Why democracies (often) do better

There are a lot of theories floating around out there in the Political Science field about why democracy either results from economic growth or causes economic growth. Most of these theories are hot air. But there is one that rings true. This is the theory promoted by Bruce Bueno de Mesquita (the real-life Hari Seldon) and applied to China by Minxin Pei. Basically, it is the theory that autocracies simply have to pay too many people off in order to remain stable. This problem worsens as a country gets richer, because everyone expects a higher payoff; hence, autocracies find that their growth stalls out at some point, leading either to regime change (Korea, Chile, Mexico) or stagnation (Iran).

Democracies, by contrast - when they work - "pay people off" by providing public goods. Infrastructure, contract enforcement, research spending, and education end up benefiting pretty much everyone in the long term; each interested party gets a lower payoff, but the base of people getting payoffs is much bigger, so the democracy can be rich and stable at the same time. (The downside is that democracies tend to get themselves into debt trouble, since future generations don't vote.)

So when I read reports like this one about China, I'm not at all surprised:

In most instances, on the Chinese side, everyone is in some way connected - that is to say, they are connected to one of a few key organizations, or more likely, key people in the government. The more such people involved in the deal, the more people there are who are used to big payoffs and have the juice to make sure they will get paid. The Chinese government ends up providing its "blessing" to all sorts of crazy operations based on the simple principle that once enough people who have to get paid are involved,a project cannot be stopped. And its not merely that connected people have leverage; in China there is a feeling that this is China's time, so its not like something can go wrong. Throw in the unlimited pot of money trying to do business in China, and you end up with big projects - half a billion dollars and up - happening simply because they have to happen for the sake of the parties that put them together.

Of course, it will take many years before this China bubble pops, and since China still has a long way to go to catch up with the rich world, this won't be the last China bubble we'll see. But the day is approaching when the bill for rampant corruption comes due, and China hits a major speed bump on its road to riches. That will be an interesting day.