Chapter 9: Democracy or Dictatorship
Typically, theoretical arguments that attempt to link regime type to economic growth foucs on
three main factors: the protection of property rights, Citizens’ incentives to consume rather
than invest, and dictatorial autonomy.
Property Rights (TEST):
- Today scholars argue that democracies will enjoy higher levels of economic growth than
dictatorships because democracies are characterized by the rule of law and protection
of property rights.
- According to scholars, democracy places limits on the ability of governments to engage
in the arbitrary seizure of private property.
- Argument is that democracy helps ensure the rule of law, that the rule of law then helps
secure stable property rights, and that the stable property rights then encourage
growth-boosting investment.
- Countries that score high on rule of law index but poor on electoral rights (democracy)
index are typically run by dictators who promote property rights and a reliable legal
system.
o Augusto Pinochet in Chile (1973-1990).
o Lee Kuan Yew in Singapore (1959-1990).
o Shah Mohammed Reza Pahlavi in Iran (1941-1979).
- Investors (typically those who live outside the country) are more concerned with
reliability than fairness.
Why Democracy Might Hurt Property Rights:
- Democratic governments appear to be more than capable of ignoring or abolishing
property rights when they want.
- Can be derived from an influential model of the size of government that political
scientists refer to as the “Meltzer-Richard” model.
o Starts with a situation in which everyone in society is asked to pay a portion of
his or her income as a tax, t. The government then takes this tax revenue and
divides it equally among all members of society.
o Because government spending is divided equally among all members of society
in this imaginary world but the amount of tax paid is a function of each
individual’s income, anyone with above-average income ends up paying above-
average taxes and gets back government benefits equal to those received by the
average taxpayer.
o This results in any individual with below-average income in this society to stand
to be a net beneficiary of the tax system
In a market economy, income is likely to be tied to productivity. Highly productive individuals
have high incomes and less productive individuals have low incomes.
Typically, theoretical arguments that attempt to link regime type to economic growth foucs on
three main factors: the protection of property rights, Citizens’ incentives to consume rather
than invest, and dictatorial autonomy.
Property Rights (TEST):
- Today scholars argue that democracies will enjoy higher levels of economic growth than
dictatorships because democracies are characterized by the rule of law and protection
of property rights.
- According to scholars, democracy places limits on the ability of governments to engage
in the arbitrary seizure of private property.
- Argument is that democracy helps ensure the rule of law, that the rule of law then helps
secure stable property rights, and that the stable property rights then encourage
growth-boosting investment.
- Countries that score high on rule of law index but poor on electoral rights (democracy)
index are typically run by dictators who promote property rights and a reliable legal
system.
o Augusto Pinochet in Chile (1973-1990).
o Lee Kuan Yew in Singapore (1959-1990).
o Shah Mohammed Reza Pahlavi in Iran (1941-1979).
- Investors (typically those who live outside the country) are more concerned with
reliability than fairness.
Why Democracy Might Hurt Property Rights:
- Democratic governments appear to be more than capable of ignoring or abolishing
property rights when they want.
- Can be derived from an influential model of the size of government that political
scientists refer to as the “Meltzer-Richard” model.
o Starts with a situation in which everyone in society is asked to pay a portion of
his or her income as a tax, t. The government then takes this tax revenue and
divides it equally among all members of society.
o Because government spending is divided equally among all members of society
in this imaginary world but the amount of tax paid is a function of each
individual’s income, anyone with above-average income ends up paying above-
average taxes and gets back government benefits equal to those received by the
average taxpayer.
o This results in any individual with below-average income in this society to stand
to be a net beneficiary of the tax system
In a market economy, income is likely to be tied to productivity. Highly productive individuals
have high incomes and less productive individuals have low incomes.
