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MEDIA

 

Opinion Pieces

1. Beyond the ‘Washington Consensus’: Pro-Market Voices from the South. Published in Daily Caller (28 April 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

The experiences of India, Brazil and South Africa over the past twenty five years show that market reforms work. In the 1990s all three countries began to enforce fiscal discipline, liberalise markets and enable the expansion of private enterprise and trade, with very positive results.

 

In 1991 India passed a set of reforms that included the devaluation of the rupee, fiscal discipline, the opening of some industries to foreign investment, government disinvestment from some sectors of the economy, and the abolition of many regulatory controls. As a result, between 2003 and 2010 GDP growth rose to 8.5 percent and the size of the economy doubled between 2005 and 2012. The impact of high growth on the poor has been great. The proportion of the population below the poverty line fell, by some estimates, from 44.5 percent in 1983 to 22 percent by 2011. By one calculation, some 190 million people were lifted out of absolute poverty during this period.

 

In South Africa, the African National Congress, elected in 1994, evolved into a government committed to fiscal discipline and market economics. This policy orientation produced steady economic growth and, in at least three years in the 2000s, exceeded 5 percent. Two million new jobs were created during this time contradicting those domestic critics who claimed that pro-market policies would only generate ‘jobless growth’. Through growth, increased employment and the use of state revenues to implement social programmes, South Africa’s democracy has improved the quality of life for millions of people in ways that were unimaginable under apartheid.

 

In Brazil, the ‘Real Plan,’ initiated by President Fernando Henrique Cardoso in 1994, finally brought inflation under control. Cardoso promoted fiscal restraint and a tight monetary policy and encouraged foreign investment. His successor President Lula broadly upheld currency stability and fiscal austerity, although he also extended a number of social policies. Starting in the mid-2000s, GDP growth accelerated, reaching an average of 4.2 percent, with per capita growth at 3 percent per annum. Thanks to these changes, and despite more recent slowdowns, Brazilian poverty is now in single digits. These trends have brought down inequality in a very unequal society.

 

In all three countries, then, market reforms were followed by periods of inclusive growth. A second wave of reforms is now needed to overcome current challenges of sluggish growth and rising unemployment, deficits and inflation. Macroeconomic fiscal discipline must be maintained. Micro-economic reforms must reduce the costs of doing business in each country, open up competition and markets for new firms and workers, promote a positive approach to the role of business and stop the slide in global competitiveness in each of the economies.

 

However, in contrast to what some have labelled ‘Washington-consensus-like’ prescriptions, we do not believe that merely removing market constraints will be enough to generate the types of inclusive growth all three countries need. The countries and the global governments and institutions wishing to support them also need to address the quality of democracy. Each country needs to strengthen and increase the transparency and accountability of democratic representation, institutions and processes. Transparency holds governments to account. Free flows of information will help people who are both in and out of power understand the real impact of government policies on different sectors of society, especially on the poor.

 

Furthermore, initiatives need to be undertaken and supported that will strengthen the competence and capacity of government so that it can become a vital facilitator of growth, employment, infrastructure and human capital development. We believe that an efficient state and well-functioning institutions are as important as expanding market opportunities in promoting sustained development.

 

Finally, in countries with enormous development challenges, poverty, and a history of discrimination and disadvantage against large parts of the population, helping the poor, unemployed and disadvantaged to survive and cultivate the skills essential to their participation in a modernising society and economy are vital in themselves. They are also important politically. If well-chosen policies are rolled-out effectively and at significant scale they can buy time while economic reforms are implemented, and demonstrate a national commitment to inclusion and recognition of those who are struggling. In each country, the package of policies in this area need considerable reform to ensure value for money, affordability, effectiveness and elimination of unintended consequences that are costly economically and politically.

2. Meeting The Challenges: Democracy and Policy Reform. Published in The Hill (2 May 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

Pressures for change are mounting in India, Brazil and South Africa. These three countries, whose successes are many, must overcome several challenges if they are to continue to show us for various reasons why democracy – rather than more authoritarian systems – should continue to offer the developing world a model for the labour-intensive, inclusive growth required to raise people out of poverty and compete in the world’s markets.

 

Despite their achievements, India, Brazil and South Africa are countries with a long way to go in moving very large parts of their population out of poverty and reducing inequalities. Their economies are held back by significant obstacles to further growth, inefficiencies and unnecessary high costs; their competitiveness is sliding in a tough global environment. They have voracious, expensive social policies and poverty programmes addressing poverty, unemployment and the aspirations of those whose lives have improved in the past 15 years but whose situation is still precarious.  Increasingly active and urban, lower and middle class citizens are protesting about poor services, high taxes, and corruption in politics, government and crony capitalists.

 

Democratic leaders can and should harness the energy of protestors for the public good rather than allow it to fester in the streets.

 

Bold, multi-faceted reform packages are needed in all three countries. But ultimately, the central question facing policy-makers in India, Brazil and South Africa is not whether reforms can be identified, but whether they can be carried out. We believe democracy can prove an advantage in implementing this second wave of vital reforms in all three countries.

 

Firstly, real change will require new political coalitions. In each country, vested interests or ‘distributional coalitions’ preserve the status quo. Reformers will need to reach new constituencies that will benefit from higher growth, better education and more efficient poverty programmes by making creative use of communications.

 

Secondly, reformers must learn to ‘sell’ the benefits of high economic growth to the majority of voters. Capitalism rarely sells itself.  Ironically, companies that can successfully market almost anything are often not very good at communicating the benefits of what they do to the rest of society. They are especially bad at advertising the advantages of competitive markets and high economic growth for the poor. Politicians can and should step in, and openly argue that higher economic growth, sustained over time, will not just create a few rich people, but can move the majority of people from the margins of existence to a job, a house, literacy, and basic services.

 

The revenues from growth can help build a nation state, an effective bureaucracy and many other institutions, as well as pay for education, healthcare, old age pensions and poverty alleviation schemes.

 

A determined approach to a second wave of market-oriented reforms will require a commitment to market economics, not because they are good for the rich or for the ruling party, but because they are good for everybody, especially the poor.

 

Improved state capacity is essential for higher growth and inclusion and in all three countries this will require more attention to building a professional, honest and market-supporting civil service.

 

Thirdly, perceptions are important and actions must match rhetoric. Reformers should use democratic institutions to argue for reform, but they should recognise that these institutions need strengthening as well.

 

Too often, reformers fail because they avoid the contested and difficult issues. Stuck in the politics of the moment, they cannot envision the politics of the future: how coalitions are shifting, how future support for change might be built from the bottom up. This is the great strength of democracy. All three countries have flexible political systems that provide them with the ability to renew themselves, deal with challenges, learn from their mistakes, opening the way to better policymaking in future.

 

We are convinced that democracies – withthe support of global policymakers who want to entrench personal freedoms, accountability, innovation and poverty eradication – can take bold decisions in the national interest that change the terms of debate, reshape politics and the trajectory of a society.

3. The Democratic Advantage. Published in RealClearWorld (3 May 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

Democracy won. The Wall fell. Freedom triumphed. Then we blinked and political paralysis, a global financial crisis, economic downgrades and defaults shook our faith. China’s pragmatic but authoritarian model for rapid growth took on a new sheen.

 

In a world of contested ideas about approaches to governance and development should the future of the developing world be one dominated by authoritarian governments? Are autocracies the best means of producing economic growth and inclusion for the vast majority of the world’s population? Analysis of three democracies in the South, a geographic hemisphere often omitted by those asking these questions, suggests the answer is a resounding ‘no.’

 

The experiences of Brazil, India and South Africa demonstrate that it is not necessary to give up individual freedoms, rule of law, independent institutions, a free press and regular elections in nations struggling with the challenges of poverty. On the contrary, democratic rights and freedoms can in numerous ways help promote sustained development, higher economic growth and effective routes out of poverty.

 

In countries with large populations, low levels of education and rapidly expanding cities, the nature of economic growth matters just as much as the rate. Growth in a developing country must be sustained and labor-intensive. It must produce the higher state revenues necessary to expand basic services, education and health opportunities for those historically excluded from the modern economy. These countries must open up to large companies, and also remove barriers to small and medium enterprise, secure property rights and open new opportunities for entrepreneurs.

 

South Africa’s democracy has improved the quality of life for millions of people in ways that were unimaginable under apartheid. Brazilian poverty is now in single digits. In India, the size of the economy doubled between 2005 and 2012, with, by some calculations, nearly 190 million people lifted out of absolute poverty during this period.

 

All three countries have flexible political systems that provide them with the ability to renew themselves, deal with challenges and learn from mistakes. Many outsiders see protests in these developing nations as a sign of instability, but more often than not it is a way for citizens within these democratic developing countries to push for reform, not revolution. In exercising their democratic right to dissent they can strengthen the country and its political system, and sometimes open the way to better policy-making in future.

 

And the costs of unaccountability and corruption are high: they act as a curb on economic growth, destroy trust in the political system and government, erode the rule of law and weaken state institutions. The on-going battle against corruption ultimately requires more transparency, more effective democratic institutions and more representative democracy, not less. It is hard to see how authoritarian states can compete with this.

