Democracy Paradox

At first glance, the relationship between democracy and economic development does not appear entirely clear. While most Western developed countries, such as the United States, Germany, and Sweden, combine high levels of democracy with strong economic performance, there are also wealthy non-democratic states like Saudi Arabia, Qatar, and Singapore that challenge this pattern. As shown in Figure 1, although there is some correlation between a country’s Gross Domestic Product (GDP) and its level of democracy*, this relationship is not conclusive.

This pattern can be explained by several factors. Economic growth depends on multiple variables (human capital, technological progress, and natural resource endowments) making it difficult to isolate the specific influence of political institutions. Moreover, some countries may experience growth even under extractive systems where power and resources are concentrated in the hands of a few. However, the relationship between democracy and economic growth becomes evident when focusing on countries that have passed democratic transitions. Figure 2 shows the average economic growth before and after a transition to democracy (over a 20-year span). As the figure suggests, democratization acts as a game-changing factor for countries following this path, boosting their economies in a consistent and sustained way.

Democratic consolidation processes are not linear. Following Acemoglu and Robinson (2012), the growth generated by democracy can alter the balance of power creating new economic and political elites that challenge existing ones. When institutions remain weak, these elites (old or newly emerging) have incentives to capture the state, restrict political competition, and manipulate institutions to preserve their privileges. Under such conditions, the growth that democracy fosters can paradoxically lead to a process of democratic backsliding.

Particularly whether democracy consolidates or backslides depends primarily on two forces: inequality and the cost of repression. When inequality is high and repression is cheap, elites prefer autocracy because they fear redistribution and can suppress opposition. When inequality is low and repression is costly, democracy is more likely to consolidate because elites face little threat from revolution and cannot easily repress. Countries with both high inequality and high repression costs tend to be unstable, oscillating during the years between autocracy and democracy (See dynamic figure 5).

This dynamics are also reinforced by geographical waves that promote regional democratizations or autocratizations. Specifically, when elites see democratization in their neighbors, they perceive a higher risk of revolution and are more likely to make democratic concessions. The same but opposite mechanism applies when autocratizations happen in the neighbor.

After crises such as the COVID-19 pandemic, democracy has faced renewed pressures and attacks. As Figure 6 illustrates, countries with stronger democratic institutions are generally better equipped to resist these challenges and experienced smaller declines in democratic quality.

Democratic backsliding is not an anomaly in history. Rather, it reflects a common pattern in which authoritarian and democratic waves alternate over time, often reinforced by regional dynamics. Periods of autocratization have been recurrent throughout history, yet so too have waves of democratization (as Figure 7 shows), emerging when social, economic, and technological conditions align to favor greater inclusion and participation.