beyond these institutional mechanisms of accountability, the media and civic activism can be another fall back. Such a regime also knows that its survival ultimately lies in its legitimacy in the eye of the common people, unless it increasingly resorts to coercive measures to stay in power. In a hybrid regime, that legitimacy can be maintained only by compensating the democratic deficits by delivering visible rapid economic progress. 

Herein lies a potential for both a virtuous and a vicious cycle in the new hybrid authoritarian democracies. Strengthening the democratic institutions of accountability may contribute to creating an environment for better economic performance that may in turn enhance the legitimacy of the regime, thus creating incentives for the regime to further loosen its authoritarian grip on those institutions. The opposite is a downward spiral of lesser accountability leading to poorer economic performance and even further curtailing of the democratic accountability mechanisms in the face of declining regime legitimacy. Only countries with exceptionally strong growth drivers that can escape such a vicious cycle, at least for some time.

How is Bangladesh currently situated in this governance-development nexus? 

As already indicated, economic and social progress in Bangladesh has had to contend with a serious problem of governance dysfunction. One hypothesis is that the progress so far has not been the result of a coordinated overall development strategy pursued by an efficient and accountable governance system; instead, the confluence of various factors and the leading roles of different actors at different times have resulted in often unanticipated outcomes. Yet, such development does not just happen without an active role and support of the government.

How does one then reconcile such a role of the government amid widespread governance dysfunction? 

Although there was a transition from an authoritarian rule to parliamentary democracy in 1991, the political culture is one that does not allow democratic practices to flourish, or one that can hardly deliver an accountable and transparent state. The core governance system is characterised by a dysfunctional parliament, highly confrontational politics, the absence of democratic practice within the major parties, politicisation of the state institutions, a corrupt and inefficient bureaucracy, and a widespread culture of patronage politics in which spoils and privileges are parcelled out to different clientele groups as an essential tool of political management.

Yet, despite such governance dysfunction, the state appears to deliver on many of the welfare promises, as already discussed. One explanation may lie in the fact that not all political incentives have been inimical to achieving the welfare goals. The national elections held under the system of caretaker government since the transition to parliamentary democracy in the early 1990s were seen as fair and credible. 

People seemed to have demonstrated a willingness to move against regimes once they crossed some vaguely defined threshold with respect to poor governance and corruption, as evidenced by the fall of the successive governments led by the Awami League and the Bangladesh Nationalist Party (BNP). This created an incentive structure in which public representatives tried to respond to the genuine popular sentiments to win re-election while still engaging in rent-seeking activities.

In some instances, the support for public social spending was seen as a political win-win because the members of parliament could take credit for the expansion of welfare programmes in their constituencies; this was good for their voter base in spite of the leakage of resources, and such spending also provided rent-seeking opportunities for their clients. However, the system of the Caretaker Government has now been abolished by the current Awami League government, which since then has consolidated its grip on power and emerged as the single dominant party. The governance system now looks more like that of the so-called hybrid or mixed democracy, so that one needs to reassess the country's prospects for continued progress in the context of such a regime.

Another hypothesis is that the absence of formal accountability mechanisms, such as a functioning parliament or strong state institutions like higher judiciary, has been compensated by certain non-institutional mechanisms.

Activism by the media and the civil society has often proved as a countervailing force, as in the case public action for mitigating the seasonal hunger in the Northwest Bangladesh, as discussed earlier. The reason as to why successive regimes in Bangladesh, democratic or otherwise, have felt the need for portraying for themselves a developmental public welfare stance may have even a deeper root.

Such a stance is needed for the legitimacy of a ruling regime in the eye of the general public, given the strong economic aspirations of the people that can be traced back to the struggle for independence.  The question, however, arises about whether the legitimacy-seeking mechanism of accountability mentioned above could alone provide enough countervailing force against the governance problems that constraint further economic and social progress. Although the governance environment has been barely adequate so far to cope with an economy breaking out of stagnation and extreme poverty, it may increasingly prove a barrier to putting the economy firmly on a path of modernization, global integration, and poverty reduction.

