What happened to our dream of democracy? Part 3: Why democracy will eventually win, as always

In the third part of the series of essays on democracy, I continue upon the conclusions of the second text in evaluating the weaknesses and strengths of democracies.

Alternatives to democracy 

The attacks and criticisms on democracy and capitalism are all too familiar. Despite all its flaws, some of which desperately need to be fixed, the Western model of democracy has triumphed so many times in history. As I've pointed out in one of my earlier posts, it was well documented that prominent Western economists back in the 60-ies and 70-ies made predictions on when the Soviet Union is to overtake the United States as the world's leading economic superpower. The most notable of them, Nobel prize winner Paul Sameulson, only a few years before the collapse of the Soviet Union claimed that Russia would overtake the US somewhere between 2002 and 2012.

We can go even further back in time to the 1920s and 1930s when many nations in Europe envisioned their democratic and capitalist system as deeply flawed and in desperate need for change. The process of radical change commenced as the socialist Italy and Germany descended into Nazism and fascism. Russia on the other hand descended into the other extreme - communism (but only ideologically, in economic terms all of these rest upon the idea of collectivism and state nationalization, which is why Hayek concludes that these systems are essentially the same). As the regimes of Mussolini and Hitler crumbled under the anti-fascist movement merely a decade later, it took some time before the isolated central planning model of Russia and its satellite countries dissolved.

China on the other hand is a different story. Under Mao Zedong, China was the prime example of failure of the central planning model which almost completely destroyed the country. Mao wanted China to catch up with the western world in terms of economic power. He wanted to show China's strength to the world so he ordered unrealistic production quotas and exports (to match those of the UK at the time), leaving less resources for domestic consumption, which literally resulted in starvation. Many who opposed or failed to meet their quotas were killed. Many died of hunger. Coupled with the Cultural Revolution (aimed at fulfilling his utopian ideas), his regime killed around 45 milion people (some say even more - close to 80 million).

Not until one of Mao's successors, Deng Xiaoping and his pro-market reforms (his most famous quote being: "It doesn't matter whether it's a white cat or a black, a cat that catches mice is a good cat."), did China stared to embark on the road to greater prosperity. It took them 30 years to recover from Mao's socialist utopia.

Critics of democracy look at China today and say this is the system we should embrace. A mix taking the best from both systems - so-called state capitalism. However, state capitalism is, as I've pointed out in the previous text, probably the worst form of capitalism - characterized by deep cronyism, elitism, rising inequality and worst of all lack of political freedom. Furthermore China's shadow banking system is huge, as are its malinvestments, its credit boom is alarming, all as a result of its economy being ran by target-oriented socialists creating wrong incentives in the economy.

So even though today we can look back and claim that none of the regimes mentioned above (communism, fascism, various forms of authoritarianism) ever proved a real threat to democracy, at the time they were being imposed they were an extremely credible threat, especially in the countries that implemented them. The same story is with China today. Many feel we should emulate this system, which seems much more fair and successful than our own, but tend to completely overlook the biggest problems this system is facing, and its inherently unjust nature.

Competition and the trial and error process

So how come democracy keeps winning? Democracies have a multitude of hidden strengths from which an authoritarian regime ultimately always fails. Democracies, as well as capitalism itself, strive on the idea of competition. And competition and selection of different alternatives implies more creative solutions when it comes to dealing with challenges. Sure this sometimes implies poor judgments being made and dubious outcomes arising as a result (some of which I covered in the previous post), but as the market system, democracy too relies on trial and error. Thinking of the nature of our society, we all strive on this system. It teaches us not to repeat the same mistakes of the past (this is one of the underlying ideas behind the European project - never again to allow a war on the continent - so far it's extremely successful in this, as the EU seems to be the last place on Earth where a war might take place).

This is why democracies appear to be more fragile than they actually are - they are characterized by a complex decision-making process, which need not always yield the best possible outcomes immediately. Where one can see a sign of weakness (gridlocks, slow responsiveness, negative political selection), this may just be a short-term response of the system to some earlier made errors. When too much of these errors pile up, they congest the system (corruption, cronyism, vote-buying and the consequential sovereign debt crisis) and signal to the electorate that things need to be changed. It will take time before the electorate recognizes the correct set of ideas and people to solve these piled up errors, but at one point they will be solved. At least within a democracy voters are given this option. In the process, other errors will surely be made, but due to even closer scrutiny and transparency from the electorate, the process will inevitably end in a success. As it did in fact many times before, despite striking opposition and doomsday prophets. 

The key to a successful democracy, reached by a series of trial and error processes in Western history, is to erect institutions which will limit political power. Democracy mustn't turn into a tyranny of the majority. This is why political freedoms are crucial and why institutions which enable transparency and scrutiny are essential in ensuring a long-run survival of a democracy. Particularly for a country new to the idea. Many new democracies get preoccupied with elections and fail to design institutions that prevent some of democracy's main failures. They fail to establish a good constitutional democracy with an emphasis on the rule of law. This is a typical reason for failure of consolidation. Their trail-and-error process is arguably going to be much longer, particularly if new democracies quickly descend back into authoritarianism (which is very possible - recall the iron law of oligarchy). When long-lasting democracies exhibit signs of failure their trial and error process is quicker and such countries will resolve their structural problems relatively faster, despite the seemingly congested system they currently have to face.

In its recently published essay on democracy the Economist mentioned a series of positive examples of how democracies can successfully find solutions to some of its mounting problems: 

"Governments can exercise self-restraint in several different ways. They can put on a golden straitjacket by adopting tight fiscal rules—as the Swedes have done by pledging to balance their budget over the economic cycle. They can introduce “sunset clauses” that force politicians to renew laws every ten years, say. They can ask non-partisan commissions to propose long-term reforms. The Swedes rescued their pension system from collapse when an independent commission suggested pragmatic reforms including greater use of private pensions, and linking the retirement age to life-expectancy. Chile has been particularly successful at managing the combination of the volatility of the copper market and populist pressure to spend the surplus in good times. It has introduced strict rules to ensure that it runs a surplus over the economic cycle, and appointed a commission of experts to determine how to cope with economic volatility. 

...technocracy and direct democracy can keep each other in check: independent budget commissions can assess the cost and feasibility of local ballot initiatives, for example. Several places are making progress towards getting this mixture right. The most encouraging example is California. Its system of direct democracy allowed its citizens to vote for contradictory policies, such as higher spending and lower taxes, while closed primaries and gerrymandered districts institutionalised extremism. But over the past five years California has introduced a series of reforms ... The state has introduced a “Think Long” committee to counteract the short-term tendencies of ballot initiatives. It has introduced open primaries and handed power to redraw boundaries to an independent commission. And it has succeeded in balancing its budget..."

Which brings me back to the initial point I wanted to make in this series of texts: it's much easier to change a faulty system when you have the possibility to do so. In a democracy the people do have an option to change an unjust and corrupt system, and they often do so. Recall the great victories for liberty during the Civil Rights movement or the emancipation of women, both of which signaled an end to a long run of unfair and unequal societies. 

This simply shows that those periods were times of 'error', and it took a long time to get it right. It took more than a hundred years from Lincoln's abolition of slavery for the African Americans in the US South to gain equal rights. Think about the inequality and social mobility problems they've experienced, basically up until the 80-ies. The trial and error process is very long, sometimes it may seem to be too long, but eventually it will triumph. This is the biggest advantage democracies have over any other system of governance. Which is exactly why they will always be successful in fixing their problems.