Throughout the history, the transition from autocracy to democracy has been regarded as a sign of progress. However, research from recent decades shows that the early stages of democratization can lead to worsening political stability and economic downturns, which in turn negatively affect economic growth.
In this article, we explore how democracy and capitalism interact and why the key to their compatibility lies in the principles of impartial governance.
Main Arguments
Examples of developed democracies and capitalist societies demonstrate that these two systems can complement each other. This is the most evident in developed economies such as the USA, the UK, and Germany, where democratic and capitalist institutions have historically evolved in parallel, contributing to overall welfare.
However, in countries with transitional economies or new democracies, the introduction of democratic processes, such as elections, can exacerbate existing problems. In unstable political systems, elections often lead to increased instability because they provide greater incentives for government leaders to manipulate the economy for political dominance.
Benefits of Impartial Rules
In countries where laws and rules are impartial and uniformly applicable to all, conditions are created for the free movement of resources. This facilitates the more efficient use of capital, labor, and other resources, which is the basis of developed capitalism. Such rules also promote the stabilization of political parties and strengthen democratic institutions.
Historical Examples
The USA and the UK are examples of countries where the transition to impartial rules led to significant positive changes in both the economy and governance. For instance, the adoption of constitutional amendments in the USA that limited special legislation contributed to reducing corruption and strengthening the legal system. In the UK, a series of laws beginning in the mid-19th century standardized procedures for various types of private legislative projects, simplifying and standardizing the legislative process.
However, Germany, despite some economic successes, faced severe political problems because it could not fully transition to impartial rules in all areas. This led to political instability, which ultimately facilitated the rise of the Nazis.
The development of impartial rules is key to the successful integration of democracy and capitalism. Countries that successfully implement these rules demonstrate better economic indicators and more stable political systems. In contrast, countries that ignore this principle often face political and economic difficulties that undermine both democracy and economic growth.
Ruslan Sultanov,
an Economist
