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Democracy is a particularly popular system, implemented in many parts of the world today, and many democratic countries also fall under the category of developed nations that have experienced some form of capitalist development in the past. The strong link between the two has thus been a widely discussed topic amongst scholars for decades. This article aims to explore this link through the lens of different theories and country cases that have exhibited the aforementioned link. Capitalist development here refers to economic growth under a capitalist system, which emphasises private ownership and market competition. The definition of democracy is significantly more contested, but most modern definitions of democracy contain 4 key elements: free and fair elections, widespread voting rights, civil liberties protections (like freedom of speech and association), and limited governments (Caramani, 2023).
One way to understand the relationship between democracy and capitalist development is that the latter often acts as a prerequisite for the development and sustenance of the former; so this suggests that the capitalist development of a nation may be the key factor in determining whether democracy will emerge and be sustained in that nation. This has been theorised in several ways, including Seymour Lipset’s 1959 ‘Modernization theory’, which suggests a positive correlation between national wealth and the chance of political democracy emerging. The narrative behind this stems from the idea that capitalist advances and industrialisation produce a strong working class, who are primarily involved in the push for economic and political liberalisation. Taking South Korea as an example here, the transition to democracy took place in 1987, replacing the autocratic system - initiated by a military coup - that had been in place since the 1960s. Preceding this transition, however, was notable economic growth that increased the GDP per capita from less than $100 in the 1960s to more than $10,000 by 1995. Increases in education levels were also observed during this period, which may have been a factor in the emergence of the Korean middle class in the 1970s.
Another scholar, Samuel P. Huntington, points out 5 key factors that played a role in triggering the ‘third wave of democracy’, and he emphasises the importance of one specific factor - economic development. Concerning South Korea, some light may be shed on the state’s economic development plan initially, which entailed resource allocation by restricting political freedom. For a small and inelastic economy such as South Korea, it was successful, but after the rapid economic development, such a system pertained to structural issues, and the need for democratic policies arose consequently. In the current day, the capitalist development of the country may be argued to have contributed to the long-term consolidation of democracy, with South Korea’s income per capita rising above $20,000 in 2008.
Some scholars suggest that the relationship is the other way around, whereby the implementation of political democracy in a nation results in capitalist development. The argument here is that economic development thrives under a democratic regime. After conducting a meta-analysis of 84 studies, Docouliagos and Ulubasoglu found in 2008 that democracy had a favourable impact on the level of inflation, economic freedom, political instability and human capital formation, which were factors attributed to capitalist development. The case of Japan is relevant here because the onset of the democratic transition was initiated by the USA in the post-war period when the country was left vulnerable, yet it was able to nurture such economic growth that its economy surpassed some nations of the West within 40 years. This does not assert that the democratisation of Japan was what led to economic development but rather its policies had a positive effect on the key factors that contribute to economic development as mentioned above.
However, it is imperative to discuss the exceptions. These come partly in the form of countries that operate under democracies but are not able to foster high economic development. Examples of these are significantly limited in number, but notable cases include Ghana and Senegal, which both possess the key elements of democracy previously discussed, yet remain very poor with very low per capita GDPs of $1,598 and $2,203 respectively as of 2022. The majority of exceptions, however, come from the opposite configuration: nations that have experienced notable capitalist development yet remain governed by non-democratic systems. Some countries in the Middle East are remarkable examples of nations that have veered far from democratic policies yet have maintained capitalist development and experienced high economic growth i.e., Qatar and the UAE. Marco Verwejj and Riccardo Pelizzo noted in their 2009 paper “Singapore: Does Authoritarianism Pay?” that Singapore has been governed by a singular political party since 1965 and hence its system is a “soft-authoritarian system”, yet the country’s economic development remains strong. Concerning this, in 1996 Adam Przeworski suggested that capitalist development is not essentially a ‘trigger’ for the democratisation of a nation but instead, it acts in consolidating newly transitioned or already existing democracies.
Overall, a link between democracy and capitalist development is evident, regardless of the chronological order of emergence. However, this link has varied throughout the globe as illustrated by the case of some Arab Nations and Singapore. Further research into this relationship could then be utilised to understand the finer-level systems and developmental patterns of countries in the future.
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