 

We also know a lot more about corruption in democratic societies than we do in authoritarian states, thanks to the efforts of citizens, NGOs, legislatures, state institutions and the media. This does not mean that corruption is more prevalent in democratic regimes; on the contrary, democracies provide more opportunities for people and institutions to talk about corruption, expose its prevalence and fight for improvements.

 

Democratic freedoms can also help foster economic and social innovation that authoritarian systems find it difficult to produce. By protecting dissenters from persecution, creating independent universities, entrenching intellectual property rights and freeing up the business environment, democracies can encourage and protect innovators from all walks of life with radically new ideas. Developing world democracies have proven good at social innovation. Their companies have proven to be particularly good at frugal innovation, and at producing, marketing and making money in developing world markets.

 

By intensifying transparency and accountability, championing further market reforms, strengthening the competence and capacity of their governments and committing to policies that expand opportunities for the poor, these three democracies offer different models — and lessons in what works and doesn’t work — to tackle the challenges developing countries share.

 

The additional democratic advantage to fight corruption, fix mistakes, forge lasting national identities, promote inclusion and foster innovation make a compelling argument for a democratic alternative emerging from the pivotal countries of South. India, Brazil and South Africa.

4. The Future of the Developing World Can Be Democratic. Published in Diplomatic Courier (8 August 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

A recent essay by The Economist claims, “democracy is going through a difficult time”. The journal blames the “weaknesses of democracy in its Western strongholds”, the turmoil that followed the Arab Spring and now engulfs the Ukraine, as well as the rise of autocratic China for the loss of democracy’s “forward momentum”.

 

We must widen our focus when considering the future of democracy. It is all too easy to concentrate on the flashpoints and dramatic failures, while ignoring developing democracies that have gained significant achievements and have the potential to build dynamic, inclusive societies to rival China in the future, without limiting hard-won democratic values.

 

India, Brazil, and South Africa are three important democracies spanning the global South (Asia, Latin America, and Africa). They have raised incomes, reduced poverty and become more inclusive in ways that are often not sufficiently acknowledged either within these countries or by outsiders.

 

The democratic constitutions of India, Brazil, and South Africa promote the rule of law, vibrant and competitive media, freedom of association and religion, and robust civic organisations. Despite shortcomings, the judicial system in all three countries stands above party politics ensuring that justice is done, even if often too slowly.

 

South Africa’s democracy has improved the quality of life for millions of people in ways that were unimaginable under apartheid. Although the population grew from 40 million in 1994 to 52 million in 2012, the percentage of poor people also fell, from 50 percent in 1992 to 44 percent in 2006. Access to electricity, running water, telephones, and many other basic services improved for millions of households, with the vast majority of South Africans now having access to these services.

 

Brazilian poverty is now in single digits. The poor and previously excluded have benefited greatly from recent economic expansion. Between 2001 and 2011 the household income of people classified as extremely poor grew by an average of 14 percent per annum, in contrast to incomes for people living in households classified as upper class, which grew by only 2 percent per annum.

 

In India, the proportion of the population below the poverty line fell from 44.5 percent in 1983 to 27.5 percent in 2004/5, and by some estimates down to 22 percent by 2011. Some 190 million people were lifted out of absolute poverty during this period.

 

In addition to lifting living standards for the poor, India, Brazil, and South Africa have become centres of business excellence. All three now contain companies which compete internationally with the largest and most sophisticated companies in Europe and North America.

 

However, to highlight these achievements is not to ignore the significant challenges that all three countries currently face. First, it is important not to take democracy for granted. Once achieved, there are no guarantees: democratic rights and freedoms can easily be eroded.

 

Second, all three countries need a new wave of reforms if they are to make further strides in overcoming poverty and underdevelopment. Macroeconomic fiscal discipline must be maintained. Micro-economic reforms must reduce the costs of doing business in each country, open up competition and markets for new firms and workers, promote a positive approach to the role of business and stop the slide in global competitiveness in each of the economies.

 

All three countries must strengthen the competence and capacity of government as the vital facilitator of growth, employment, infrastructure and human capital development. We believe it is possible that these essential reforms can take place. Democratic governments have choices in how they respond to economic difficulties or crises, vested interests, and electoral pressures. They can build on the many strengths of democracy to put together the new political coalitions that will support and sustain a new wave of essential reforms as these three countries did in the 1990s.

 

By shifting the spotlight away from the West and China, and by gaining informed, realistic insights into what is actually happening in the diverse countries of the democratic South, it is possible to develop a more optimistic perspective on the future of democracy. Based on our analysis of India, Brazil, and South Africa, we believe that there is every possibility that the future of the developing world will be democratic.

5. Southern Democratic Pillars Stand Tall. Published in The Mail & Guardian (12 September 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

After the fall of the Berlin Wall, Western democratic capitalism seemed to have triumphed. But the 2008 economic crisis, and the relative decline of Western influence that followed, significantly undermined the appeal of Western democracy in the developing world. While Western powers struggle to overcome political gridlock and slow growth, the Chinese authoritarian political establishment, using a mix of market mechanisms and state capitalism, continues to deliver high levels of growth, lifting millions out of poverty.

 

As a result, it is now far more respectable to advocate authoritarianism in the developing world than it was a decade ago. For example, President Jacob Zuma has argued: “The economic crisis facing countries in the West has put a question mark on the paradigm and approaches that a few years ago were celebrated as dogma to be worshipped.”

 

But one important piece of the debate is missing. The global conversation rarely refers to the large and diverse group of democratic market economies beyond the industrialised world, including countries such as Turkey, Indonesia, Mexico and Chile.

 

To correct that omission, the Centre for Development and Enterprise and its think-tank partners in Delhi and Rio de Janeiro set out to examine the relationship between political democracy and inclusive economic growth in three important democratic developing societies: India, Brazil and South Africa, three very different countries that confront some remarkably similar challenges.

 

All three are developing countries with many poor people and high levels of inequality. At the same time, they combine internationally competitive economic sectors and world-class companies with enormous underdevelopment. Each has experienced relatively high levels of economic growth in the recent past and in each country large numbers of people, not just a tiny minority, have benefited from that success. Last but not least, all three are stable democracies that have for the most part been able to deal with racial, ethnic, religious and other conflicts that have destroyed many of their neighbours.

 

The achievements of the three countries over the past three decades is impressive. In response to economic crisis some 20 to 30 years ago each country, albeit reluctantly, introduced market reforms and overcame significant hurdles to set their economies on the path to prosperity and the inclusion of the poor and disadvantaged within vibrant democratic cultures.

 

Democracy means more than elections. These matter, of course; they are a way of choosing leaders and policies and periodically “throwing the rascals out” when necessary. They offer different constituencies in a country the opportunity to compete for representation rather than the Chinese approach, where in default of an open and transparent voter choice, a handful of pre-selected men emerge from predetermined, secret “elections” to govern the country.

 

Democratic societies are also characterised by a free media and freedom of speech, the freedom to associate and organise, and the recognition that the state exists to serve individuals and not vice versa. Successful representative democracies also establish institutions that are independent of both politicians and voters, including nonpartisan electoral commissions, central banks and sometimes special courts or ministries designed explicitly to deal with corruption.

 

Their many achievements notwithstanding, the three societies face significant challenges today: high costs of doing business, inflexible labour markets, declining manufacturing sectors, reluctance to establish public-private partnerships to build essential infrastructure, schooling systems that mainly fail to deliver quality education, and national and local governments with limited capacity.

 

All three find their competitiveness slipping in a tougher global economic environment. Urban, lower- and middle-class citizens now frequently protest against poor services, high taxes, unemployment and corruption. It is important not to take democracy for granted. Once it is achieved, there are no guarantees: democratic rights and freedoms can easily be eroded and there are signals of this in each country.

 

All three countries need a second “wave” of reforms if they are to hold on to their many achievements and make further big strides in overcoming poverty and underdevelopment. In each country, reforms need to take place in four different but inter-related areas:

The quality of democracy: the transparency and accountability of democratic representation, institutions and processes must be strengthened.

Further market reforms: macroeconomic fiscal discipline has to be maintained. Microeconomic reforms must reduce the costs of doing business in each country, open up competition for new firms and labour-intensive factories for the unemployed, promote a positive approach to the role of business and stop the slide in global competitiveness in each of the economies. Deregulation would serve the interests of the economy as well as of politics; complex taxes, tariffs, regulations and subsidies create multiple opportunities for corruption and also slow growth.

The competence and capacity of government as the vital facilitator of growth, employment, infrastructure and human capital development must be strengthened: people in developed countries often take the basic functions of their governments for granted, and underplay the role of government in their own history. An efficient state is just as important in the developing world. Well-functioning state institutions are required to ensure the gains from economic growth are translated into genuine assets and opportunities for all. Public provision does not necessarily entail public production, thus a competent civil service must have the expertise to regulate and manage market players. Reforms to improve state capacity and governance are a vital priority if these democracies are to continue delivering.

