Hi there. In the previous video, we saw how the World Bank came into the business of measuring governance. We saw how the indicators were constructed, and we voiced some quite considerable criticisms. But in this video, we're going to focus on the question of democracy. We'll look briefly at the World Bank indicator for Voice and Accountability, as well as other indices for democracy. And we'll see how democracy is supposed to affect economic growth. Let's start with the World Bank indicator for Voice and Accountability. It suffers the same drawbacks as the other indicators. It employs over 20 international and regional sources, and the result is comprehensive, perhaps too comprehensive. There are so many elements included that it would be difficult for a social scientist to disengage which bits of the index is supposed to have what kind of effect. And this means it's also very difficult to extract any policy recommendations from the indicator. But there are alternatives available. The oldest index is that first published by Freedom House, an American organization founded in 1941. The index has been published annually since 1973. It's a composite index with fixed weights, is made up of political rights which makes up 40% of the index, and civil liberties, which takes up the remaining 60%. It's based on a poll of experts who are asked 25 questions, answered on a range of naught to four. And based on these scores, countries are ranked on a scale of one to seven, where the lowest score represents the greatest freedom. Now the first problem with the index is that there are only 32 experts that are listed, and this places doubts of the range of expertise they are supposed to represent. The second one is that having carefully calibrated the possible answers to the question, the results are pressed into a range of only seven categories. Another alternative is offered by the democracy index compiled by the Economist Intelligence Unit. This too is a composite index but with five components each counting 20%. Here civil liberties counts for 20%, electoral process and pluralism for another 20%, and both of these, then, are elements in their freedom house index. It then includes political participation, political culture, and the functioning of governance. It too is based on expert's opinions to 12 questions in each category, each with a simple yes/no answer. And the results to express on a scale of one to ten. And the outcomes of all these indices are to be reviewed in a separate visualization, which you can view after this video. Why should democracy help economic growth? Well, the first link is between the grouting of political rights, and the grouting of the economic rights. Most important of these are property rights, the right to the use of ones own land, capital and labor, and rights of contract. The guarantee against sanction, the contracts once sent into are enforceable. Once free from arbitrary charges and confiscations and protected against the willful abuse of agreements, individuals will be freed of the necessity to hold secret reserves and they'll be able to invest those in the future. The second link is that if citizens are able to decide on their own decision makers, they will also exercise control over their actions. Making sure that they'll act on their behalf and not fulfill their own agendas, or line their own pockets. Now this in turn ensure the better provision of public goods. These are tangible goods and services and intangible services, such as regulation and control. They will also ensure that democratic forces control the actions of other powerful groups in society. Businesses slurping subsidies, or trade unions demanding protection. Finally, one assumes that, if access to, and participation in a political process is open and transparent, and that, as a result, government discharges its functions fairly and effectively. It will make ethnic, linguistic and religious differences less important politically. And as a result, it will reinforce levels of generalized trust. On the other hand, do we need democracy for growth? Authoritarian straight rule, however undesirable from a Western standpoint, is also capable of delivering economic growth. Just look at China over the past two decades. Economic rights can also be enforced by right-wing dictatorial regimes, such as those that characterized Chile in the 1970s and 80s, and Peru in the 1990s. And state-led industrialization may still provide growth through policies that are not market enhancing. It may be possible that they're not sustainable in the long run. But at least when and if the revolution comes, it will be against backdrop of higher levels of economic development. So, a final question then we need to ask is whether social scientists have actually established any links between democracy and growth. The answer is no, the strongest link is between democracy and levels of income. Richer countries tend to be democratic, but this might simply mean that they can afford it, for the rest there are weak statistically link is just about any direction you want. Now why is this? Well, it's partly because social scientist use different measure for democracy and they use different economic modules. Secondly, they ignore the margins of error contained in a democracy index. And just because one isn't specified doesn't mean the error doesn't exist. And thirdly, it's also because as we've seen in the first lecture, per capita GDP estimates and therefore growth estimates for the poorer countries are notoriously unreliable. And this will undermine any correlation and regression exercise. And finally, you have to recognize that the process of economic growth is so complex, and contains so many components, that it's difficult to isolate one variable from the rest. Allow me if you will, one anecdote to explain this last point, because it's going to come up again and again in the other videos. One of the debates in economic history in the 1960's was whether America needed the railways in the 19th century to grow or could have grown without them. And the answer was that it didn't, and soon economic historians were showing that they weren't really necessary in Germany either nor in Italy, nor in any of the other countries, nor were they needed in Tsarist Russia. But one historian suggested that all of the traffic that had been carried by railways could all have been conveyed by horse and wagon. Until another historian calculated that this would require the entire grain acreage of Russia just to feed the horses, let alone the people. The motto of this story, in any complex process, the contribution to the whole of any single component is likely to be small, and therefore very difficult to catch that statistically. So, let's sum up then. In this video, we've looked at various indices of democracy, and we've analyzed the path by which democracy would be expected to influence growth. But we also saw the statistical verification was weak. In the next video, we'll do the same for the rule of law. Meanwhile, we'd like you to explore visualization of the world map of democracy that we've prepared for you.
