Democracy or Autocracy?

Becker makes the essential point about the difference between the quality of government under autocracy (dictatorship, or nonconstitutional monarchy) and under representative democracy: there is more quality variance under the former. Dictatorship tends to extremes of bad and good, representative democracy to mediocrity because the institutions of representative democracy are designed to diffuse rather than to concentrate political power.

Dictatorship and democracy are not dichotomies; they are points on a spectrum. At the left end of the spectrum is direct democracy (the people vote on policies rather than representatives, as in a California referendum) in ancient Athens; it is susceptible to being destabilized by sharp swings in public opinion. Moving a step to the right we come to modern American democracy: public opinion is mediated by popularly elected representatives and the power of government is limited by an independent judiciary. A step to the right of that brings us to the original U.S. constitutional democracy, that of 1787, in which, of the five major arms of government—the Presidency, the Senate, the House of Representatives, the federal judiciary, and the federal bureaucracy (consisting of all executive branch officials and employees except the President and Vice President)—only one was popularly elected, the House. The President and the Senate were indirectly elected (via the Electoral College in the case of the President and the state legislatures in the case of the Senate), and the judges and bureaucrats were not elected at all. Today the Senators are elected directly, and likewise (in effect) the President. Take a big step to the right, and we encounter quasi-democratic polities, such as England in the eighteenth century and the German Empire (1871 to 1918). Take another big step to the right and we encounter oligarchy—the rule of the few—illustrated by the collective dictatorships of the Soviet Union after the death of Stalin, and of China today. A final step to the right bring us to the one-man dictatorships, for example of Hitler, Stalin, Mao, and Castro.

This spectrum has a parallel in the variety of managerial structures found in business. At the right end is the highly centralized, "U" (unitary) form of organization. At the left end is the decentralized, "M" (multidivision) form of organization illustrated by the high-tech firms of Silicon Valley. The centralized form minimizes redundancy, maximizes top-down control, and is optimal for relatively simple, mature production processes that do not require constant innovation and flexible adaptation to a rapidly changing economic environment. The decentralized form of management accepts redundancy and loss of tight control as the price for fostering innovation and adaptation by granting a considerable measure of autonomy to employees. The Soviet Union's command and control economy worked well in World War II because it enabled vast quantities of a limited number of weapons to be rapidly produced and distributed and millions of soldiers to be rapidly trained and deployed, but the system proved to be fatally maladapted to the complexities of a civilian economy.

In general, then, the simpler the economy (all-out low-tech war is the limiting case: there is only one demander, and for a limited range of goods and services, thus making supply simple), the more adaptive a dictatorial political system; the more complex the economy, the more adaptive democracy is. A dictatorship is apt to limit information flows and business autonomy, and by doing so to reduce flexibility and innovation, fearing the private sector as a potential power rival to the dictator. At the same time, the dictatorship wants the population to be content, for then it is more easily controlled. The competing aims of limiting private freedoms and producing contentment may lead the dictator to relax control over the economy as increasing complexity makes a command and control economy increasingly inefficient. As that happens and people become wealthier, they also become more self-confident and assertive, creating pressure for self-government and therefore democracy.

Dictatorship will often by optimal for very poor countries. Such countries tend not only to have simple economies but also to lack the cultural and institutional preconditions to democracy. Dictatorship is much less likely to be optimal for advanced economies. This pattern seems to be broadly observed.

China and India present an interesting contrast and case study of theories of politico-economic development. Both are huge Asian nations with rich cultures, limited natural resources, serious minority problems, perceived military challenges, great poverty, many very intelligent people (mainly as a function of their large populations), a belated and incomplete but meaningful embrace of free-market economics, and (related to the previous point) a booming modern sector. So they have much in common. But India is a democracy and China a collective dictatorship. What does that portend for their future relative economic growth?

I am very reluctant to make predictions. I shall go no further than to say that China seems to me to have more serious problems than India, problems rooted in part, though only in part, in dictatorship. China is historically unstable and extremely corrupt, nationalistic, militaristic, and aggressive; like Wilhelmine Germany, which it resembles in other ways as well, it has a paranoid fear of encirclement by hostile powers (Japan, Taiwan, the United States, Vietnam, India). It is also fearful of and hostile toward its numerous minorities, reactions that feed and are fed by nationalism. Nationalism fosters loyalty to the state and thus serves the political purpose of the dictatorship and so is encouraged by it. The dictatorship has further augmented its power by not only retaining but also expanding public ownership and control of much of the nation's industry. In this and other ways China has an unbalanced economy. It has pursued a policy, sensible for a poor country with low wage rates, of producing mainly for export. But as incomes rise, the pressure to move toward a consumer economy will increase, and it may be difficult for China to achieve this transition in a timely fashion because it is just beginning to develop a robust consumer infrastructure—a strong retail sector, product warranties, effective regulation of food and drugs, anti-fraud policies, health insurance, etc.—in short a modern service sector, which cannot be created overnight.

Perception of China's problems has been obscured by its spectacular growth statistics (though it's unclear how accurate they are) and by the nimbleness of its response to the global economic crisis, compared to most democratic nations, including the United States. It is not an accident. An economic emergency is like a war: it requires a rapid and concentrated response, which is easier to organize and implement in a dictatorship than in a democracy. Keynes pointed this out in his foreword to the German translation of the General Theory, published in Germany during the Nazi period. He wrote that "the theory of aggregated production, which is the point of the* General Theory*,…can be much easier adapted to the conditions of a totalitarian state [* eines totalen Staates*] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire." By "aggregated production," he seems to have meant private plus government production, the latter being particularly important in a depression to take up the slack created by the drop in private demand for goods and services.

All true; but we know what happened to Nazi Germany.