How and why does democracy matter?

Last week Casey Mulligan presented his paper on democracies and autocracies at George Mason; the work is co-authored with Ricard Gil and Xavier Sala-i-Martin.

The main result is surprising: democracies don’t allocate their public budgets much differently than do autocracies. Of course this result requires that we adjust for national income and other relevant factors. The data cover 142 countries from 1960-1990.

The authors do find notable differences between democracies and autocracies. Autocracies are more likely to use the death penalty, restrict free speech, and spend on the military. The paper doesn't mention death squads, but autocracies are more likely to do that too. At the same time, spending on social programs, spending on education, and various taxation issues do not differ significantly across the two kinds of regimes.

The authors also use some case studies. Chile, Spain, Greece, and Portugal have all moved from autocracy to democracy in recent times. Yet again changes in economic policy are hard to find.

How should these results be interpreted? One hypothesis suggests that special interest groups rule under both systems, and that voting doesn’t matter much. More plausibly, to this economist, autocracies have to be concerned with public opinion too. Autocrats want to secure their stream of rents, which leads them to restrict political competition. At the same time, the autocrat will try to secure a content populace. David Hume wrote long ago that governments are founded on opinion and consent.

I still see a strong case for democracy, not only on moral grounds but also practically. Once people get the democratic idea into their heads, and have a high level of wealth, democratization is extremely difficult to stop. Just look at Taiwan and South Korea. It is better to go with the tide of the times rather than to fight it.