Increased Government Intervention and Halted Democracies

By
The puzzle of democracy
Increased Government Intervention and Halted Democracies - Tomoyuki Hashimoto

Abstract

It has become a cliché to say that there are many forms of democracies: instead, we ask if a policy is “democratic.” With the onset of increasing economic difficulty, governments intervene in otherwise free markets. Voters tolerate corruption when rural development is secured through it. Civil rights have been restricted due to possible harm of the national economy. This essay temporarily defends such incidents from the accusation of being “undemocratic,” for such policies are often believed to be necessary to strengthen a democracy in the long run. After all, our model of democracy is not the only model of democracy, nor is it always the best for them.

Introduction

It is Economics 101 that the world suffers when the American economy declines, but it requires a bit of imagination to foresee how other governments will react to situations on the ground. Not all governments have hired advanced economists, and even if they have, those economists can politicize financial and economic matters as if they were in a Machiavellian world. If liberal democracy is fated to advance hand in hand with free market capitalism, politicized and neglected macroeconomics will result in the halting of democratization. Today even America, the world’s leading democracy in most people’s eyes, is increasing government intervention in the private sector, contrary to the principles of free market economics; the same is expected in other parts of the world. This short study, therefore, highlights the paradigm of contemporary economics and politics, in which “free market capitalism” and “liberal democracy” are diametrically opposed to “recentralization of the economy” and “corruption” (see the diagram below). In this paradigm, “free market capitalism” is an economic system in which any transactions are based on the mutual consent of economic actors (e.g., buyers and sellers). “Liberal democracy” is often understood as a form of constitutional democracy in which citizens’ rights and freedoms are protected from authorities. The term “re-”centralization is preferred in “recentralization of the economy” because this paper mainly deals with countries which have experienced democratization, hence “de-”centralization of the economy. “Corruption” is the dysfunction of any political or economic activities associated with illegitimate personal gains for participants of the action.

This paper primarily argues against the automatic bipolarization in the paradigm, and defends several incidents in the latter category from the accusation of being “undemocratic.” Both “recentralization of the economy” and “corruption” suspend liberal democracy, and thus are inherently “undemocratic” for many of us. Nonetheless, this essay hypothesizes that such “undemocratic” policies can strengthen a “different type of democracy” in the long run, as long as the country-in-question retains popular approval for those policies. In this “different type of democracy,” governments may increase control over critical resources in the face of economic crises, contrary to what the International Monetary Fund suggests; or they may tolerate a small degree of corruption so that a corrupt but locally influential politician can be a moderator between the central government and rural voters in conflicts over rural development. Strictly speaking, those characteristics are not characteristics of liberal democracy, and we do not observe them in the US—thus, they are not characteristics of American democracy.

After all, the priority of concerns given to the range of issues are different in each political culture, and thus a democratic government deals with these issues according to the priority indicated by voters. Therefore, while the government-in-question is democratic in principle, the emphasis (or intention) of policies are different from government to government and the values of each policy are not necessarily shared by all democratic societies in the world. In this regard, the following analysis draws examples from Taiwan, South Korea, and Japan, where both free market capitalism and liberal democracy are practiced, and where their values on policies seem to differ from that of the US.

Democracy and priority of issues

If “democracy” only means a political mechanism that reflects peoples’ (or more precisely, the majority’s) opinions on policies, even a coup d’etat with popular support can be “democratic.” Socrates or Henry David Thoreau would emphasize that the majority rule exists not because they are just but because they are strong. Hence, the question of democracy today is how to mediate the differences in opinion among its citizens, as well as among different societies. In the current democratic system, citizens elect their representatives according to the issues that primarily concern them. Yet, only those supported by the majority have the power to set society’s agenda for upcoming policies. Hence, a priority is given to a range of issues unique to each society: an issue that concerns Americans may not be an issue at all in other countries. Are there any issues, then, which all democratic societies must be concerned about?

For example, it was not in some dictatorial nation, but in democratic South Korea where civil rights seem to have been suspended with the rhetoric of “economic recovery.” According to news reports,[1] a South Korean national who has been commenting on economic issues on the Internet was arrested because his writings damaged the government’s “reputation” in the world financial market. His false information regarding the Korean national currency has cost the South Korean government nearly two billion dollars. At the same time, both in and outside of South Korea, media and intellectuals rushed to question Seoul’s overreaction.[2] Does the government have the right to infringe upon civil rights in the face of (possible) national economic loss? The US or Europe seems to answer negatively.