Policies that expand opportunities for the poor and disadvantaged: markets are the engine of development, but in countries with enormous development challenges, poverty and a history of discrimination and disadvantage against large parts of the population, they are insufficient. Helping the poor, unemployed and disadvantaged to survive and cultivate the skills essential to their participation in a modernising society and economy is vital. It is also important politically. If well-chosen policies are rolled out effectively and at significant scale, they can buy time while economic reforms are implemented. They also demonstrate a national commitment to include and recognise those who are struggling. In each country, the package of policies in this area needs considerable reform to ensure value for money, affordability, effectiveness and the elimination of costly unintended consequences.

 

Our study of India, Brazil and South Africa leads us to believe that they can build on the many strengths of democracy to put together the new political coalitions that will support and sustain this second wave of essential reforms.

 

After all, all of them have done this before: in the 1990s, in response to economic and political challenges, democratic governments in these three developing countries successfully implemented a series of economic and governance reforms and reaped significant benefits. If they are to negotiate the less accommodating global conditions and the troubling and tricky phase they now find themselves in, they and their citizens need more democracy, not less, in order to grow and improve the lives of the poorest.

 

India, Brazil and South Africa are three pivotal examples of the democratic alternative from the Global South. Their efforts to leverage democratic processes and institutions and achieve faster and more inclusive growth in the next decade will be closely watched.

6. Growth Does Not Have To Be At The Expense Of Democracy. Published in Business Day (12 September 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

A battle of ideas — a global contest between democratic and authoritarian approaches to growth and development — is playing itself out in countries around the world.

 

Are autocracies the best way to produce inclusive economic growth for the vast majority of the population? The evidence from three important democratic developing countries, India, Brazil and SA (Ibsa), is compelling and supports a resounding “no”. It is not necessary, as many are arguing in Africa, to give up individual freedoms, rule of law, independent institutions, a free press and regular elections, if you are struggling with the challenges of poverty. On the contrary, democratic rights and freedoms can in numerous ways help promote sustained development, faster economic growth and effective routes out of poverty.

 

Over the past 25 years, SA and its Ibsa partners, India and Brazil, have demonstrated that the challenges of development and poverty can be tackled using the combination of democracy and market reforms. Between 1986 and 1996, each country had its own economic crisis and, in response, all three governments introduced fiscal discipline and market reforms. In the years since, these reforms have yielded impressive results. In SA, the combination of democracy and market reform has improved the quality of life of millions of people in ways that were unimaginable under apartheid. Brazil’s poverty rate is now in single digits. In India, the size of the economy doubled between 2005 and 2012, with nearly 190-million people lifted out of absolute poverty.

 

Despite these achievements, India, Brazil and SA still have a long way to go in moving large parts of their population out of poverty and reducing inequalities. All three countries now face serious and remarkably similar challenges if they are to return to the rates of growth and inclusion they desperately need. A two-year research project run by the Centre for Development and Enterprise (CDE) and partner think-tanks in India and Brazil has concluded that each of these developing countries requires the urgent introduction of a multifaceted reform package.

 

In SA, the economy is being held back by inefficiencies and unnecessarily high costs, with competitiveness sliding in a tough global environment. While maintaining macroeconomic discipline, microeconomic reforms are needed to reduce the costs of doing business, and open up competition and markets for new firms and the unemployed. Considerable deregulation would serve the interests of the economy as well as of politics: too many regulations and subsidies create opportunities for corruption, as well as slowing growth.

 

SA has the world’s highest recorded rate of unemployment, at 35%, and 60% for people aged 18-24. In part, this is because SA’s labour laws favour workers in formal employment and discriminate against the jobless. India and Brazil’s labour laws are complex and costly. In both countries, pressure is growing for labour market reform, with some Indian states leading the way. This is a priority area for fundamental reform for SA.

 

Well-functioning state institutions are needed to ensure that the gains of economic growth are translated into genuine assets and opportunities for all. And a competent, honest state committed to public service, with a positive attitude to private enterprise, is vital to support and regulate market players.

 

In India and SA, the state’s sponsorship of social mobility has emphasised particular groups and the politically connected. This undermines its role as the provider of public goods, guardian of the national interest, and sponsor of inclusion and upward mobility for all citizens. In part, this has to do with policies of redress (reservations in India and black empowerment in SA), which give preference to caste, race and political insiders rather than merit. Such policies create public servants who take office with the assumption that “it’s our turn now” instead of a commitment to serving the public good. In all three countries, broad-based social mobility is held back because weak schooling systems leave so many people badly educated.

 

State bureaucracies in the three societies are too inefficient to manage infrastructure delivery effectively on their own. Governments either cold-shoulder private infrastructure investment or mismanage it. In Brazil, experts note that President Dilma Rousseff’s backward-looking socialist and nationalist prejudices block the most efficient ways to bridge Brazil’s huge infrastructure backlog. These comments could apply equally to SA.

 

Faster economic growth requires popular recognition that markets, entrepreneurs and companies are vital for future prosperity. The “trust deficit” between the state and private sector must be eliminated. Political attacks on business also have another source. In India, SA and, to a lesser extent, Brazil, previous market reforms are believed to have disproportionately benefited large companies, politically connected people and “crony capitalists” of all kinds. A second wave of reforms should ensure that new firms and entrepreneurs can take advantage of an improved and more competitive environment.

 

The central question facing policy makers is not whether reforms can be identified, but whether they can be carried out. Democracy can prove an advantage in this respect.

 

Real change will require new political coalitions. Reformers will need to identify, reach and mobilise new constituencies that will benefit from higher growth, better education and more efficient poverty programmes. Alternate sources of information and media freedom and diversity make this possible in democracies. Second, reformers must actively “sell” the benefits of high economic growth to voters. Capitalism rarely sells itself. Politicians can and should openly argue that higher economic growth, sustained over time, will not just create a few rich people, but can move the majority of people from the margins of existence to a job, a house, literacy, and basic services. And that the only way to achieve that growth in SA is through open and competitive markets that encourage business expansion and the flourishing of new enterprises.

 

Too often, reformers fail because they avoid the contested and difficult issues. Stuck in the politics of the moment, they cannot envision the politics of the future: how coalitions are shifting, how future support for change might be built from the bottom up. This is the great strength of democracy. SA has a flexible political system that provides politicians and those that influence them with the ability to renew themselves, deal with challenges and learn from their mistakes, opening the way to a better future.

 

In the end, democratic capitalism and market competition will succeed only if they are widely perceived to be fair, and if they are regulated by effective and independent institutions that support competitive markets and do not undermine enterprise.

 

Corruption undermines faith in public institutions; it also undermines faith in the market economy and its key players in the private sector. Rule of law and the effective and fair administration of justice have an economic value — they secure property and contracts — as well as political significance. When citizens see that equality before the law, fairness and justice are applied to rich and poor, powerful and unknown, then they are more likely to accept the system as legitimate. This is the true democratic dividend.

7. Democracy is the only way. Published in Financial Mail (16 October 2014)

– Ann Bernstein, Centre for Development and Enterprise, South Africa

 

Should the future of the developing world be dominated by authoritarian governments? Are autocracies the best means of producing economic growth and inclusion ? One often cited statistic is that India’s GDP almost doubled between 1980 and 2007, but China’s increased seven-fold. This and other examples appear to suggest that initial periods of industrialisation are more effectively directed by autocracies than within democracy. But after two years of research with experts in India, Brazil and SA, the Centre for Development & Enterprise released a report refuting this view. The experiences of these three countries demonstrate that it is not necessary to give up individual freedoms, rule of law, independent institutions, a free press and regular elections.

 

On the contrary, democratic rights and freedoms can promote sustained development, higher economic growth and effective routes out of poverty.

 

The argument in favour of autocracy is based partly on the idea that authoritarian governments can force society to delay reaping benefits in favour of first reaching a higher level of development. This has worked in some societies, but has failed elsewhere.

 

Our study found SA’s democracy has improved the quality of life for millions of people in a short 20 years. Brazilian poverty and unemployment are in single digits. In India, the size of the economy doubled between 2005 and 2012, with nearly 200m people lifted out of absolute poverty in two decades.

 

All three countries have flexible political systems. Many outsiders see people protesting and quickly interpret this as a threat to the stability of the regime. More often it is a way for citizens to push for reform, not revolution. In exercising their right to dissent they can renew the political system and open the way to better policy making.

 

Democratic freedoms can also foster economic and social innovation that authoritarian systems find difficult to produce. By protecting dissenters, creating independent universities, entrenching intellectual property rights and freeing up the business environment, democracies can encourage and protect innovators with radical new ideas.

 

This is not to ignore the challenges. All three countries need reform if they are to make further strides in overcoming poverty and underdevelopment. Macroeconomic discipline must be maintained. Microeconomic reforms must reduce the cost of doing business, open up competition and markets for new firms and workers, promote a positive approach to the role of business and stop the slide in global competitiveness. All three must strengthen competence and capacity in government.

 

Growth, in a developing country, must be sustained and labour intensive.

