The Democracy Trap

Sebastian Mallaby writes in The Washington Post about challenges to establishing democracies, especially in oil rich nations:

It's easy to want democracy for the Middle East. But what sort of democracy? Should American foreign policy focus on promoting elections, or on checks and balances? Is the crucial question how power is achieved? Or is it how power is exercised? Paul Collier and Anke Hoeffler, two economists at Oxford University, address these questions in a new paper on oil-rich democracies. Their answer, rooted in statistical analysis of oil states' performance since 1970 under various types of political systems, is that the tendency to focus on elections is correct in most societies but misguided in oil states. In a country such as Iraq, the United States and its allies should care at least as much about the quality of Iraq's judiciary and media as about the quality of its voting. Collier and Hoeffler are actually nicer about elections than most development economists are. Until the 1990s the research consensus held that voting was bad for economic growth, a finding that fitted with the idea that dictators are better at imposing necessary austerity. In the past decade or so, researchers have generally found that elections are more or less growth-neutral. But by taking countries with natural resources out of the sample, Collier and Hoeffler show that ordinary, resource-poor nations grow faster if they have elections. In oil states, however, the opposite holds true--at least if elections are held in the absence of checks and balances. In countries where natural-resource profits come to a fifth of GDP, the switch from autocracy to electoral competition lowers the annual growth rate by a hefty 2.1 percentage points. Unless there are checks and balances, elections cause oil-rich countries to invest less than they should -- and to invest badly. As a result they fail to create the public infrastructure that makes growth possible.

I have long argued that oil was a curse, not a blessing for the people of the Middle East. For example, if you look at Saudi Arabia and South Korea they had roughly similar size economies. Now South Korea dramatically eclipses Saudi Arabia in GDP. One idea, that I wish had been seriously pursued, and implemented, is the idea of privatising most of the oil profits from Iraq and sharing with all Iraqi citizens, similar in nature to the Alaska Oil Fund. This would take corrupting cash out of the Government's hands and most likely greatly facilitate entrepreneurial activity. I am not sure that this is a decision that should be imposed by the U.S. on Iraq, in the end it is their country and they should decide what to do with the oil money, but if we had strongly put that option on the table I think it would have been able to gain a lot of traction. It is still possible of course for the Iraqi Government to do that, but it is rare for Politicians to voluntarily give up Government revenue. Obviously we should pay a lot of attention to the Iraqi Judiciary and other checks and balances that are necessary for a true democracy. Democracy is a lot more than just voting.