Nonetheless, we must acknowledge that the government of South Korea intended to protect the national currency by eliminating false information on the currency market. The arrest was by no means to regulate the freedom to criticize the national economic and financial policies, as no other arrest similar to the case above has occurred (as of March 2009). On the contrary, by protecting the national currency, South Korea remains as a part of the worldwide free market. A free market provides citizens equal opportunities and thus strengthens their political independence from the central government. This independence is an essential factor for democracy. Therefore, South Korea indirectly strengthened democracy through the chain mechanism of “the national currency”—“a free market”—“political independence”—“democracy.” How can we call this government “undemocratic” when their policies are believed to strengthen democracy in the long run?

This incident was indeed an “undemocratic” policy, but the government does not seem to be “undemocratic.” Voters in South Korea, in fact, have a high degree of concern over their national economy in the face of the current worldwide financial crisis. Economic recovery becomes the highest priority not only in South Korea but also in many other countries, while other issues such as freedom of speech, such as in the previous incident, are temporarily forgotten, so to speak, from the mind of policy makers. Keeping this question of “priority of issues” in mind, the following sections will analyze first “recentralization of the economy,” then “corruption.”

Recentralization of the economy

A free market economy values efficiency and productivity while it encourages entrepreneurship. Simultaneously, liberal democracy guarantees each citizen fair and equal opportunities with respected civil rights. These two concepts—free market capitalism and liberal democracy—are developed (or designed) to enhance each other, and thus, a free market liberal democracy becomes a textbook scenario for developing countries.[3] On the other hand, a recentralized economy loses (at least in this textbook of development) economic efficiency as scarce resources are not well allocated to maximize productivity, and it discourages entrepreneurship through numerous regulations. Furthermore, Machiavellians in the government frequently use such financial and economic regulations against opposition parties, undermining the democratic political system.

One missing point in the above argument, however, is that entrepreneurship tends to grow in the service and the industrial sectors rather than the agricultural sector. Thus, one of the benefits of a free market economy, the encouragement towards entrepreneurship, is seldom understood in politically agricultural societies. In the countries where industries are concentrated in only a few cities, such as South Korea, Taiwan, and Japan, agricultural rural voters have rather disproportional representation in national politics. Such voters seek heavier agricultural subsidies and deeper protectionism, not freedom of entrepreneurship, and hence, recentralization of the economy becomes a reasonable choice. Free market capitalism, therefore, is not necessarily shared among democratic voters in those political cultures.

Furthermore, in those Eastern Asian nations, recentralized economies are believed to be less vulnerable to economic crises. Comparing historically and socio-politically similar South Korea and Taiwan, Heo and Tan (2003) argue:

Unlike the South Korean state in the late 1990s, the Taiwanese state’s control of critical resources coupled with a political economy characterized by dispersed and weak interest group structures allowed the autonomous economic technocracy in Taiwan to adopt tough pre-crisis and post-crisis policies to maintain Taiwan’s economic viability. Due to these differences in the institutional capabilities, we saw the effect of the variations in the industrial structure, the pace and nature of market liberalization, and the nature of capital financing in contributing to the differential impact of the financial crisis [emphases added].[4]

The people’s tolerance towards recentralization of the economy partly comes from “dispersed and weak interest group structures” which the US will never be able to possess. In the US, where lobbyists influence economic decisions in Washington, strong federal control over critical resources would result in political resistance and disturbance. In Taiwan, however, control over those resources by the central government is believed to have enhanced its immunity against economic and financial crises. Since Taiwan suffered less than other Asian nations during the 1997–8 crisis, then President Lee Teng-Hui obtained continuous popular support for his “economic” leadership. In this regard, recentralization of the economy during crises becomes a norm or a regular procedure, in which a successful result promises political stability. Of course, this stabilized political system can be democratic as long as the leaders are elected through free elections.

Surely, not all citizens are informed of the essence of, and connection between, free market capitalism and liberal democracy. Non-economist voters “underestimate the wisdom of the market mechanism, distrust foreigners, undervalue the benefits of conserving labor, and pessimistically believe the economy is going from bad to worse.”[5]In the face of economic crises, voters with these biases seek protectionism and rather centralist fiscal policies. Politicians who share (or who act as if they share) such preferences to centralist policies become popular in elections and only a few of them have tried to inform their voters about these biases. Convincing voters of these biases is particularly hard in East Asia. After all, Asia is full of countries in which centralist economies performed well beyond expectation. The common belief that decentralized political and fiscal systems bring superior economic growth lacks confidence in the face of so-called “catch-up” factors.[6] Any inefficient and unproductive economy can grow without decentralization through more effective and productive micromanagement.