Social choice and public reasoning

With Bangladesh looking increasingly like a one-party-dominated hybrid democracy, the question arises about how to avoid the vicious cycle of further erosion of democratic accountability mechanisms discussed earlier, and, instead, move towards a governance system offering more political and civil liberties. Amartya Sen's passionate advocacy of what he calls "public reasoning" is relevant in this context. 

The idea is to generate public opinion and influence social attitudes regarding important social and political issues through enlightened debates, discussions and agitation, given the space offered by the prevailing governance system for such activities.  

The idea of "public reasoning" comes from his firm conviction about the value of reasoned argumentation in resolving contested issues, for which the Indian society (including, of course, the Bengalis) has a long historical tradition, as elaborately discussed in Amartya Sen's book, The Argumentative Indian.

The idea is also based on the practical extensions he made to the so-called theory of "social choice" - that looks at the possibility of deriving logically consistent preference orderings of the society in a democratic way (e.g. by majority votes).  Kenneth Arrow, a Nobel laureate economist, formalised a hugely pessimistic theory that the democratic rule of majority votes can provide thoroughly inconsistent or illogical preference ordering among, say, some alternative social outcomes. 

A wide ranging academic discussions on this theory, led by Sen, eventually had a major constructive impact on this theory with practical implications for how democratic decisions can be made for the good of the society. For example, the problem can be at least partially resolved in case of certain social preference orderings if individuals can be made more informational sensitive, such as towards the needs of the disadvantaged. Sen also argued that individual preferences may be made from a 'neutral' standpoint of an individual's value judgment rather than out of his self-interest. 

Even more importantly, he argued that even consistent preference orderings obtained by majority votes may violate certain minimum ethical standards, such as not protecting the rights of the minorities in a society. All this leads to a case for "public reasoning" based on informed debates and argumentation to sway public opinion in support for such causes as promoting female empowerment or protecting minority rights or various measures towards establishing a just society.

In the context of contemporary Bangladesh, the questions may arise as to how much space is there to demand political rights (e.g. electoral democracy) and whether the curtailment of political rights will allow demands for social rights (e.g. civil liberties, women empowerment, rights of the disadvantaged, environmental protection, reducing public health hazards from pollution, etc.). Much will depend on the freedom of media and space for civic activism, both of which are passionately advocated by Amartya Sen. 

The ruling regime itself may benefit from public opinion in support of many reforms that are related to sustaining the economic growth momentum but are resisted by vested interests, such as reforms addressing the share market scams or wilful defaults of bank loans that are now beginning to shake the confidence of depositors in the financial institutions, or money laundering resulting in large-scale capital flight, or unlawful grabbing of land including riverbanks, hills and forests that are seriously depleting the already meagre environmental resources.

The government may also be more inclined to steer the right course if public discourses can show that, in Bangladesh's socio-cultural setting, economic growth is likely to be helped by the supportive environment of a friendly economic climate rather than by a fiercely ruthless regime or a regime primarily drawing support from crony capitalism and patronage politics.

Social campaigns may also be effective for addressing many adverse aspects of governance where the extent of legal and regulatory enforcement mechanisms interact with the evolution of moral standards: the poor work ethics in government agencies leading to widespread corruption, the culture of large-scale tax evasion, food adulteration, or pollution and environmental degradation.

Then there are social issues like child marriage or child labour which are more in the domain of social norms and attitudes than that of governance reforms. After all, much of Bangladesh's achievements so far are due to the ingenuity and entrepreneurship of the common people often helped by effective social campaigns. Efforts for achieving further progress in many such areas may not wait to wait for political rights of electoral democracy and civil liberties to be fully restored. At least that much lesson may be learnt by rereading and reinterpreting Amartya Sen's writings in the context of contemporary Bangladesh.

Wahiduddin Mahmud is an economist.