Liberalism, Democracy and Development

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Liberalism, Democracy and Development

Many commentators have assumed a close connection between liberal

democracy and economic development. Sylvia Chan questions this as￾sumption and suggests a new theoretical framework, in which liberal

democracy is ‘decomposed’ into economic, civil and political dimen￾sions that can be combined in different ways, allowing for a range

of ‘institutional matrices’. She then shows, in a case study of Japan

and the Asian newly industrialising countries, how these seemingly less

democratic countries have enjoyed a unique mix of economic, civil and

political liberties which have encouraged economic development with￾out the need to share the institutional structures and cultural values

of the West. Chan’s model therefore provides a re-evaluation of the

institutional capacities needed to sustain a competitive economy in a

globalising world, and develops a more sophisticated understanding of

the democracy–development connection.

SYLVIA CHAN is a Visiting Scholar at the University of California

Berkeley. She was previously Lecturer in Globalisation and International

Relations at Birkbeck College, University of London.

Liberalism, Democracy

and Development

Sylvia Chan

         

The Pitt Building, Trumpington Street, Cambridge, United Kingdom

  

The Edinburgh Building, Cambridge CB2 2RU, UK

40 West 20th Street, New York, NY 10011-4211, USA

477 Williamstown Road, Port Melbourne, VIC 3207, Australia

Ruiz de Alarcón 13, 28014 Madrid, Spain

Dock House, The Waterfront, Cape Town 8001, South Africa

http://www.cambridge.org

First published in printed format

ISBN 0-521-80883-9 hardback

ISBN 0-521-00498-5 paperback

ISBN 0-511-02946-2 eBook

Sylvia Chan 2004

2002

(Adobe Reader)

©

Contents

Acknowledgements page vii

List of abbreviations ix

Introduction 1

1 The question: is ‘liberal democracy’ good for economic

development? 10

1.1 The context 13

1.2 The pro-‘liberal democracy’ and anti-‘liberal democracy’ camps:

situating the democracy–development debate within the general

debate about ‘liberal democracy’ 22

1.3 Focusing on the democracy–development connection 27

1.4 Focusing on Asia 30

Part I The present context of democratisation

and decomposing ‘liberal democracy’ 37

2 Decomposing ‘liberal democracy’ 39

2.1 ‘Economic’, ‘civil’ and ‘political’ liberties 39

2.2 The three-fold architecture 44

2.3 A summary of points 52

2.4 Advantages of the new framework 53

3 Democratisation: between the ‘liberal’ and

the ‘democratic’ 57

3.1 The possibilities, limits and conditions of democracy: the three

stages of theorising on democratisation and the five factors 59

3.2 Thinking in terms of ‘converging’ and ‘diverging’ forces and

noting their effect on the ‘liberal’ and ‘democratic’ content 77

3.3 Further differentiating these forces 99

Part II The democracy–development debate:

old problem, new thinking 113

4 Constructing an empirical explanation 117

v

vi Contents

4.1 Macro vs micro 117

4.2 Using cases to explain 125

4.3 Using the Asian cases to explain the democracy–development

connection 127

5 The democracy–development debate reconsidered 130

5.1 Some preliminary points 130

5.2 The ‘goodness’ of ‘liberal democracy’ for economic development 132

5.3 The counter-argument: ‘trade-off’ 154

5.4 Between the two sides 188

6 Reconstructing an explanation of the Asian success 191

6.1 Setting the agenda I: towards a more inclusionary

institutionalism 191

6.2 Setting the agenda II: a different mix of liberties and a different

set of institutions – institutionalisation of ‘economic’, ‘civil’

and ‘political’ liberties in Japan and the East Asian NICs 199

6.3 Setting the agenda III: achieving ‘security’, ‘stability’ and

‘openness and information’ in Japan and the East Asian NICs 212

6.4 Towards a wider conception of state strength 219

6.5 The democracy–development relationship in the Asian case 228

7 Conclusion: moving beyond the question of

‘liberal democracy’ 230

7.1 Summarising 230

7.2 Towards a new Asian model? 235

Bibliography 237

Index 271

Acknowledgements

This book has the distinction of being perhaps the longest commitment

of my life so far, a seven-year project. I feel so privileged to be writing

it, to have the luxury of writing about something that is so interesting

and fascinating, as well as having important implications for countries

worldwide.