In the case of Taiwan, President Lee himself was also a reason why his recentralization of the economy was not regarded as “undemocratic” by the Taiwanese people. In the late 1990s, Lee advanced Taiwan’s democratization by reforming the political system, including the direct election of his position, the president. Prior to this reform, the president was elected by the National Assembly without a popular vote. In fact, Lee himself was elected by the Assembly in 1988 after the death of President Chian Ching-Kuo. A few years after Lee took office, the people of Taiwan, especially the younger generation who were born on the island, started to demand more democratic political structures (the so-called Wild-Lily Student Movement).

Lee responded to such demands for democratization in 1996 with the series of electoral reforms. Simultaneously, the People’s Republic of China (PRC) carried out several missile exercises over the Taiwan Strait to pressure the nationalist movement of Taiwan. Helped by the rise of reactionary nationalism, Lee won the presidential election by a simple majority, and the PRC began normalization negotiations with the Lee administration in the following year.[7]Thus, Lee was regarded as a true democratic reformer and the father of the Taiwanese independence movement among the young native Taiwanese. It was this political characterization of Lee that distanced him from the criticism that his economic recentralization was “undemocratic.” Therefore, not all forms of economic recentralization can escape criticisms of being “undemocratic” from domestic voters.

Corruption

Of course, not all voter-supported policies will strengthen a democracy. Voters who are concerned primarily with economic recovery during a crisis demand results rather than processes or styles, and preference towards recentralization of the economy is one phenomenon. Hence, public expenditure projects increase productivity (and efficiency to a lesser extent)[8] in theory—leaving the door open for corruption. Officials can distribute public expenditure projects in exchange for political support, or vice versa, influential businesses promise political support in exchange for public projects to their companies. Even the “autonomous economic” technocrats mentioned in Heo and Tan (2003) above can be motivated by personal political gains through pre-crisis and post-crisis policies, rather than solve national economic problems. Corruption is any practice against fairness and equality, and thus it is the opposite of liberal democracy.

Nevertheless, the answer to the question whether or not corruption helps political development (towards democracies) is surprisingly optimistic. John Girling summarizes: “that corruption in a number of cases failed to pervert society—even if it perverted politicians—is attributable, rather, to normative strength everywhere: personal moral obligations and effective voluntary associations are examples.”[9] Regardless of the risk of impeachment and imprisonment, those who do not share our cost-benefit analysis commit corruption anyways—hence, corruption survives. Yet, in a democratic society, a collective political will restores democracy by electing new uncorrupted leaders. Post-corruption elections are, in this regard, a step towards the moral realm of politics, even though corruption itself is undemocratic.

On the other hand, in many cases, corruption promotes rural economic development, and corrupt politicians are continuously reelected to the parliament as the “voice of the rural area.” Joseph Nye visualizes such “positive” elements in economic terms—capital formation in rural areas, including incentives to entrepreneurs. At the same time, however, there is no guarantee that such rural economic developments are nationally beneficial, and hidden corrupt fees are on the shoulder of citizens, mainly from urban areas. As the cost of such unbalanced developments spread evenly nation-wide, the individual cost is too little to take actions against corruption. Moreover, the entrepreneurs which Nye points out are less likely to appear in recentralized economies. Due to the control over critical resources in a recentralized economy, it is hard to start any businesses, particularly if one opposes the government. Political freedom is therefore undermined as a cost of entrepreneurship in such an economic environment.

Besides those political costs, Nye foresees the economic costs of corruption in the following three points: capital outflow, unbalanced investment, and wasted resources.[10] First, like former Prime Minister Thaksin of Thailand who purchased the Manchester City Football Club, a large sum of personal capital gains from corruption tends to flow outward to deter domestic investigation. Customer-friendly Swiss banks are also destinations for such dirty capital. Second, due to the ease with which corrupt fees can be hidden, public investments are often concentrated into certain sectors, such as construction. For ordinary citizens, it is hard to estimate the costs of railroads, while it is relatively easier to recognize if an ashtray costs ten times more than usual. Finally, anti-corruption resources, both capital and labor, are wasted as long as corruption is tolerated. A non-independent judicial branch is also part of this category.

