The danger of rejecting democracy for the sake of economic growth

President Joko Widodo and his Indonesia Maju Cabinet on 23 October. Photo by Desca Lidya Natalia for Antara.

 

There is a worrying attitude emerging in Indonesia that the pursuit of economic development runs in conflict with democratic freedom, or is even a priority over it.

 

Speaking to media in recent months, returning Finance Minister Sri Mulyani said: “In the past, when the government was heavily authoritarian, investment came. Once we became democratic, our ability to create a good investment climate lessened.” She offered the example of China, where, to her mind, politics are “controlled”, yet investment is guaranteed. The minister seemed to imply that a good climate for investment, or economic growth, requires a backdrop of authoritarian politics. Fortunately, as a small clarification, she added, “Here, we want to remain democratic, but continue to attract investment”.

 

Mulyani’s statement comes at a time when there is broad consensus that Indonesia’s democracy is in retreat. Over recent years, the quality of Indonesia’s democracy as has deteriorated from “free” to “partly free”, as rated by Freedom House. The returning government under President Joko “Jokowi” Widodo has explicitly stated that upholding human rights will not be a priority in the coming term. Embracing former rivals in his new coalition, the president has explained that it is common for there to be no opposition in Indonesian politics because Indonesia is a country based on mutual cooperation (gotong royong). In addition, he has promised to “hunt down and attack” anything that limits investment.

 

To borrow a turn of phrase from the late Cak Nur, the mantra of the incoming government appears to be “Economic liberalism, yes; political liberalism, no”.

 

This tendency to separate the objectives of economic growth and democracy has been gaining momentum over the past decade. Rapid economic growth in China, the failure of the Arab Spring uprisings, and growing support for populist regimes in Europe and the United States has led many in Indonesia to believe that democracy is no precondition for economic growth. New York Times columnist Thomas Friedman, using the Chinese example, has even commented that one-party, authoritarian states have a greater ability to push through the types of policy reforms that might be “tricky” politically, but are necessary to mobilise societies towards the 21st century.

 

The thinking follows that authoritarianism is a more effective or practical way to achieve economic prosperity. Democracy, on the other hand, is often seen as complicated, tiring and costly. This is why decision makers often succumb to the temptation to ignore democratic values in pursuit of growth. However, history shows that ignoring democracy, or separating the objectives of democratic freedom and economic growth, is a foolish strategy.

 

In Indonesia, the idea that authoritarian rule could provide the political stability required for economic growth was practiced for 32 years under the New Order, and was ultimately proven to be a failure. Under President Soeharto, development followed a creed of growth and stability. To achieve growth, the New Order repressed democratic aspirations and civil freedoms, controlled political parties, quashed political opposition and co-opted major civil society organisations. What was the result? With limited civilian oversight, political and economic power became concentrated in the hands of a select group of elites. The New Order came to be identified with corruption, collusion and nepotism. The benefits of economic growth were enjoyed primarily by elites with connections to the president.

 

In the end, the Asian Financial Crisis swept through and destroyed the New Order’s foundations of power. Reflecting on this history, shouldn’t it be obvious that delaying or limiting democratic freedoms to prioritise economic growth is a foolish strategy? The approach left the country’s economic foundations in a fragile state. Authoritarianism concealed hidden crises of political legitimacy and economic disaster. In Indonesia’s case, at least, the claim that authoritarian rule brings economic growth was proven to be false.

 

Following the fall of Soeharto in 1998, Indonesia entered the reform era and committed to a new approach to growth. The belief then was that development must be pursued in tandem with political freedoms. Democracy could no longer be sacrificed for the sake of economic growth. A process of reconciliation began between the institutions of democracy and the economy, and Indonesia began to build its democracy in harmony with economic development. All post-Soeharto leaders (to varying degrees) took this approach of integrating democracy and economic growth.

 

It was little coincidence that a year after the fall of the New Order, Amartya Sen published Development as Freedom. In it, Sen described development as the process of expanding freedoms. Development could not be narrowly interpreted as growth in gross domestic product (GDP) or gross national product (GNP), or an increase in income, industrialisation, or technology, he wrote. Development required the elimination of constraints on human freedom, such as poverty, tyranny, limited economic opportunities, social deprivations, intolerance and state repression. Sen showed that substantive deprivations in freedom are closely related to outcomes of poverty, hunger, poor nutrition, disease, poor sanitation and lack of education. Constrained freedom is also correlated with poor public services, inadequate social welfare and a low quality of education.

 

One of the strongest pieces of evidence Sen provided for the relationship between a lack of freedom and poor economic conditions was the fact that there has never been a famine in a democracy — famines have only ever occurred under authoritarian regimes. Sen offered the example of the Great Chinese Famine, which occurred not because of a lack of food, but rather a lack of freedom and transparency, resulting in irregular flows of information and poor distribution of food. During the reform era in Indonesia, Sen’s ideas were seen as a reference point for policymakers. But in recent years, these principles seem to be falling out of favour.

 

As leaders begin to question the ideals of the reform era, it is important now to review the relevance of democracy to economic growth. If we look at the research, we find clear evidence of a positive correlation between democratic political conditions and economic growth.

 

A recent study by Daron Acemoglu and colleagues at the Massachusetts Institute of Technology proved that democracy contributes directly to growth — in a review of 184 countries over the period 1960 to 2010, during which 122 of the countries democratised and 71 remained non-democratic, the democratic countries were found to have GDPs 20 per cent higher in the 25 years following their democratic transition than the non-democratic countries. So while authoritarian governments were able to invest more freely in areas like natural resources, technology, military and defence (as we have seen in places like China and Russia), democratic countries still had an advantage, because their freedoms allowed greater efficiency in technology transfer and innovation, through collaboration with other democratic countries.

 

China, which has never been democratic, is therefore not the right example for economic advancement. The highly centralised authoritarian system managed by the Chinese Communist Party can never become an appropriate template for a country like Indonesia, which from its very foundation was designed according to democratic, multi-party principles, even if it has too often been unable to function in this way.

 

Further evidence to support this has been provided by Muhammed N Islam, whose research in 83 countries found that the expansion of freedoms was able to reduce inequality. The study found that democracy affected economic conditions slowly over a period of 25 years, but ultimately was able to reduce levels of inequality. A clear finding of the research was that freedom reduced inequality only in democracies, not in non-democratic countries.

 

Today Indonesia is still a democracy, though models of economic development with limited freedoms appear to be tempting its elites. The shift is occurring partly for political reasons, and partly because of a cultural longing for centralised power structures that have a long tradition in Indonesian politics. A recent proposal to bring back State Policy Guidelines (GBHN) is part of these efforts to eliminate freedoms from development planning. There is a strong chance that New Order style developmentalism will continue to endanger Indonesia’s democracy, and its economic prospects, in the near future.

 

But if Indonesia hopes to advance as a nation, and avoid political and economic disaster, its leaders must resist the temptation of reverting to old forms of governance. While the positive influence of democratic freedoms of economic growth may take time to develop, evidence and experience shows that this is the safer and better route to growth.

 

An earlier version of this article was published in Tempo Magazine on 26 October as “Pembangunan Sonder Kebebasan”.