Democracy and economic development

Government can be “predatory” in nature—that is, they tax the private sector for the benefit of the powerful people in the government as discussed in Professor Leslie Young’s recent paper. While this by nature is redistribution in favour of the government officials it will hurt production and is clearly harmful to the private sector, whether the extractions are in the form of taxes or in the form of corruption. Institutional arrangements that protect the private sector from harassment by the government are favourable to economic development. A free press, an independent ombudsman installed with authority, a “commissioner for administrator complaints”, an “ICAC”, etc., are part of an institutional framework that can serve this purpose. Democratic institutions, in particulars a representative government, may also serve the purpose. Democratic institutions, in particulars a representative government, may also serve the purpose. In practice, however, democratic institutions do not have a better performance record than the other mechanisms mentioned above to combat predatory behavior by the state.