 

It must produce higher revenues to expand basic services, quality education and access to health for those historically excluded from the economy.

 

As in most other countries, corruption is a challenge. This requires greater transparency, effective democratic institutions, and more representative democracy, not less. It is hard to see how authoritarian states can compete with this.

 

It is not democracy that inhibits growth and inclusion of the poor in India, Brazil and SA. All three are in trouble because of bad policy choices, a failure to embrace markets and to sell the benefits of competitive capitalism to voters. It is weak institutions (riddled with political appointments) that succumb to corruption and crony capitalism. It is the failure of leadership — politicians captured by special interests rather than a new definition of the national interest.

 

Shift the spotlight towards the democratic developing world and it is possible to develop a more optimistic perspective on the future of democracy. There is an emerging democratic route to growth and development — if coupled with markets and if India, Brazil and SA implement essential and bold reforms.

Press Releases

The Democratic Alternative from the South: India, Brazil and South Africa

11 September 2014

 

India, Brazil and South Africa all need to introduce bold reforms to achieve faster and more inclusive growth and ensure political stability. 

This has emerged from a two-year research project on democracy and inclusive growth in India, Brazil and South Africa undertaken by the Centre for Development and Enterprise (CDE) in partnership with leading think tanks in India and Brazil.

All three democracies successfully met pressing economic and political challenges in the late 1980s and early 1990s with measures that included a greater role for the market. 

“South Africa now needs a second wave of bold reforms,” explains CDE Executive Director, Ann Bernstein. “The priorities include a deepening of democracy, transparency, and accountability; further market liberalization; a more competent, less corrupt state with a positive attitude to business; and a new approach to expanding opportunities for the poor.”  

Based on extensive research and workshops in India, Brazil and South Africa, the project examines the relationship between political democracy and inclusive growth in these three important developing democracies – very different countries which face some remarkably similar challenges. 

With the rise of China, it is now far more respectable to advocate authoritarianism in the developing world than it was a decade ago. According to Bernstein, “A battle of ideas – a global contest between democratic and authoritarian approaches to growth and development – is now playing itself out in many countries across the globe.”

The project focused on India, Brazil and South Africa as three large, successful democracies in the developing world, all of which have achieved growth over the past two decades without Chinese-style authoritarianism. 

The project has produced 15 reports on the individual countries and a main synthesis report, The Democratic Alternative from the South: India, Brazil and South Africa, written by Ann Bernstein. 

While paying tribute to the positive relationship between democracy and growth in all three countries, the report concludes that they all now find themselves in a difficult new phase. 

Despite their achievements, India, Brazil and South Africa still have a long way to go in moving greater numbers of their population out of poverty and reducing inequalities. 

Their economic competitiveness has declined and their fiscal discipline is slipping in a tougher global environment: Inadequate education leaves the majority of young people ill-equipped for the struggle to get jobs; and a growing number of lower and middle class citizens are protesting about corruption and other governance and delivery failures.

“The economies of all three countries are being held back by the high costs of doing business; inflexible labour markets; stagnant or declining manufacturing sectors; an inability to deliver essential infrastructure; poor quality schooling systems; and national and local governments with limited capacity,” says Bernstein. 

The solution lies in leveraging democracy to promote sustained development, higher economic growth and effective routes out of poverty. 

Bernstein explains that, “Each country needs to redefine its ‘national interest’ and build a new political consensus, a coalition for reform. This consensus must include a more determined and vocal commitment to market economics, because fast inclusive growth and effective delivery will be difficult to achieve in these societies in any other way.” 

The research on India, Brazil and South Africa makes CDE believe that these essential reforms can take place. “These countries have all done it before in the late 1980s and early 1990s: in response to similar economic and political challenges, democratic governments in these three developing countries successfully introduced and implemented a series of economic and governance reforms with good returns.”

“By implementing bold reforms to strengthen democracy and labour intensive and faster growth, South Africa could become a wealthier, more stable and a much more inclusive society,” Bernstein concludes.  

The Democratic Alternative from the South: India, Brazil and South Africa and the reports on individual countries are available at www.cde.org.za 

ENDS

Find attached the executive summary .To view the full report online click on the following link:

http://democracy.cde.org.za/publications/

For further enquiries or to confirm an interview with Ann Bernstein, Executive Director, CDE, please contact:

Marius Roodt 

Communications Officer: Media

Tel:          (011) 482 5140

Cell:          082 779 7035

Email:   media@cde.org.za

 

ABOUT THE CENTRE FOR DEVELOPMENT AND ENTERPRISE

The CDE is an independent policy research and advocacy organisation. It is one of South Africa’s leading development think tanks, focusing on critical development issues and their relationship to economic growth and democratic consolidation. Through examining South African realities and international experience, CDE formulates practical policy proposals outlining ways in which South Africa can tackle major social and economic challenges.

 

CDE QUOTES FROM THE PUBLICATION

“The Democratic constitutions of India, Brazil and SA provide a common set of values, ideas and rights”

“Democratic rights and freedoms protect and empower individuals – even those who do not come from a privileged class”

It is not necessary to give up individual freedoms, rule of law, independent institutions, a free press and regular elections in countries struggling with the challenges of poverty”

“It is important not to take democracy for granted. Democrats need to be vigilant and democracies need to renew and protect their hard won freedoms”  

“Deregulation would serve the interests of the economy as well as of politics: complex taxes, tariffs, regulations and subsidies create multiple opportunities for corruption as well as slowing growth”

“Markets are the engine of development but not always sufficient in the fight against poverty”

“In the 1990s India, Brazil and South Africa responded to economic and political challenges by introducing and implementing a series of economic and governance reforms with good returns”

“India, Brazil and South Africa must now find ways of harnessing markets and increasing their competitiveness in order to increase growth and inclusion”

“India, Brazil and South Africa can build on the strengths of democracy to put together the new political coalitions that will support a second wave of essential reforms”

QUOTES FROM PROMINENT VOICES FROM THE SOUTH 

‘I prefer the noise of a free press to the silence of dictatorships’ Dilma Rousseff, President of Brazil

‘Democracy has proven an effective and perhaps the only mechanism for holding India together’ – Pratap Bhanu Metha, President, Centre for Policy Research, India

‘Brazil has witnessed a democratisation of privileges with the steady extension of benefits and discriminatory policies to a range of special interests groups’ Marcus Lisboa, Former Minister of Planning and Secretary of the National Treasury of Brazil

‘India should increase public sector spending on things that people actually need while cutting wasteful expenditure. We spend billions on economically misguided and socially counterproductive activities’ Azem Prenji, Indian Business Tycoon and Philanthropist

‘In India no party has bothered to explain the difference between being pro-market and pro-business. In contrast to crony capitalism, a pro-market economy fosters competition which helps keep prices low, raises the quality of products and leads to a rules based capitalism that serves everyone’, Gucharan Das, Indian author, commentator and public intellectual

Democracy Works! The case from India, Brazil and South Africa

13 May 2014 

There is a “Democratic Alternative from the South” according to a two-year research project conducted by the Centre for Development and Enterprise in South Africa (CDE) and the Legatum Institute in London. Along with contributions from two partner think tanks in India and Brazil, their findings refute the argument that democracy is a hindrance to faster economic growth and inclusion of the poor. 

 

The project was conceived in response to the 2008 economic crisis, which significantly undermined the appeal of Western democracy in the developing world. While Western powers struggle to overcome political gridlock, the Chinese political establishment, using a mix of market mechanisms and state capitalism continued to deliver high levels of growth, lifting millions out of poverty. 

 

“As a result, it is now far more respectable to advocate authoritarianism in the developing world than it was a decade ago”, says Ann Bernstein, head of South Africa’s Centre for Development and Enterprise.   “A global battle of ideas between democratic and authoritarian approaches to growth and development is now playing itself out in countries across the globe.”

 

The report argues that democracies can take bold decisions in the national interest and that democratic leaders can create powerful coalitions in favour of reform.

Yet these advantages are not well understood, and the progress in India, Brazil and South Africa is often insufficiently acknowledged, both from within these countries and by outsiders. “The global conversation rarely refers to the large and diverse group of democratic market economies beyond the industrialised world,” said Anne Applebaum, Director of the Legatum Institute’s Transitions Forum. “This oversight ignores the achievements of developing country democracies such as India, Brazil and South Africa, to set their countries on a path to prosperity.”

 

Of course the three countries still have a long way to go in moving large parts of their populations out of poverty and reducing inequality. Their economies are still held back by the high costs of doing business; inflexible labour markets; declining manufacturing sectors; limited infrastructure; poor schooling systems; and national and local governments with limited capacity.

 

India, Brazil and South Africa are now in a difficult new phase. Economic competitiveness has declined in a tough global environment and new middle classes are protesting about corruption and other governance and delivery failures.

 

The report encourages policymakers to adopt a second wave of reforms which, says Bernstein, “must include increased transparency and accountability to combat corruption, further market reforms and greater appreciation of the contribution of the private sector, improved state competence and more effective policies to expand opportunities for the poor.”

