A few years ago it would be no great insight to proclaim that countries with liberal democracy are wealthier than non-democracies. However, recent events in the world economy have made it difficult to stand by such an assertion. For one, the idea of liberal democracy itself and the freedom it gives its people has come under immense scrutiny in contemporary scholarship. Other than that a decade into the millennium certain facts about the world have changed. All of Europe and America have accumulated a debt of more than 10.5 trillion euros, unemployment rates in the west are at their worst in recent times, and China (not exactly your average liberal democracy) has risen as an economic power.
Yet, I would stand by the assertion that liberal democracies are in fact wealthier than non democracies. I say this because of two reasons, the first is quite apparent, liberal democracies still do better than non-democracies on virtually all indicators of economic wellbeing; and secondly because these liberal democracies still have measures of accountability.
Accountability is important because it prevents and checks corruption. And even though it has been proven through empirical studies, one can assert rather intuitively that corruption has a significant negative impact on economic performance in non-democracies.
Corruption can be defined as the abuse of public office for private gain, whether pecuniary or in terms of status. The gain may accrue to an individual or a group, or to those closely associated with such an individual or group. Corrupt activity includes bribery, nepotism, theft, and other misappropriation of public resources. The predominant, although not exclusive view, of corruption is that it is damaging to economic performance as both a tax on productivity and a market distortion.
Paolo Mauro in his study “Corruption and Growth” cites empirical evidence in support of the argument that corruption reduces private sector investment even in countries featuring cumbersome economic regulations, where corruption might be expected to spur investment. This is mainly because corruption hinders productivity but also because there is no accounting for the goods and services exchanged in corrupt dealings. In their study Andrei Shleifer and Robert W Vishny use post-communist Russia to illustrate the ill effects of corruption on investment, but the scenario they describe is not far from that in our own country. They say that to invest in a Russian company, a foreigner must bribe every agency involved in foreign investment, including the foreign investment office, the relevant industrial ministry, the finance ministry, the executive branch of the local government, the legislative branch, the central bank, the state property bureau, and so on. The obvious result, they conclude, is that foreigners did not invest in Russia.
Try investing in a Pakistani company today and you’ll encounter much of the same. It seems that even the people at the helm of affairs, namely your president and prime minister, seem to be aware of such corruption as one often finds that projects in which they themselves take a keen interest seem to go rather smoothly. The history of corruption starting from the rehabilitation and settlement department, which had at its disposal considerable property for permanent settlement of refugees at the time of partition, to the recent incidents of corruption in funds for flood victims is a long and harrowing tale. Similarly, the price control system inherited from the British that provides government officials enormous power in terms of fixing prices and issuing permits, is another source of corruption.
Corruption was perhaps never so widespread, capricious, or extortionate that it siphoned off substantial resources or created great uncertainty. With your top leadership involved in numerous cases of corruption, which are even used by opponents to bargain and gain political advantage, the majority of the country has few hopes to cling on to. One of the dire consequences of corruption is that it reinforces the tendency to concentration, as the wealthy are better able to offer bribes. It orients the market towards that vicious cycle that all developing countries find themselves in – the rich keep getting richer and the poor keep getting poorer.
Truth be told in Pakistan the political environment has hardly ever been favourable enough to encourage investment, except one would argue the late 1950s and early 1960s when growth rates soared. The government administration has always been stretched too thin in order to meet the ever increasing needs of the country. However, up till recently the government was able to protect life and property and to develop infrastructure required by industry. Now the government is failing to do even that.
The writer is an academic and freelance journalist