Japan, therefore, is a curious case. Japan is undoubtedly democratic by its political structure. Yet corruption is rampant and those accused of corruption are often re-elected after a short period of silence. Under the Kakuei Tanaka administration (1972–74), numerous construction projects were launched throughout Japan. Some enhanced capital endowment and some wasted millions of dollars. A gorgeous marble bridge named after Tanaka in the middle of rice fields is an example of the latter. Tanaka was arrested on corruption charges in 1976 (“Lockheed Bribery Scandal”). Yet, Tanaka won with a wide margin in both the election of 1976 following his arrest, and of 1983 following the court judgment of “guilty.” Local voters who supported Tanaka preferred visible local developments to invisible political morality, even though the preference was dissimilar nationwide.

While it is dangerous to generalize, there are at least a few cases where corruption helped a national economy. The Gifu-Hashima station of the Japanese super-express “Shinkansen” railway is one. Among many Japanese, it is believed that an influential politician, Banboku Ono,[11] invited the construction of this station in the middle of rice fields near his house for his own convenience. Allegedly, he cried out to the Japanese National Railway (JNR) representatives: “Where do you want me to get off [from the super-express]?” However, later research revealed a different story.[12] Due to heavy snow in the Gifu region, the JNR was already planning the construction of a station in this area prior to Ono’s intervention. At the same time, the governor and the local parliament of the Gifu Province were protesting the JNR because the planned super-express would not go through the provincial capital, Gifu city. The JNR explained that this super-express was intended to connect two megalopolises, Nagoya and Osaka, and thus largely detouring to Gifu city was uneconomical. In response, the governor and locals in Gifu physically prevented further construction and maintenance of the super-express and asked Ono to arbitrate. In the negotiation, Ono acted as if he ordered the construction of a super-express station within the Gifu Prefecture in exchange for a “compromise” not to detour entirely to Gifu city; the JNR accepted. Feeling a sense of superiority over the JNR, Gifu locals calmed down, and the Gifu-Hashima station was built as it was originally planned by the JNR.

In this episode, Ono, who had been viewed as corrupt by many Japanese, actually acted this way to smooth the situation. Ono is likely to have received some amount of money for this arbitration. Yet, because of his effort, the JNR (then a public company) did not unnecessarily spend tax-payers’ money on the unproductive project (detouring the super-express line to Gifu city). Locally, the Gifu Prefecture obtained a super-express station which attracts private capital even now. The arbitration fee (or some may call it “the corruption fee”) to Ono, if any, would have been a far less amount than what the Japanese government would have lost if the super-express detoured to Gifu city. Moreover, without Ono, the JNR was unlikely to advance the super-express project. Total economic calculations seem to be positive on the whole, and there is no discrimination in terms of economic gains. Is this “undemocratic”? Is this “corrupt democracy”? As far as Ono is concerned, voters of the Gifu region enthusiastically kept their support until his retirement.

What is “(un)democratic”?

Observing the trends above in Asian nations, while the term “undemocratic” seems to fit in this context, we must keep in mind that there is no such thing as the democracy except for a few fundamental elements.[13] Since the time of ancient Greece, mankind has tried to establish the formula for democracy, yet we have never reached the perfect conclusion. This is an inherent problem around the idea of “democracy” because a democratic system always refers to people, and people’s preferences and priorities change over time. Yet, if a democracy is a political system whose policies reflect the demands of its citizens, each democracy can take a different form suitable to each political culture. On the other hand, US (and European, to a lesser extent) officials seem to anticipate that liberal democracymust be supported by free market economy with less government intervention. Any policies against the above value system are labeled “undemocratic.” If the basis of American foreign policy strategy[14] is inheriting such an assumption of the democracy, the American-aided effort of democratization in the various parts of the world loses theoretical coherence of “democracy” (i.e., reflecting the local people’s opinions), hence legitimacy. Therefore, this essay has argued that increased government intervention halts the American model of democracy (i.e., free market liberal democracy)[15], but it can preserve different kinds of democracies (such as political democracy with a recentralized economy in a crisis, and/or with what we call “corruption”), in which local people determine the future of the nation by themselves. Of course, the author has no intention of claiming the fall of “free market democracy,” nor generalizing the “undemocratic” local incidents as “democratic” all over the world. Rather, the author argues that the flexibility to adapt voter’s demands into policies is the key for preserving their democracies, even though contemporary policies are “undemocratic” in our eyes.