 

“Fortunately,” argues Applebaum, “flexible political systems provide democracies with the ability to renew themselves, deal with challenges, and learn from their mistakes.”

 

Bernstein explains, “The experiences of India, Brazil and South Africa provide compelling evidence that it is not necessary to give up human rights and freedoms in nations struggling with the challenges of poverty. On the contrary, democracy can promote sustained development, higher economic growth and effective routes out of poverty.” 

 

These three countries responded to economic crisis in the 1990s by adopting market-oriented reforms that delivered results.  There are grounds for optimism that each country can do it again.   And if they do, they will consolidate the emerging democratic alternative for inclusive growth from the South.

 

ENDS

 

Notes to Editors:

The report is based on three workshops held in Delhi, Rio and Johannesburg; a dozen research papers and three country reports commissioned from scholars in all three countries; and the contribution of four different think tanks on four continents.

 

All of these papers are available at www.cde.org.za and www.li.com.

 

Media enquiries: 

For more information or to arrange an interview with Ann Bernstein or Anne Applebaum, please contact: 
Shazia Ejaz, Acting Director of Communications, Legatum Institute
Ph: +44 (0) 207 148 5422 / +44 7501 490 034 / email: shazia.ejaz@li.com   
Halley Dodge, VennSquared Communications

Ph: 001 202-466-4437 / email: halley@vennsq.com

 

Audra Mahlong, Media Relations for CDE in South Africa

Ph: +27 (0)11 482 5140/cell: +27 (0)84 830 9169 / email: audra@cde.org.za

 

About the Centre for Development and Enterprise

CDE is an independent policy research and advocacy organisation. It is South Africa’s leading development think tank, focusing on critical development issues and their relationship to economic growth and democratic consolidation. Through examining South African realities and international experience, CDE formulates practical policy proposals outlining ways in which South Africa can tackle its most important social and economic challenges. CDE has a special focus on the role of business and markets in development. For more information, please go to www.cde.org.za
About the Legatum Institute 
The Legatum Institute (LI) is a non-partisan public policy think tank whose research, publications, and events advance ideas and policies in support of free and prosperous societies around the world. 
For more information, please go to www.li.com


About the Legatum Prosperity Index™
 

The Legatum Prosperity Index™ is a unique global assessment of national prosperity based on both wealth and wellbeing. In its 6th year, the Index assesses 142 countries, representing more than 96% of the world’s population and 99% of the world’s GDP. Using rigorous research and in‐depth analysis, the Index ranks countries based on their performance in eight sub‐indices: Economy; Education; Entrepreneurship & Opportunity; Governance; Health; Personal Freedom; Safety & Security; and Social Capital. For more information please go to www.Prosperity.com

Frequently Asked Questions

1. Where did the argument for the democratic alternative to creating economic growth originate?

The 2008 economic crisis undermined the ‘western development model’ in many parts of the developing world. At the same time, the political and economic rise of China has established another path to development. To many countries, the Chinese model now seems an attractive alternative to democratic capitalism.

 

Thanks to these developments, a battle of ideas—a global contest between democratic and authoritarian approaches to growth and development—is now playing itself out in countries across the globe. For many leaders in the developing world in particular, the advocacy of an authoritarianism, which does not recognise individual rights and freedoms, and does not rely on democratic accountability and independent institutions, is far more respectable now than it seemed to be a decade ago. However, whenever democratic capitalism is being discussed—or denounced—those in the debate are almost always speaking about the highly developed, affluent nations of Europe and North America. The conversation rarely refers to the large and diverse group of democratic market economies beyond the industrialised world.

 

This project set out to correct this omission. To move the spotlight away from rich countries—and away from China—we decided to focus on the achievements and challenges in three important emerging democracies: India, Brazil and South Africa.

2. Even though China is not democratic, it has experienced impressive economic success. Why is it necessary to promote a democratic alternative to the authoritarian Chinese model?

China has been incredibly successful and there is every chance that the Chinese will implement reforms to allow the country to continue growing at high rates and lifting millions of people out of poverty. China works, or at least has worked up till now.

 

However, we feel that China is not a good model to copy, both because we value democracy as a better political system than autocracy, regardless of its implications for wealth creation, and because we believe that the core lessons one should learn from China is not that autocracy works, but that economic success is predicated on expanding access to markets and building an effective state. This lesson is relevant, regardless of the form that politics takes.

 

India, Brazil and South Africa are better examples to learn from because they demonstrate that it is possible to achieve inclusive growth without sacrificing the freedoms and the rights that democracy provides.

3. Why did you decide to focus on India, Brazil and South Africa?

India, Brazil and South Africa span the three continents that make up the developing world: Asia, Latin America and Africa. Each country is an important regional power and, despite their very many differences, they also share common experiences and challenges.

 

All three are developing countries with many poor people and high levels of inequality. At the same time they combine internationally competitive economic sectors and world-class companies with enormous underdevelopment. Each has experienced relatively high levels of economic growth in the recent past, and in each country large numbers of people, not just a tiny minority, have benefited from that success. In addition, all of them undertook fundamental reforms in the 1990s which sought to strengthen and free up markets to some extent. They all benefitted from these reforms in the 2000s but they also avoided deepening the reform process. As a result they now face remarkably similar challenges and can harness democracy to overcome these challenges. Last but not least, all three are stable democracies.

4. You talk about how all three countries need a new wave of reforms if they are to hold on to their many achievements and make further big strides in overcoming poverty and underdevelopment. Are there any specific policies you would recommend?

A determined approach to a second wave of market-oriented reforms will require a commitment to market economics, not because they are good for the rich or for the ruling party, but because they are good for everybody, especially the poor.

 

Improved state capacity is essential for higher growth and inclusion and in all three countries this will require more attention to building a professional, honest and market-supporting civil service. Perceptions are important and actions must match rhetoric. Reformers should use democratic institutions to argue for reform, but they should recognise that these institutions need strengthening as well.

 

All three countries have flexible political systems that provide them with the ability to renew themselves, deal with challenges, learn from their mistakes, opening the way to better policymaking in future.

5. What do you see as the biggest advantages that democracy has in the developing world?

First, the democratic constitutions of India, Brazil and South Africa provide a common set of values, ideas and rights around which these countries have, in part, built their national identity.

 

Second, free flows of information will help people who are both in and out of power understand the real impact of government policies on different sectors of society, especially on the poor.

 

Third, as de Tocqueville argued, the virtue of a democracy is that it makes ‘retrievable mistakes’. Policy mistakes are often corrected when those who implemented them are voted out of power.

 

Fourth, an illegitimate autocratic ruler who is challenged will have to stay in power through the use of violence. By contrast, dissatisfaction with or in the ruling political group in a democracy can lead to the formation of a new political party, not death or exile.

 

Finally, by protecting dissenters from persecution, creating independent universities, entrenching intellectual property rights and freeing up the business environment, democracies can encourage and protect innovators from all walks of life with radically new ideas.

6. These countries all have expensive social policies and poverty programmes that require expanding state revenues and efficiencies if they are to be maintained. How do you see this playing out?

The fundamental problem with many of these programmes is not so much that they are ‘premature’ or ‘too costly’—true in some instances, not others—but that the societies are not getting value for money in at least four respects.

 

Many of these schemes do not reach the poor, or else they reach only a small fraction of the poor. They are temporary ‘band aids,’ enabling the poor to survive, whereas what is really needed are programmes to enable poor people to escape poverty permanently. We need to ask why any state would spend so much money on job creation programmes while giving so little attention to the training and education of workers, for instance.

 

Some of these schemes are an expansion of benefits that used to apply only to the elite, but have now been spread to the entire population without sufficient thought about affordability, or whether a different approach is required now that the benefit must include the entire population. Some fundamental rethinking of state spending is in order. In all of these cases, the issue is not whether help should be provided to poorer people, but how to do this effectively.

7. Under Mandela, South Africa embraced a mixed market economy rather than the state-dominated economy many had imagined while fighting apartheid. What were the consequences of this policy shift?

The ANC’s policy shift produced steady economic growth over the past two decades: South African GDP grew on average by 3.2 percent per annum, while GDP per capita grew by 1.6 percent. For at least three years in the 2000s, growth exceeded 5 percent per annum and the period 2003-2008 resulted in the creation of two million new jobs, contradicting those domestic critics who claimed that ‘neoliberal’ or capitalist policies would only generate ‘jobless growth’.

 

Through growth, increased employment and the use of state revenues to implement social programmes, South Africa’s democracy has improved the quality of life for millions of people in ways that were unimaginable under apartheid. Although the population grew from 40 million in 1994 to 52 million in 2012, the percentage of poor people also fell, from 50 percent in 1992 to 44 percent in 2006.

 

The value of cash transfers and public expenditure on services such as healthcare and housing almost doubled in real terms between 1995 and 2006, but more importantly became better targeted on the poor, who are overwhelmingly black. Access to electricity, running water, telephony and many other basic services improved for millions of households with the vast majority of South Africans now having access to these services.

