I am concerned about the fact that ex communist countries such as China and Russia are outgrowing the USA and the EU by a big margin. USA and EU grow at a combined rate of around 3% now rapidly falling as a result of recent financial turmoil while Russia and China are growing at a combined rate of over 7%. At that rate former communist economies double in size every decade. As the democratic West accumilates debt the former communist countries pile cash and grow faster. Watching Russia for example moving away from democracy with most Russians actually in favor of Vladimir Putin´s consolidation in power reminds us that it was not lack of freedom that brought communism down: it was lack of prosperity. Many of us were simply wrong when we thought that the fall of the Berlin Wall was about democracy. People who were leaving Soviet Russia and its satellites were not really looking for freedom, they were trying to make a decent living. At the same time as recession approaches it is sad to remember that it the main driver of Nazism was rapid economic decline. And while in the EU and in North America there´s little risk of moving away from democracy it is in the swing states of the world where we now see that given a choice between prosperity and freedom most choose prosperity. The latest example of this trend is Serbia, a country in the heart of Europe that has chosen to align itself more closely with Russia than the EU.

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Brokenglish.blogspot.com on February 2, 2008  · 

If Europe and the US are not doing very well, what’s left for Argentina? We should be invaded by China!

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G. on February 2, 2008  · 

I think, the “moving away from democracy” that you comment can be very unfavorable for russian population in a future. My opinion is that if you look for a long term prosperity, a country needs to move from communism to democracy and settle down there, otherwise there is the risk that the next coming president destroys that prosperity, setting the country several decades back. I think, for a sustainable prosperity you do need the freedom of a democratic system.

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Elena on February 2, 2008  · 

I don’t think that anyone in world with even a basic degree in finance or economics will tell you that growth is sustainable over time without transparent markets and institutions.

Like in 1998, investors will flood markets with capital, but eventually if you don’t have transparent and stable financial institutions, investors will get scared and leave. Corruption in developing markets makes those markets unattractive over time: they lose their liquidity, ie, you can put your money in but not take it out.

I really am not too worried about it. The question is whether freedom can lead to prosperity or whether you need totalitarianism to lead to prosperity and then to freedom.

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JohnH on February 2, 2008  · 

> while in the EU and in North America there´s little risk of moving away from democracy

I guess that depends on your definition of democracy. Comparing relatively young history (50 years ago) to the current state of affairs in the world should send shivers up most peoples spines. This site has an interesting view on that : http://www.whatreallyhappened.com/reich.html

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David Oliver on February 3, 2008  · 

While the figures look good for both countries I think they have problems in the medium to long term. Russia is benefiting from high global prices generated by a resources boom but with the easy money coming from high energy prices I doubt if it is building many other sustainable industries. I also wonder if people really like Putin, or just the fact that he has thrown a lot of fat cat oligarchs in jail.

China has grown rapidly from a low base in recent decades on the back of an export driven economy and huge infrastructure spending (consumption as a % of GDP has actually dropped). But it has done this at a huge cost to its environment and most of the benefits have flowed to a privileged minority living in the cities, not to the average peasant in the countryside.

I expect both countries to hit some serious roadbumps in the coming years.

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Elliott on February 3, 2008  · 

Your observation is a restatement of Abraham Maslow’s [psychology professor at Brooklyn College & Brandeis University] 1940-1950’s Hieracrchy of Needs motivational model & your previous observations on why people emigrate. It puts first people’s basic physiological needs of food, drink, sleep, shelter, etc. In the long run, one needs democracy and transparency to facilitate prosperity, because it is the most open system for allowing flexibility to adapt to changing conditions in contrast to a dictatorship such as that of Casto that has not allowed Cuba to change [or prosper] since 1960. In the USA or Europe, if the people or the government errs, new leaders or the public via referendums introduce new, hopefully better, solutions. If that doesn’t work, further change comes about.

