For the past century or so, the most prosperous nations on earth have also been among the most democratic---people in England, the United States, and, in recent decades, Japan and much of Western Europe, have enjoyed political freedom denied most people elsewhere. Many analysts, including such prominent advocates of capitalism as Milton Friedman, contend that prosperity, the market system, and political democracy go hand in hand---political freedom promotes capitalism, the market system promotes prosperity, and prosperity promotes freedom, in an endless loop.
In the past two decades, however, rapid growth has occurred in many countries that have been far from democratic---Singapore, South Korea, Indonesia, Chile, and most notably, China (since 1980) have grown at incredible rates. Some recent studies by, among others, Robert Barro, have found negative correlations between political freedom in less-developed nations and their respective growth rates. Should we conclude, as authors of some studies have, that political freedom may actually be a barrier to growth, and that some cultures program people so that a majority may favor a dictatorship if it offers economic security and prosperity? For example, does a tradition of Confucianism and their recent experience with Maoist Marxism predispose the people of China to blend the market system they are adopting with a political dictatorship?
The notion that political freedom may inhibit growth goes something like this: A country ruled by a dictatorship can grow rapidly by compelling people to work, and their efforts will not be diverted into concerns about politics and elections, or redistributions of income, for example. Democratic reforms in less-developed nations, on the other hand, too often spin out of control into disagreements, and sometimes civil wars, over the issue of political governance. Russian nationalists, for example, limited the ability of the government of Boris Yeltsin to focus on economic reform during 1991-1994. Similarly, India, the world's most populous democracy, has been embroiled by conflicts between Hindus, Muslims, Tamils and Sikhs, since India became independent from Britain in 1946.
According to this perspective, a dictatorship can focus on the task of economic growth by minimizing battles about which ethnic or religious group will control the government. If the group in power has a clear vision that private markets will work, it can unilaterally restructure regulations to favor private business interests and cut deals with foreign firms, thereby creating a favorable environment for growth. China, for example, has enjoyed double digit annual growth, primarily because DengTsiao Peng has not relinquished the power of the Communist Party in China. Instead, the policies of the Communist Party became more favorable to markets. This is in contrast to the experience of the former USSR, where the emphasis on political reform under Premier Gorbachev during 1985-1991 led to the breakdown of the Soviet Union and delayed the process of economic reform.
The advocates of the more conventional view that political democracy is vital for a market system, and vice versa, respond that, indeed, you can force enslaved people to work very hard for short periods, but this strategy cannot sustain economic development in the long run. People who are free will be more interested in their personal economic prospects than people who are not free. Moreover, free markets can set the groundwork for political freedom. A dictatorship may set the forces of development in motion, but after people feel that their access to food, clothing, and shelter are secure, they will demand political freedom. In a sense, political freedom, like environmental quality, may be related to income---the higher is per capita income, the more insistent people are that government be democratic, and that the environment be relatively clean.