8. What effect has the Bolsa Familia programme had on Brazilian poverty?

The Bolsa Familia programme is a conditional subsidy for poor families, which, in the context of solid economic growth and expanding employment opportunities, has contributed to rapid reductions in poverty and a significant reduction in inequality. It is unclear whether the conditionality makes a discernable difference in getting poor children to school or to health clinics. It is more likely that, although the amounts are small, they are well targeted and help very poor families cope and perhaps to take advantage of the expanding opportunities in Brazil.

 

At the same time, it is clear that urban jobs, a generous minimum wage, and the introduction of universal pensions have been far more important in reducing poverty. And the end of chronic inflation did more for the poor than any single programme.

9. India, Brazil and South Africa have created institutions and processes to fight some corruption. In your opinion, what is the most effective tool at their disposal?

What has been particularly effective is the combination of investigative journalism in conjunction with mass campaigns working within the context of democracy.

 

In India, Following media exposure of large-scale corruption in 2010 and 2011, a Gandhian social activist, Anna Hazare, led mass protests in Delhi, including hunger fasts. This movement has produced a new political party, Aam Aadmi (the “Common Man’s Party”), led by Arvind Kejriwal, (tax official turned crusading anti-corruption politician) who was elected Chief Minister of Delhi at the end of 2013. Aam Aadmi is an example of the fight against corruption leading to an organic renewal of the political system.

 

Similar mass campaigns have worked in Brazil. In 1997-1999 over one million signatures were collected by the National Conference of Brazilian Bishops in a campaign against vote-buying. Between 2000 and 2008, 660 politicians were impeached as a result of the law passed in response to this campaign. And the elections of 223 mayors were nullified under this law in 2008. The Brazilian bishops’ initiative led to a larger movement, the National Movement against Electoral Corruption—an umbrella organisation which includes forty-three professional bodies, among them the Brazilian Bar Association and the national associations of federal judges, public prosecutors and magistrates—which has successfully campaigned for significant legal changes.

 

10. What role do you think social media plays in fighting corruption in these countries?

The Indian website ipaidabribe.com has allowed citizens to report, anonymously, incidents of bribes paid or requested but not paid, in order to receive a government service. In 2012 the website recorded more than 400,000 incidents. So frequently was the Transport Department of the Indian state of Karnataka cited on the website that its transport commissioner, Bhaskar Rao, invited the ‘I paid a bribe’ team to present their findings to his staff: “I wanted to use the website to cleanse my department…If I try to do things on my own here I may run into heavy weather…but the evidence on this website gives me some internal support to bring about reforms.” This Indian website has inspired anti-corruption activists around the globe to start similar campaigns

 

In South Africa, a broad coalition has coalesced behind Corruption Watch, a new institution established in 2012, which uses web sites and social media in a similar way. In its short existence it has already exposed numerous types of corruption from the transport department in the country’s leading city to corruption in public schools.

 

11. What would you say to the critics who have argued that all three democracies are in trouble because they have spent too much money on the poor, having in effect created ‘premature’ welfare states?

The issue is not whether one spends money on the poor or not, but rather the value for money that state interventions generate.

 

Markets are the engine of development, but in countries with enormous development challenges, poverty, and a history of discrimination and disadvantage against large parts of the population, they are insufficient. Helping the poor, unemployed and disadvantaged to survive and cultivate the skills essential to their participation in a modernising society and economy are vital in themselves. They are also important politically. If well-chosen policies are rolled-out effectively and at significant scale they can buy time while economic reforms are implemented, and demonstrate a national commitment to inclusion and recognition of those who are struggling.

 

In each country, the package of policies in this area need considerable reform to ensure value for money, affordability, effectiveness and elimination of unintended consequences that are costly.

 

12. Right now, these countries are held back economically by their schooling systems, and while they have expanded access to education through democratic rule, the outcomes are mostly low quality. How do you think these three countries can improve their education systems?

The old model whereby the state sets up all the schools, hires all the teachers, and pays almost all the costs is simply not proving to be practical when applied to poor, rapidly increasing, populations in the developing world. Without a new deal with the trade unions it is hard to see effective performance management taking place in these huge mainly undifferentiated education systems. As a result, private entrepreneurs are already playing large roles in higher education in Brazil, and in basic schooling, extra mathematics, computer training and much more in India and South Africa. Further progress will require clever use of new management techniques and incentives, new technology, economies of scale, and innovative thinking of a kind more often found outside the state sector rather than within it.

13. According to the report, overregulation in these countries remains a challenge. In particular, how can these countries ease constraints on employers to become more competitive?

As author and former businessman Gurcharan Das has written, “every Indian factory owner must on average confront 17 different inspectors, each with power to close down his business”.

 

Micro-economic reforms must reduce the costs of doing business in each country, open up competition and markets for new firms and workers, promote a positive approach to the role of business and stop the slide in global competitiveness in each of the economies. Deregulation would serve the interests of the economy as well as of politics: complex taxes, tariffs, regulations and subsidies create multiple opportunities for corruption as well as slowing growth.

14. What role has business played in generating the development achievements of India, Brazil and South Africa?

Much of the economic success achieved in these countries during the past half-century has come about thanks to the contributions of countless entrepreneurs working in market economies.

 

These entrepreneurs have benefitted from the reforms and deregulations that all three countries experienced in the 1990s, as well as from the freedom to innovate and access to information that democracy provides.

 

The most successful entrepreneurs in India, Brazil and South Africa have set up companies that compete internationally with the largest and most sophisticated companies in Europe and North America. In India, the conglomerates Tata and Birla, as well as IT giants Wipro and Infosys are among the large multinationals that compete globally and dominate in many markets. Brazil has produced Embraer, ranked alongside Canadian rival Bombardier as one of the four largest airplane makers after Airbus and Boeing, and Vale, one of the world’s largest mining corporations. Natura, a global leader in the cosmetics and personal care sector, was ranked as the eighth most innovative company in the world by Forbes in 2011. In South Africa the Standard Bank Group’s brand is worth about US$1.5-billion and is the leading banking brand on the African continent. South African Breweries, which started in Johannesburg in 1895 as Castle Breweries, has become the London based multinational SABMiller, and is the second largest brewing company in the world. MTN was the first company to pioneer prepaid cellular telephony and is now active in twenty-two countries, and Aspen is the biggest pharmaceuticals company in Africa and one of the largest suppliers of generic medicines in the southern hemisphere.

15. Does your study suggest a return to ‘Washington-consensus-like’ prescriptions for international development agencies?

No! In contrast to what critics and some supporters came to label the ‘Washington-Consensus’, we do not believe that merely removing market constraints will be enough to generate the types of inclusive growth all three countries need.

 

The countries and the global governments and institutions wishing to support them also need to address the quality of democracy. Each country needs to strengthen and increase the transparency and accountability of democratic representation, institutions and processes. In addition, initiatives need to be undertaken and supported that will strengthen the competence and capacity of government so that it can become a vital facilitator of growth, employment, infrastructure and human capital development. Finally, in countries with enormous development challenges, poverty, and a history of discrimination and disadvantage against large parts of the population, government interventions are required that will help the poor and disadvantaged to survive and participate in a modernising economy.

16. Why should interested people in developed countries like the UK and the US hear your message?

The world would be a better place if we could reduce poverty and promote development in the poorer regions without empowering autocrats and destroying the freedoms, rights and accountability that make democracy such an attractive system.

 

China’s success while under authoritarian rule leads many people to conclude that democracy is a luxury the developing world cannot afford; that authoritarianism must be tolerated and democracy deferred. The experiences of India, Brazil and South Africa show that if developing countries work simultaneously on strengthening their democratic institutions, freeing up markets and enhancing the effectiveness of their states, then the future of the developing world will be both democratic and prosperous.

17. Do India, Brazil and South Africa represent a ‘model’ that other countries should copy?

No! The experiences of India, Brazil and South Africa offer not a single model, but rather multiple different approaches and solutions to particular challenges.

 

For countries looking for innovative means of promoting development and for ways to make sure that economic growth brings benefits to the very poorest, the three countries all offer lessons about what works and what doesn’t. National governments, global leaders, international aid organisations and multilateral institutions should start making serious efforts to understand how things work in democratic developing countries, and not just in Europe or America, when they are looking to solve political and economic problems or offer policy advice.

18. Which countries should hear your message that democracy works for the purpose of promoting growth and reducing poverty?

Apart from India, Brazil and South Africa themselves, which all face major economic challenges and need to be vigilant about strengthening their democratic institutions, other countries that could benefit from renewing their commitment to democracy and learning from the policy lessons we have identified include Kenya and Turkey, where we are undertaking workshops on these issues. Other countries where autocracy is threatening and where pro-democracy advocates would be strengthened by our findings include Rwanda, Tunisia, Egypt, Ukraine and many other countries in the Middle East and Eastern Europe. Pro-democracy voices in China would also benefit from engaging with our findings.

WATCH: A short introductory video to Democracy Works!

In this short video, the project partners explain why they commissioned the Democracy Works project and what it aims to do.

