We are the state. With democracy, we steer politics to our advantage. Broad access to education not only increases productivity but also promotes democratic participation and control. Economic reforms that favor the benefit of a large majority rather than a privileged minority become more likely. But democracy is not perfect. Ideological differences can complicate consensus and prevent important decisions. Do we need the enlightened autocrat to create sustainable prosperity? Or is democracy the more reliable route to inclusive growth?

Winston Churchill once said that “democracy is the worst form of government – except for all the others that have been tried.” Is democracy really the political regime that brings people the greatest prosperity? China is often criticized for being undemocratic, but over the last few decades, it has been able to write an unprecedented growth story. The increasing populist, anti-democratic tendencies in Europe and the United States also raise the question of whether democracy really shows the best way to more growth.

Researchers Daron Acemoglu, Suresh Naidu, Pascual Restrepo, and James A. Robinson from MIT, Columbia, and Harvard investigated whether democratization brings a country more prosperity. The current state of research is rather pessimistic. However, they believe that the existing research on the subject has methodological shortcomings in properly measuring levels of democracy.

A simple correlation between the level of democracy and growth is easy to calculate. However, the researchers show that the effect actually comes from democratization and is the cause of growth. The problem is that historical and cultural differences can also influence both political regime and growth, thus blurring the causal influence. Crises with a sharp drop in per capita income often trigger democratization, which then has an impact on income trends. The connection is two-way and not just one-way. For their study, the economists looked at 175 countries from 1960 to 2010. They differentiated between “democratic” and “non-democratic” systems. The data shows a clear spread of democracy.

The levels of democracy in the world have clearly increased. In 1960, 31.5 percent of countries were classified as democratic, in 2010, the figure was more than twice as many at 64.1 percent.

The researchers consider not only permanent but also temporary system changes. For example, Argentina held democratic elections in 1973 for the first time in a decade. However, after a coup just three years later, it was not until 1983 that Argentina finally became a democracy. In the analysis, not only the period from 1983 is considered democratic, but also that between 1973 and 1976.

A first glance at the data reveals that democracies have, on average, four times the per capita income and their inhabitants are better educated. However, such a correlation between democracy and income is not sufficient to clearly attribute democratization to growth. The researchers use a total of three econometrics to determine the effect of democratization on prosperity. All three approaches lead to similar insights: on average, democratization increases per capita income while moving away from democracy causes income to fall. Democratization promises long-term gains in prosperity. After 20-25 years, it increases per capita income by around a quarter.

A frequently observed phenomenon in the democratization process are regional waves in which this occurs. Think of the Arab Spring or the collapse of the Soviet Union and its satellite states in the early 1990s. Such “contagion effects” are very evident in the data. Once the first country in a region becomes democratic, it usually takes only a few years for the proportion of democratic countries in the entire region to catch up. Even taking into account such regional influences on the probability of democratization in a country, the economists estimate that democracy increases per capita income by around 26% in the long term.

Which specific mechanisms determine how democracy increases the level of prosperity? The empirical results indicate that democratization promotes a variety of factors that sustainably increase growth and living standards.

Economic reforms that promote benefits to a large majority rather than to a privileged minority are becoming more likely. The quality of the education system is improving, which increases the proportion of well-educated citizens. However, since the researchers cannot fully clarify whether these channels are actually the result of the changed political system or increased prosperity, these findings remain somewhat less clear than those in the main part of the analysis.

Democratization increases prosperity in both high and low-income countries. However, the effect on economic growth is more pronounced when a large proportion of the population has attended secondary school.

A minimum level of economic development and a well-educated population are considered prerequisites for a functioning democracy. A widespread view is therefore that democratization can even be detrimental in underdeveloped economies. However, Daron Acemoglu and his colleagues find no evidence that the prosperity effects of democratization depend systematically on the initial level of income. However, democratization promises greater prosperity gains in countries with a high level of education.

The findings of this work show that democracy brings not only social but also economic benefits. In doing so, the researchers put some doubts about this form of government into perspective. Despite new and important results, there is still room for further research. Instead of just distinguishing between democracy and non-democracy, the research could also examine the influence of different degrees of democratization in different political systems.