Encourage Property Rights, Not Democracy

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In “Are Property Rights Human Rights?” I wrote:

Measurements of political freedom and the rule of law are only loosely correlated. Many dictators promote property rights and a reliable legal system out of simple pragmatism. In contrast, many democracies are subject to dysfunctional favoritism and corruption.

Here is an interesting passage from the 2013 Index of Economic Freedom on dictators who promote property rights:

Cases for 1982 or 1985 in which the law-and-order indicator was high in relation to the Freedom House political-rights variable (with a gap of 0.5 or more) included Burma, Chile, Hong Kong, Hungary, Poland, Singapore, and Taiwan. For 2010, countries with these large positive gaps between law and order and democracy included Burma, China, Ethiopia, Iran, Jordan, Russia, Saudi Arabia, Singapore, Syria, Tunisia, and Vietnam. These countries maintained reasonably good law and order but had relatively little democracy. In the typical case, the country was run by a dictator or dictatorial class that nevertheless promoted property rights and a reliable legal system. Historical prototypes of this kind of dictator were the Shah in Iran, Augusto Pinochet in Chile, Lee Kuan Yew in Singapore, and Hosni Mubarak in Egypt.

And here is another passage about democracies with dysfunctional favoritism and corruption:

Countries in which the Freedom House democracy indicator was high in relation to the law-and-order variable (with a gap of 0.5 or more) in 1982 or 1985 included Bolivia, Colombia, Cyprus, Dominican Republic, Greece, Honduras, Israel, Jamaica, Peru, Sri Lanka, Trinidad, and Venezuela. In 2010, countries in this situation included Brazil, Ghana, Jamaica, Panama, El Salvador, and Uruguay. Countries in this group maintained a lot of democracy but were relatively weak in terms of property rights and legal protections.

Given the choice now to be living in Greece or Chile, Chile has a secure privatized Social Security system while Greece can’t pay all the pensions they have promised its citizens. Here is the Index of Economic Freedom’s conclusion:

The problem with the United States recommending democracy to a country such as Egypt or Libya is not that democracy would harm economic performance, but rather that it would have little impact. If there is a limited amount of energy that can be used to accomplish institutional reforms, then it is much better spent in a poor country by attempting to implement the rule of law—or, more generally, property rights and free markets. These institutional features are the ones that matter most for economic growth, and these features are not the same thing as democracy. Moreover, in the long run, the rule of law tends to generate sustainable democracy by first promoting economic development.

Thus, even if democracy is the principal objective in the long run, the best way to proceed is to encourage the rule of law in the short run. U.S. advice to poor countries should therefore focus more on the rule of law, property rights, and free markets and less on the romance of democracy.

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David John Marotta is the Founder and President of Marotta Wealth Management. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. In addition to his financial writing, David is a co-author of The Haunting of Bob Cratchit.