WATCH: Democracy Works! presentation highlights at the Johannesburg launch

The Democratic Alternative from the South: India, Brazil and South Africa was officially launched in South Africa on 11 September 2014 in Johannesburg. A panel discussion in response to Ann Bernstein’s presentation was held and chaired by Andile Sangqu, a member of CDE’s board, and sustainability and group risk executive at Impala Platinum. CDE secured the participation of Maite Nkoana-Mashabane, South Africa’s minister of international relations, who appeared as a panellist and delivered a lengthy presentation in response to the report. The other panellist was Justice Malala, an analyst and well-known columnist for The Times of Johannesburg and the Financial Mail, a well-respected business magazine. There was much robust discussion around the document which was praised as ‘ground-breaking’ by Minister Nkoana-Mashabane.

 

WATCH: Interview with Justice Malala at the Johannesburg launch

Extracts from an interview with Justice Malala following the panel discussion at the Johannesburg launch of Democracy Works!

 

The Democratic Alternative from the South: India, Brazil and South Africa was officially launched in South Africa on 11 September 2014 in Johannesburg. A panel discussion in response to Ann Bernstein’s presentation was held and chaired by Andile Sangqu, a member of CDE’s board, and sustainability and group risk executive at Impala Platinum. CDE secured the participation of Maite Nkoana-Mashabane, South Africa’s minister of international relations, who appeared as a panellist and delivered a lengthy presentation in response to the report. The other panellist was Justice Malala, an analyst and well-known columnist for The Times of Johannesburg and the Financial Mail, a well-respected business magazine. There was much robust discussion around the document which was praised as ‘ground-breaking’ by Minister Nkoana-Mashabane.

WATCH: Ann Bernstein concludes the panel discussion at the Johannesburg launch

Ann Bernstein’s concluding remarks after the panel discussion at the Johannesburg launch of Democracy Works!

 

The Democratic Alternative from the South: India, Brazil and South Africa was officially launched in South Africa on 11 September 2014 in Johannesburg. A panel discussion in response to Ann Bernstein’s presentation was held and chaired by Andile Sangqu, a member of CDE’s board, and sustainability and group risk executive at Impala Platinum. CDE secured the participation of Maite Nkoana-Mashabane, South Africa’s minister of international relations, who appeared as a panellist and delivered a lengthy presentation in response to the report. The other panellist was Justice Malala, an analyst and well-known columnist for The Times of Johannesburg and the Financial Mail, a well-respected business magazine. There was much robust discussion around the document which was praised as ‘ground-breaking’ by Minister Nkoana-Mashabane.

WATCH: The Democracy Works! launch at the Legatum Insititute in London

This panel discussion brought together experts and representatives from the partner think tanks, including: Anne Applebaum (Legatum Institute in London), Ann Bernstein (Centre for Development and Enterprise in South Africa); Eswaran Sridharan (University of Pennsylvania Institute for the Advanced Study of India in New Delhi); Simon Schwartzman (Institute of Labour and Society in Rio de Janeiro) and Adrian Wooldridge (The Economist).

 

More information and a detailed summary is available on the Legatum Institute website.

 

WATCH: Ann Bernstein talks to CIPE about Democracy Works!

Executive Director of the Centre for Development and Enterprise (CDE) Ann Bernstein highlights the findings of a research project to uncover a consensus on democratic governance from the leading emerging markets of Brazil, India, and South Africa.

 

WATCH: The Democracy Works! launch at the National Endowment for Democracy in Washington

With

Ann Bernstein, Executive Director, Centre for Development and Enterprise, Johannesburg, South Africa
Simon Schwartzman, Senior Fellow, Instituto de Estudos do Trabalho e Sociedade, Brazil
Eswaran Sridharan, Academic Director, University of Pennsylvania Institute for the Advanced Study of India

Welcome

Marc F. Plattner, Vice President, National Endowment for Democracy

Introduction

John Sullivan, Executive Director, Center for International Private Enterprise

Moderated by

Anne Applebaum, Director of the Transitions Forum, Legatum Institute

READ: The Democratic Alternative from the South (Interview with Ann Bernstein)

-Ann Bernstein, Centre for Development and Enterprise, South Africa

Article at a glance

In this interview, Executive Director of the Centre for Development and Enterprise (CDE) Ann Bernstein discusses the development paths of India, Brazil, and South Africa and what the experiences of these countries tell us about whether a democratic market-based alternative to increasingly popular authoritarian approaches is emerging in the developing world. Bernstein also discusses the challenges facing these democracies and the reforms needed to strengthen them.
 

Introduction

 
In 2012, the Center for International Private Enterprise (CIPE) began supporting the Centre for Development and Enterprise, South Africa in a project to analyze the role democracy has played in the development of South Africa. This effort was part of a larger initiative supported by a number of foundations including the Templeton Foundation and the Legatum Institute to analyze the development paths of India, Brazil, and South Africa. The aim of the project was to explore whether a democratic alternative to increasingly popular authoritarian approaches is emerging in the developing world.
 
Culminating with a report titled, “The Democratic Alternative from the South: India, Brazil, and South Africa,” this endeavor has proven that marketoriented democracies can achieve remarkable success in terms of development. The report shows that democracy can indeed continue to deliver, however to do so requires deepening market reforms and fully embracing the many institutions that characterize a functioning democracy.
 
To explain the project in more detail, Executive Director for the Centre for Development and Enterprise Ann Bernstein agreed to an interview with CIPE.
 

1. “Since 2012, you have been leading an effort to analyze aspects of development in emerging democratic market based countries. Can you explain how this idea came about and why it is so important in today’s context?”

 
This project started with a big question. During the global economic crisis of 2008, Western democratic capitalism seemed to be knocked off its pedestal and was viewed less positively, fairly and unfairly, across the world. The Chinese authoritarian system had delivered incredible economic growth rates and moved millions of people out of poverty. In this context, we at the Centre for Development and Enterprise (CDE) in South Africa asked the question: Is there a democratic market-based alternative emerging from the developing world? Can we turn the spotlight away from China and talk about democracies and market economies in the developing world?
 
If you believe in human rights and freedoms, and if you believe in democracy and the market economy, these questions really matter. This is not just an academic exercise. Today there is a global contest between an authoritarian approach to growth and development, and a democratic approach. This contest is taking place in many countries around the globe.
 
For example, I was recently in Nairobi where we held a workshop and it was quite clear, talking to very senior people who live in that country, that there is now a new pull towards an authoritarian approach. Of course, this could be people who weren’t democrats in the first place, but it’s now much more legitimate to defend authoritariantype actions because of the great success of China and Singapore. For example, the Prime Minister of Ethiopia, both the previous one and the current one, are openly dismissive of democracy.
 
It is not as simple as saying that all these countries are adopting a Chinese model – very few are – but there are now two poles. There is the American, or the Western approach, to democracy and growth and how to build a successful society, and there is a Chinese approach, and people are leaning one way or the other. However, there is no doubt that the existence of a successful China has made authoritarianism more viable and acceptable than it was a few years ago.
 
Over the last two years, we have conducted a very large project to address this issue involving a network of leading think tanks in India, Brazil, and South Africa established by CDE a few years ago in response to the idea that Southern democracies needed to learn more about each other.
 

2. “There are a lot of other developing democracies in the world, why did you focus on India, Brazil, and South Africa?”

 
We had to choose because of limited resources and these are three very important countries in the developing world. They are, of course, very different societies – their histories are different, the composition of their populations, and so on; and yet, when you learn more and more about these countries, there are remarkable similarities.
 
Some 20-25 years ago, these three democratic governments faced an economic crisis, and they responded to this economic crisis with market reforms. Each introduced macroeconomic fiscal discipline, and began to liberalize their economies in different but significant ways, opening up to global markets and the creation of more competitive domestic markets.
 
This delivered results in the 1990s and 2000s and during that period these countries recorded very significant achievements. Often we look at these three countries and, because there is so much more to do in terms of creating wealth and bringing millions of poor people into the modern economy and society, we tend to overlook what has already been achieved. All three countries are very different societies from what they were 20-25 years ago.
 

3. “How did the methodology of the project account for all the components of a functioning democracy?”

 
Our understanding of democracy goes deeper than just elections. Of course, regular elections and the opportunity to change leadership is vitally important. However, democracy is much more than that. Democracy is about independent institutions, freedom, human rights and the rule of law, separation of powers – a whole range of supporting institutions that make for a democratic culture and vibrant democratic society. That was one of the assumptions of this project based on our definition of democracy.
 
We commissioned four research papers in each of the three countries, and asked leading experts in each country to address the following: “In your country, has democracy been an advantage for economic growth, a disadvantage, or neutral?” We asked the experts to also look at poverty alleviation, fighting corruption, and innovation – supposedly one of the great assets of democracy.
 
We then held workshops in Delhi, Rio, and Johannesburg to test the findings of the research with a much wider group of experts and policy makers in each of the countries. Following the workshops, we produced three country reports. There are now 15 research papers in total, all of which contributed to the document I wrote entitled “The Democratic Alternative from the South: India, Brazil, and South Africa,” which is an extended essay to answer the following questions – “What does all this research mean? What have we found out?”
 

