Shifts in the Economic Power Balance between Democracies and Autocracies

Over the past decade, many academics, politicians, and journalists have raised concerns about the state of democracy worldwide. The deterioration (decay or collapse) of democracy has been addressed in books (e.g. Przeworski, 2019), academic publications (e.g. Diamond, 2021), and newspaper articles (e.g. Albright, 2018, Rahman, 2016, Zakaria, 2018).? There are different approaches in presenting the data related to the dynamics of democracy in a specific country or around the world. Many publications have focused on the deterioration of the quality of democratic institutions within a specific country. In this article I will look at the global dynamics of democracy.

The state of democracy has been discussed both with a narrative approach to the problem and with some quantitative analysis. The key purpose of this article is to present a specific quantitative measure of democracy based on economic power and to launch a discussion on the implications of its dynamics.

There are many ways to construct an indicator of democracy for the world. In all cases one would start with a standard source, where we can find democracy scores for individual countries and aggregate the country data in a specific way. Here is a non-exhaustive list of some possible aggregation approaches.

1.?????? Proportion of democracies: Count the number of countries classified as democracies and calculate their proportion in the entire set of countries.

2.?????? Average democracy score: Use an index of democracy for all countries and calculate a simple average for every year. Most of the rating agencies do not rely only on a 0-1 dichotomy for democracy and autocracy, so they use a finer range (0 to 5, a mix of several variables, etc.). Therefore, this aggregation will create a measure that is different from the previous one.

3.?????? Population-weighted democracy score: In this case each country's democracy score is weighted according to its share of world population. China’s and India’s democracy scores will have roughly 18% weight each, while the US will have a weight of about 4%.

4.?????? GDP-weighted democracy score: For this indicator, each country's democracy score is weighted according to its share of world GDP. This indicator is the focus of this article. ???

Recent versions of the first two indicators are presented in a paper by Daniel Treisman (2023) titled “How great is the current danger to democracy?”. The conclusion of the author is that there is no imminent danger to democracy on a global scale, or to use the last sentence from the abstract: “While eroding democratic quality in some countries is indeed a cause for concern, the fear of a global slide into autocracy appears premature.” Using data from various sources he demonstrates convincingly that the proportion of countries considered to be democracies has been quite stable over the past 30 years. In the worst-case graph, the proportion of democratic states peaked in the early 2000s and declined only slightly to levels comparable to the level from the mid-1990s, which is considered to be the heyday of democracy. The figure below (from the paper) shows the average score using two different measures of democracy from 1900 until 2022.

If we want to know the average democracy score today versus 10, 30, or 100 years ago, these graphs provide a really good answer. If we want to know whether the average person today lives in a democracy or not, then we must weight the democracy indicators of countries by their population, as proposed by the third indicator above. But if we want to know where the world is heading, I think that the democracy indicators should be weighted by the economic size of the country, i.e. by its share in world GDP.

I used data from the Varieties of Democracy (V-DEM) project and GDP (adjusted for purchasing power parity) from the World Bank to construct the indicator described in #4 above. I had to do some additional calculations as data from the Soviet republics was not available before 1990 (except the democracy score for Russia). For the democracy score, I assign to each one of the republics the score for Russia (as published in V-DEM). In a nutshell, this implies that the democratic regime had the same value in the 15 republics within the Soviet Union. For GDP, I use data from Maddison (2004) to construct growth rates of USSR from 1960 to 1990. Using these growth rates, I reconstruct GDP in these republics prior to the fall of the Soviet bloc by extrapolating backwards from 1990. Clearly, these are shortcuts, but it is unlikely that a more sophisticated technique will have a material effect on the results reported below.

Furthermore, I used a slightly different indicator of democracy called “Accountability”. It is a broader measure of the state of democratic institutions, which combines “vertical accountability” (politicians being accountable to the electorate), “horizontal accountability” (the presence of functioning checks and balances between institutions, e.g. the judiciary and the government), and “diagonal accountability” (the ability of the civil society and media to hold the government accountable). This measure has been standardized to have mean zero and standard deviation of 1 for the entire population. The results using the more traditional “regime” measures of democracy are nearly identical.??

Here is the GDP-weighted world democracy score, where the vertical line is 1989.

Changes in this graph may result from changes in the relative size of a country (even if the democracy scores are constant) or from changes in the individual democracy scores (even if GDP shares are constant). For example, in the period from the late 1970s to 1989, the western world was growing much faster than the Soviet Union, and, because of this, the world democracy score weighted by GDP increased. One might argue that the imbalance of economic power in favor of democratic states precipitated the demise of the Soviet regime. The collapse of the Berlin Wall led to the creation of many democratic states in Eastern Europe, which in turn led to a further increase in the world democracy score.