“Undemocratic” methods of governance, such as recentralization of the economy and corruption, cannot be fully understood by the cost-benefit analysis derived from American politics. Even though those policies halt ourdemocracy, many voters in the country-in-question tolerate those policies especially when economic recovery and development are involved. However, change is inevitable. The long-lasting reign of the Liberal Democratic Party in Japan (since 1955) was broken in 1993 by the coalition led by Morihiro Hosokawa. Japanese voters who tolerate corruption in general were finally fed up and hoped for change. Prime Minister Thaksin of Thailand is most likely to be arrested as soon as he returns to Thailand. South Korean as well as Taiwanese high prosecutors’ offices have launched a long-lasting anti-corruption campaign against past and even current political leaders. All of those countries, therefore, are “democratic,” because the switch of leadership was conducted according to democratic procedures when voters demanded.

Therefore, the automatic bipolarization of “democratic” and “undemocratic” has little to do with the assessment of democratization when people have a disagreement over what “democracy” is. Throughout this paper, the author emphasizes the intentions of policies in addition to their styles and outcomes. Not external observers, but voters within the political system should decide what “democracy” is for them. If outsiders believe that their choice is not acceptable, those outsiders can suggest that insiders should change their political system, but they cannot force it.

Notes & References

  1. Park, J. & J. Glionna. (2009) “Case of Economic Pundit Minerva roils South Korea.” Los Angeles Times. [Online] January 16. Available at: http://www.latimes.com/news/nationworld/world/la-fg-korea-minerva16-2009jan16,0,5129219.story (Accessed: January 26, 2009).
  2. Pesek, W. (2009) “‘LeeMan Brothers’ Offer No Panacea for Economy.” Bloomsberg. [Online] January 26. Available at: http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=aEx7JaA9KhAs (Accessed: January 27, 2009).
  3. Some scholars have been arguing that free market capitalism promotes unequal distribution of wealth along ethnic lines, which causes political instability. See Chua, A. (2003) World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability. New York: Doubleday.
  4. Heo, U. & A. Tan. (2003) “Political Choices and Economic Outcomes: A Perspective on the Differential Impact of the Financial Crisis on South Korea and Taiwan.” Comparative Political Studies. 36 (6), pp. 679–698.
  5. Caplan, B. (2007) The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Princeton: Princeton University Press.
  6. Castles, F. (2000) “Federalism, fiscal decentralization and economic performance.” In Wachendorfer-Schmidt, U. (ed) Federalism and Political Performance. London: Routledge.
  7. Lin, G. “China’s Relations with Taiwan in Retrospect.” In J. Cheng. (ed) China Review 1998. Hong Kong: Chinese University Press. pp. 187–208.
  8. Bealey, F. (2001) Power in Business and the State: An Historical Analysis of its Concentration. London: Routledge.
  9. Girling, J. (1997) Corruption, Capitalism and Democracy. London: Routledge.
  10. Nye, J. (2002) “Corruption and Political Development: A Cost-Benefit Analysis.” In A. Heidenheimer & M. Johnston. (eds) Political Corruption: Concepts and Contexts. New Brunswick: Transaction.
  11. It is read “Ono” with the long “o” at the beginning, sounding like “Oono.”
  12. Sankei Shinbun (newspaper). (1999) Sengo-shi Kaihu (Revealing Post-war History). Tokyo: Huso-shya.
  13. For theoretical understanding of democracies, see Dahl, A. (2000) On Democracy. New Haven: Yale University Press, and Held, D. (2008) Models of Democracy. Stanford: Stanford University Press.
  14. The author emphasizes on American foreign policy to those with democracy-in-progress.
  15. Some may argue that there were the elements of “recentralization of the economy” and “corruption” in Lyndon Johnson’s “Great Society” or F. D. Roosevelt’s “New Deal.” The comparison what the author intends to make in this paper is not the comparison between the realities of “democracy” in America and in Asia, but rather between the ideas of “democracy” proposed by America and perceived by Asia.
Tomoyuki (Tom) Hashimoto is Lecturer of Political Science and International Relations at University of New York in Tirana, Albania. He teaches diplomacy, international law, and regional studies (Russia/CIS, Asia). He is also a fellow at the World Association of International Studies in Stanford. He has a B.A. in International Relations from Boston University and MSc in Comparative Politics (Empire) from London School of Economics and Political Science.