Is democracy a luxury?

There is a good quote from Yes Prime Minister, the 1980s sitcom parodying British politics, when Prime Minister Jim Hacker is discussing foreign policy with senior civil servant, Sir Humphrey Appleby.

Jim (Prime Minister): Humphrey, are you saying that Britain should not support law and justice?”

Humphrey: “No. Of course we should, Prime Minister. We just shouldn’t let it affect our foreign policy, that’s all.”

Not much seems to have changed since the 1980s. Democratic Governments often seem to have trouble deciding how much to promote democracy in other countries. The UK was caught on the wrong foot just before intervening in Libya, when it was found that its leaders had been going round the Middle East promoting arms deals rather than human rights.

In this context, it is interesting to read a new working paper from economists Duha Altindag (Auburn University) and Junyue Xu (Louisiana State University), “The Impact of Development and Institutions on Happiness”. The study looks at subjective well-being data from the World Values Survey, and the links with income and institutions across countries.

They find that in rich countries, “institutional factors such as the extent of democracy, civil rights, and corruption have a systematic influence on reported well-being of individuals”. By contrast, in these rich countries, income is less important, consistent with previous studies that suggest that once countries reach a certain level of GDP per capita, more income does not make its inhabitants much happier.

However, in poor countries, the opposite is true: as might be expected, income is key to happiness. But democracy, civil rights and corruption have little impact on happiness.

But of course, promoting democracy and better institutions is not just about its direct effect on people’s happiness. Reducing corruption and increasing the transparency and accountability of institutions is conducive to economic growth: it provides certainty and confidence in the rule of law, which in turn creates a better environment for businesses to prosper in.

So although the direct effect of institutions might only be appreciated once incomes are at a certain level, clearly its indirect effect in promoting economic growth must be important even in poorer countries.   

The full paper is here: http://cla.auburn.edu/econwp/Archives/2011/2011-08.pdf

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