JohnH’s link to a paranoid, conspiracy website is irrelevant. Does anyone really believe Bush will not allow free elections or will attempt to extend his stay in office a la Chavez?

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David on February 3, 2008  · 

Interesting topic, and Singapore is probably the best example of great economic success under a de facto dictatorship. Not just that, but clearly sustainable in spite of what Elena (#3) claims.

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XL on February 3, 2008  · 

I’m sorry but your analysis is completly wrong…

1st) China, India… grow so much because this economies are too small. China has a GDP per capita of 7.722 USD, India 3.802 USD and USA has 43.223 USD, so the elasticity and the marginality are very high.

2nd) An Increase of 1% of the USA GDP it’s equal at 432 USD but India needs at increase of 11.36% to reach it.

3rd) You have gave several examples of economies that are growing without democracy, but if you do a total comparation of countries without democracy to countries with democracy, it wins the second one. Because in this second list you must add Zimbawe with an inflaction of 150.000%, North Korea with over 1.000.000 people deceased for the carency of food…

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JohnH on February 3, 2008  · 

@Elliot I agree that the site that I linked to is biased. Why does that make it irrelevant? It is very easy to try and win an argument by dismissing someone else’s opinion as irrelevant. Sadly it will not progress the argument any further than that. Have you even read the article? The point is that the article I refer to makes some good points about the fragility of democracy. Does that not warrant a healthy paranoia? Call it conspiracy thinking if you like. Questioning authority should be a part of every healthy society. Blind trust on the other hand is sure to result in trouble. I agree with your first point. But assuming that a democracy will keep itself in order is quite Utopian. There are very effective ways for leaders to make their voters follow them. And they are practiced on a daily basis in many countries, also in so-called democracies.

@David I agree. But are the people truly happy in Singapore? Material and mental prosperity are two entirely different things. An interesting point is raised here: http://www.singaporeangle.com/2006/07/question-about-happinessand-government.html

How can a government know what makes you happy if its methods are that of a dictatorship. The other side is how can we reach happiness if we let the market go about it’s business? What is freedom? What is happiness? What is prosperity? I think the road to an solution lies in the combination of state intervention combined with a rigorous checks and balances. Something like say, oh, a democracy. In theory it should work fairly well. Unfortunately the plan has to be executed by people, and people are flawed. Besides that, democracy was not made to cope with the immense, unchecked, all overpowering might of current multinationals. It needs to be better armed against these kinds of power. In the east we have governments controlling business, in the west we have business controlling government. This is somewhat exaggerated, but not far from how it is. In the end, a well checked, true democracy should be able to deliver both mental and material prosperity without having to severely limit the civilians’ liberties. In theory.

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David on February 4, 2008  · 

JohnH (#10), I do not know whether Singaporeans are happy but my gut tells me they’re probably more satisfied with life than people in say Papua New Guinea. My point addressed the lack of direct correlation between wealth and democracy, and the issue of happiness is an entirely different one.

If we are to discuss that theme, I can probably agree that after a certain threshold is reached,wealth is not 100% equal to happiness (Southern Europe might be happier than Scandinavia in spite of being poorer?). However, to think that the average Chinese is as happy as a Singaporean that lives with 6x the GDP per capita I think is a bit naive. Just my 2 cents.

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JohnH on February 6, 2008  · 

@ David Well actually the term used is ‘prosperity’, which is ambiguous. Prosperity needs to be defined if discussed. But I think you are right to say that material prosperity was inferred. Anyway, though short it was, this small blog entry did set me thinking more about the subject. It is not easy to discuss it in depth without digressing. The subject is so broad that it can easily bring the discussion ‘off topic’.

A short reaction to your last statement: I think prosperity is more about expectations and the (non)fulfillment of them, than actual measurable thresholds. I was not inferring that you must be ‘poor’ to be happy, but that the general idea of what ‘prosperity’ actually is, is flawed / lacking. I last read a funny summary of that: Toys, Toys, Toys… He who dies with the most, wins.

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