4. “You mentioned that the success of China has given credence to authoritarianism. What have you discovered through this project that suggests market-oriented democracy is just as strong?”

 
India, a country with over 1.2 billion people, has had some years of spectacular growth. And this has benefitted not just the rich, but everybody. Some 200 million people have been brought out of absolute poverty, and the former ‘untouchables’ – the people at the lowest material levels in the society – are now running some of the states in India. They have political power, and the rate at which they have been brought out of poverty and into new opportunities is faster than many other groups in India.
 
In Brazil, a country of 200 million people, there has been steady economic growth with periods of very high economic growth. Today they have single-digit poverty, single-digit unemployment, and their Gini coefficient which measures inequality is moving in the right direction. This is a country that is now over 86 percent urbanized, and that is one of the factors, along with economic growth, that has contributed to these incredible achievements.
 
South Africa is the smallest country of the three with a population of 52 million people. Over the past 20 years of democratic rule, the economy has grown from approximately US$80 billion to US$400 billion. A number of people have moved out of poverty, and millions of South Africans now have access to services that they never had before, such as electricity, running water, telephony, and water-born sewage, and three million more families now have a home.
 
What is happening in these three countries is a massive process of inclusion. Inclusion into the modern economy, inclusion in terms of status and dignity, and hope for a better future.
 

5. “Were there any areas of research that identified some of the strengths that democratic systems have over authoritarian regimes?”

 
People often think that democracies are more corrupt than other societies because there is so much discussion about what’s going wrong and publicized accounts of scandal or corruption. The truth is that authoritarian states are a black box. They put a lid on these things and don’t let people talk about them. Occasionally there may be a show trial to remove a political opponent who might be corrupt, but these are generally scripted and not sincere.
 
What is interesting is the many mechanisms that democracies have to enable citizens and society to fight the scourge of corruption that is present in all societies. In democracies, citizens can shout about local level corruption, about state level corruption, about national corruption, and they can raise issues against the most powerful people in the country.
 
There are many examples of this in the report. For example, Brazilian civil society organized the National Association of Bishops. The professional bodies took action and successfully removed the first democratically-elected president, who turned out to be corrupt, without a threat to the system. Then, under President Lula – the most popular president Brazil has ever seen, a working-class hero – approximately 40 people, from his Chief of Staff to the head of his parliamentary party, were charged with corruption. Many Brazilians at the time said, “Oh, this is Brazil. They’ll never go to jail. They won’t be found guilty.”
 
However, the judge in charge of the trial found approximately 25 of these very prominent people guilty and they are in jail. This is a remarkable achievement, and it illustrates how different institutions in a democracy can play their part in fighting corruption among the most powerful people in the country.
 
In India there have been large anti-corruption protests by an increasingly urban civil society. This led to the formation of an entirely new political party that swept the board in Delhi last year. And now in the recent Indian general election we have the opposition Bharatiya Janata Party win the election with a decisive majority.
 
You look at all of this and you say, “Well, how can authoritarian states compete with the many institutions available to citizens in a democracy to fight corruption or to fix what is wrong in their society?”
 

6. “What are the challenges facing India, Brazil, and South Africa in terms of their economic outlook?”

 
These three countries are facing challenging times today. Their achievements notwithstanding, these vibrant democracies are in economic trouble, partly as a result of the global slowdown and the financial crisis, but partly because of their structural deficiencies. Each society introduced market reforms after the crisis in the late 1980s and early 1990s, which resulted in benefits in the buoyant 2000s. The global economy was strong and these countries had higher growth rates. To many it seemed like growth was the new normal and further reforms were unnecessary.
 
We are now seeing the consequences of that mentality. As a result of general economic stagnation and tighter global controls, these countries are struggling to achieve the higher growth rates they desperately need.
 
We identified the challenges facing these societies, which are firstly economic (they are slipping in global competitiveness; the cost of doing business has increased), but there are other challenges as well. They have very weak education systems where the vast majority of people are receiving a useless basic education. They have weak manufacturing sectors, rigid labor markets, and they are struggling to deliver on infrastructure, partly because they’re failing to fully embrace the private sector and the dynamics of public private partnerships and the dynamics of markets. There are also hints of slippage with respect to the quality of their democracies.
 

7. “What reforms are needed to address these challenges and to consolidate their democracies?”

 
A second wave of reforms that touches on four areas will help these three countries return to the kind of growth rates they need, continue consolidating their democracies, and bring more and more people into the modern economy.
 
First, they need a second wave of very determined market reforms promoting increased liberalization. The focus should be on reducing the cost of doing business, cutting regulations, and embracing the private sector in a much more determined way. Doing so will make the economies much more competitive compared to their peers. This will not be easy and has to be coupled with a concerted effort to explain the benefits of a market economy for all citizens much more effectively.
 
The second area of reform involves the development of more competent states. Many people in the industrialized world talk much too glibly about how states are unnecessary and markets are the only requirement. However, all societies and especially developing countries need competent, effective states to deliver on basic public goods. This does not mean that only states can deliver goods such as public education or health. However, you need competent state institutions to contract with and regulate market players.
 
Regulating the private sector, as discovered in the 2008 financial crisis, is very difficult. You need competent states otherwise public money will be wasted and crony capitalism will develop. Fixing the state and making it more competent – not necessarily bigger, just more competent – is very important in a developing country.
 
Third, these countries need to hold on to their vibrant democracies. They are not first-ranked democracies – they are not yet Sweden or America. There are areas where they need to deepen democracy. This is going to be important in helping to achieve reforms in other areas as well. Whether it is the nature of representation in congress or parliament, or a range of other areas, these countries need to hold firm with respect to democracy and deepen mechanisms of accountability and representivity.
 
The fourth part of the reform package concerns redress. Economic growth is the major driver of inclusion in these societies. However, in countries like these, with deeply divided histories – where people have been discriminated against for decades, if not centuries – one needs to look at additional measures as well. This is a very good time for these three societies to reassess the measures they have introduced to determine what has worked, where unintended consequences are having a negative impact, and where improvement is needed in order to further advance inclusion of the poor.
 

8. “Implementing this second wave of reforms will undoubtedly not be easy. What strategies will reformers need to adopt if they are to succeed?”

 
There are really three underlying themes. The first is that reformers in these countries can use the processes of democracy and its many independent institutions, practices and principles to build new coalitions for reform and change the language within which the national debate takes place.
 
We have seen this in the most recent Indian election where a new language for how to deal with India’s challenges has been introduced into the public arena (basic good governance, not bigger government, for example). This was not about redistribution, but about how to increase jobs and growth, and chart a sustainable path to development.
 
The second is a very big underlying theme that these countries need a much more determined embrace of the power of competitive markets that are open to everybody. In general, capitalism undersells itself and big companies are not very good at communicating the benefits they provide for the whole of society by simply doing business. Therefore, a much more concerted effort is needed to convince the mass of voters that higher GDP, faster growth, and the new policies that are necessary to reform entrenched privileges or obstacles to competition are worth the disruption, if market growth is really to benefit everyone.
 
The third, which is also very important, is that if you look at the first wave of economic reforms in these three countries, everybody benefited, but big business, big government, and big trade unions benefited the most. It is really important that the second wave is seen to be opening up to the excluded who cannot get jobs especially laborintensive manufacturing jobs, the small firms that have been prevented from opening because of too much regulation, and so on.
 

9. “Is there an overall conclusion you have drawn from this study and would like to share in light of International Day of Democracy?”

 
It would be nice to argue that democracy is absolutely essential for growth and inclusive development, but this is empirically false. There are authoritarian states that have delivered economic and social improvements for their societies though many have not, often ending in terrible bloodshed. We are making what might, at first, seem to be a lesser claim, but we don’t think it is. The question is: “Can you have growth, development, and inclusion coupled with human rights and freedoms?” And the evidence from three important developing countries – India, Brazil, and South Africa – supports a compelling and resounding, “Yes.”
 
The truth is that it is not human rights and freedoms and democracy that holds these three countries back from doing better, but bad policy choices. It is the failure to fully embrace markets in the private sector and to communicate the benefits effectively. It is weak institutions that succumb to corruption and crony capitalism. In large, complex developing countries, vested interests can preserve the status quo; however, we think that democratic politicians and leaders can build new coalitions and use the many mechanisms of democracy to change the definition of the national interest and determine national priorities.
 
Of course, there are no guarantees that these three countries will do this. But we believe it is possible that they can, and that the three countries can implement a second wave of reform. Democratic governments introduced major reforms in the past, and if they do this again the emerging democratic market-based alternative from the South will be strengthened.
 
None of these countries offer a blueprint for other countries, they’re too complex. Nonetheless, they do offer important lessons, ideas, and examples for other developing societies. We would argue that their existence and continued success is of vital importance for everyone – in the West and in the developing world – who care about democracy and market economics. So the bottom line is this: there is a democratic alternative emerging from the South embodied in India, Brazil, and South Africa. These are three pivotal countries to watch.