The illusion of democracy and prosperity

If you are a leader of a developing country, someone has surely knocked on your door. 

“Need money? Then go ahead and make a few reforms.”

Do you have doubts? Read Confessions of an Economic Hit Man. The picture is certainly not that simple. But those who applauded those boarding the “democracy” tram used to call what we are saying a conspiracy theory. So, let's move on. 

This advice is usually presented in a wise, albeit slightly condescending, academic tone and is often supported by Daron Acemoğlu’s thesis. In his book Why Nations Fail, Acemoğlu argues that economic success depends on inclusive political institutions, the rule of law, and open markets. According to this, authoritarian regimes inevitably lead to economic collapse and poverty.

The Truth Hurts

Sounds nice, doesn't it? Especially if you are a liberal... or if you have been stifled under an authoritarian regime...

The only problem is… history says the exact opposite.

Therefore, let us question this simple idea that sees democracy as the key to prosperity. Is it really necessary to make liberal reforms to get rich? Or do developing countries have their own rules?

If Democracy Brought Wealth, India Would Be Switzerland

India, as the world's largest democracy, is a country that fully fits Acemoğlu’s “inclusive political institutions” criteria. Since 1947, there have been regular elections, an independent judiciary, and a strong media. Or rather, let us assume that the system liberals call “democracy” is truly “democratic.” In that case, we have to call India democratic.

However, India is not Switzerland. It is not even Malaysia.

For decades, India struggled with slow economic growth, massive bureaucratic inertia, and widespread corruption—all within a democracy. Why? Because increased political participation does not always translate into good governance. Often, more people just means more chaos.

On the other hand, China—an authoritarian one-party state—lifted 800 million people out of poverty while India was still grappling with government crises.

If democracy were a prerequisite for economic growth, India should have surpassed China. But it did not.

Of course, I can hear those saying, “Be patient! Democracy takes time!” Let us remember Keynes: In the long run, we are all dead.

How much time? In 1980, China’s per capita income was lower than India’s. Not anymore.

The World’s Richest Countries… Are Not Very Democratic

Now let us do a little mental exercise. Let us imagine a political scientist from Mars. Their task is as follows:

“Find a relationship between governance systems and economic prosperity on Earth.”

They have Acemoğlu’s book in their hand. According to it, the richest countries should be the most democratic ones.

But… that is not exactly the case.

Our Martian researcher sees the following:

• Singapore – Under one-party dominance, with strict press control, yet one of the world’s most successful economies.

• United Arab Emirates & Qatar – Absolute monarchies. They are richer than most democracies.

• China – The world’s second-largest economy, under one-party rule.

• South Korea & Taiwan – They grew under authoritarian regimes first, then transitioned to democracy.

What does this mean? Economic growth does not always follow democratic reforms—sometimes the economy grows first, and then democracy follows (or it never comes). Let us not be too gloomy. Perhaps democracy is just crawling... like a timid child...

Developing Countries Have Their Own Rules

Acemoğlu’s argument assumes that developing countries can import democratic institutions and that they will work immediately. This is like an IKEA furniture assembly manual:

1. Open the box (bring democracy).

2. Follow the guide (hold elections).

3. Enjoy a fully functioning high-income economy!

In reality, developing countries are not Scandinavian apartments—they are chaotic, multi-ethnic societies with deep-rooted histories.

• Indonesia transitioned to democracy in 1998—it is still struggling with corruption and economic disorder.

• Nigeria holds elections—but its economy is dependent on oil and is in political instability.

• Turkey implemented free-market reforms in the 1980s—but we have also seen that democracy can be a reversible process.

In short, democracy alone does not create an economic miracle. In fact, it can sometimes make things even more complicated.

The Bitter Truth: Power and Elites Are More Important Than Institutions

Acemoğlu’s biggest misconception (aside from his reading of history) is this:

Institutions do not exist in a vacuum. They are shaped by those who govern them.

In many developing countries, political and economic elites adapt to reforms, bending institutions to their own advantage to increase their wealth.

• Russia “democratized” in the 1990s, but oligarchs seized the economy and led it to disaster. Then Putin came and re-centralized the system.

• Mexico has implemented democratic reforms for decades—but political elites still use state resources to gain advantages.

• Thailand has a democratic system, but the military can stage a coup whenever it wants.

In reality, political power comes first, and then institutions are shaped—not the other way around. Acemoğlu says, “if you change the rules, you change the game.” But in most countries, the game changes the rules as needed.

Have you read the book When China Wakes by former French Minister Alain Peyrefitte? I have. I had completely different ideals in my mind back then. The former minister refers to Napoleon: “Let China sleep; for when she wakes, the world will shake.” A beautiful quote. Let us say the same for the West, especially Germany and its peers. Let us let Germany and its friends sleep in their “dreams of democracy”; when they wake up, the world will shake. Have we forgotten? They woke up once. A lack of democracy in an unaccustomed body creates danger. What will happen if the EU, which was established to keep Germany in check, throws away its mask of democracy? Let us end this slowly, keeping this possibility in mind...

The Formula for Real Wealth (But No One Wants to Talk About It)

So, if democracy does not guarantee economic growth, what does?

History gives us this realistic, ideology-independent answer:

1) A competent ruling class that targets economic growth.

2) A strong state capable of enforcing the rules.

3) The ability to integrate into global markets.

4) Investment in education, technology, and infrastructure.

Will this be democratic or authoritarian? It depends entirely on the country’s history, culture, and conditions.

Acemoğlu’s mistake is seeing liberal democracy as a prerequisite for wealth. Whereas, most of the time, wealth leads to democracy—not the other way around.

Conclusion: Democracy Is a Good Thing But It Is Not an Economic Policy

Democracy protects human rights, promotes freedom, and provides political participation. But it does not automatically bring economic success.

The best strategy for developing countries is to first establish state capacity, economic development, and the right balance of power. Democracy can only function when there is enough prosperity. Let us not forget that this also has a cost. And one must ask: Why was “democracy” as we know it operated despite all those costs? Has the need from that time disappeared? What did we say? The effects of the collapse of the USSR have not disappeared. That is all for now!

One last word before I forget:  Casting or having someone cast a vote in a ballot box is not an economic policy. Perhaps it is a consolation or a mask for some.