Since 1999 the indicator has been on a clear downward trajectory – very different from the averages presented in the first graph above. The decline in the democracy indicator is driven predominantly by the rising economic power of non-democratic states like China. Notice that the value of the indicator in 2022 is roughly the same as in the late 1970s, when the world was in the midst of the Cold War. What probably is more worrisome is that it is unlikely to see a reversal of the downward trend in the near future. ???

The graph poses a very important question: Will the dynamics from 2000 onwards precipitate a seismic shift in the world political order as the dynamics from 1976 to 1989 did? Of course, correlation is not causation and there were many reasons for the collapse of the Soviet bloc. But to ignore the role of economic power in determining the future of the world order is naive. There is a long list of books and articles about economic statecraft and the role of hegemons in determining political and economic outcomes. The most recent paper in this long list creates a sophisticated theoretical model to show how hegemons can coerce other countries into specific actions (see Clayton et al, 2024).

More concretely, there are hundreds of articles documenting China’s rising economic power being associated with its impact on various countries around the world. In 2019 David Shullman edited a volume with thirteen cases ominously titled “Chinese Malign Influence and the Corrosion of Democracy: An Assessment of Chinese Interference in Thirteen Key Countries”. The cases include countries in Eastern Europe, Africa, Latin America, and Asia.?????? ?????

It is clearly beyond the scope of this article to discuss why and how China is executing all these interventions. And in fact, China’s direct impact on the indicator is not the only story in these dynamics The graph of the democracy score does not change much if we remove China and the US from the data set: the decline in the value of the indicator from the peak is about 40% (instead of 65% when the US and China are included). This implies that the decline in the GDP-weighted democracy score is much more widespread. Possibly the success of China in creating an economic miracle in a non-democratic political setting has influenced other countries that they can do away with democracy in their pursuit of economic development.

The fact that China is not the only force behind the declining of the democracy indicator is important also because in a previous article (Fatás and Mihov, 2023), my co-author and I argued that China is reaching a level of income per capita, where institutional reforms are needed for the country to continue its convergence to high-income countries. But if China stagnates, there are still many other economies that continue to influence the decline in the indicator.

In addition, there are well-founded concerns that social media and the use of AI tools throughout the world (including democratic states) may have driven the public closer to politicians who do not promote democracy. This activity of anti-democratic politicians is happening on the backdrop of advocates of democracy not being as active in this space. This article started by quoting recent publications about the collapse of democracy, but it is not clear that these publications are sufficient to counteract the opposite forces on social media. At this point, it seems that without an active and aggressive strategy to raise awareness about the perils of losing to autocracy, the economic power of non-democratic states will continue to grow and will overwhelm those that still count as democracies.

On June 8, 1982, President Ronald Reagan addressed the British Parliament speaking about the contest between democracy and authoritarianism. He stated:

"… the march of freedom and democracy will leave Marxism-Leninism on the ash-heap of history as it has left other tyrannies which stifle the freedom and muzzle the self-expression of the people."

At that time the democracy indicator was gaining momentum, giving confidence to Western politicians that democracies were gaining the upper hand. Today, President Biden has resuscitated this debate stating repeatedly that the world has engaged in “a battle between democracy and autocracy.” Alas, this time democracy might be on the losing end. The “global slide into autocracy” might be occurring at this very moment, as the data suggests.? ?

References:

Albright, M. (2018). Fascism on the March, New York Times.

Clayton, C., M. Maggiori and J. Schreger (2024). A Framework for Geoeconomics. Manuscript, Stanford University.??

Diamond, L. (2021). Democratic regression in comparative perspective: scope, methods, and causes. Democratization, 28(1), pp.22-42.

Fatás, A. and I. Mihov (2023). Beyond the Middle-Income Trap: The Role of Institutions in China’s Growth. INSEAD Knowledge.

Maddison, A. (2004). The World Economy: Historical Statistics. OECD.

Przeworski, A. (2019). Crises of Democracy. New York: Cambridge University Press.

Rachman, G. (2016). The global democratic recession: Democracy is in retreat around the world—for now, Financial Times.

Reagan, R. (1982). Text of President Ronald Reagan’s Westminster Address. (https://www.ned.org/promoting-democracy-and-peace/ )

Shullman, David (ed) (2019). Chinese Malign Influence and the Corrosion of Democracy: An Assessment of Chinese Interference in Thirteen Key Countries, Washington, DC: International Republican Institute.

Treisman, D. (2023). How great is the current danger to democracy? Assessing the risk with historical data. Comparative Political Studies.

Zakaria, F. (2018). Democracy is decaying worldwide. America isn’t immune. Washington Post. ?