My first debt is to Geoffrey Hawthorn, my research supervisor at

Cambridge, from whom I have profited much during those years of con￾versations, conversations about interesting ideas and interesting ‘facts’.

Although at times I exasperated him with my less than coherent thinking

and writing, his belief in me, his scholarship and his generous support

made it possible for me to get through the years that it took (at times

with a lot of laughter, at times with some grief ) to finish this research

and book. He knew almost better than I did myself what it would have

meant to have left this book unfinished. He was also forever supportive

while I ambitiously took upon myself the Herculean task of tackling such

a grand topic.

Thanks are also due to Sunil Khilnani and Laurence Whitehead, who

gave me many helpful suggestions and criticisms on the manuscript. Their

own work has also been inspiring and thought-provoking.

The process of producing this book would have been so much more dif￾ficult if not for those friends, often similarly interested in ideas and schol￾arship, who sustained me not only through conversations but through

their example. Those conversations in the University Library courtyard

and tea-room have a very special place in my life. Thank you, Ikuko, Ken,

Atsuko, Jun, Uta, V´eronique, Nigel, Patrick, I-chung, So-Hee, Mike, Aki,

Yuko, Mari and Yannick. Thank you also to Rodney, whose constant sup￾port helped me believe I could and should be engaged in this task. I also

want to thank Professor D’Aeth, who read the manuscript from start to

finish and gave me both intellectual and emotional sustenance through

the different stages of writing it.

John Barber first made it possible for me to study Social and Political

Sciences at Cambridge, while Istvan Hont was always there to give me

vii

viii Acknowledgements

advice, with his brilliant mind. Helen Thompson supported me in a real

way by reading my manuscript throughout, and engaged me with inter￾esting thoughts. Colleagues at the Department of Politics and Sociology

at Birkbeck were willing to take me on during the year 1998/9, during

which I met with many interested (and interesting) students and was also

able to finish the manuscript.

My editor John Haslam helped me throughout the publication process

in a gentle and professional way, patiently answering my innumerable

questions. Most important of all, of course, was his belief in this book.

Thanks also to my ex-colleagues at McKinsey, who sustained me with

their interest in my ‘project’, as well as to Sun-Sun Chan and to William

Overholt, both of whom read my manuscript and provided useful criti￾cisms from the viewpoint of the business world.

In terms of financial support, I wish to record my gratitude to

Cambridge Commonwealth Trust, which supported my PhD research,

as well as to Trinity College, Cambridge, which on various occasions

provided much-needed financial assistance to enable me to do research

in Beijing and Shanghai and to attend the American Political Science

Association conference in San Francisco.

This book started its life in Cambridge, and from there it has travelled

through many places: Florence, Toronto, San Francisco, Hong Kong,

Shanghai, Beijing, Tokyo, Kuala Lumpur, Melbourne and London. My

friend Mim made it possible for me to finish it, appropriately, in Cam￾bridge, which was a great joy.

Finally, to my parents and my sisters, who overlooked – most of the

time – the fact that I was some unusual human being working so hard

on such a thing as a book. My father in particular encouraged all of us

to express different opinions and argue our case from a young age, usu￾ally during dinner conversations that often resulted in long post-dinner

debates. I hope to make you proud.

How I ended up writing this book is an unusual story. In fact, twelve

years ago, I was still studying mathematics and could not distinguish

Marx from Weber. The story is perhaps too long to recount here, but I

dearly hope that this book bears the distinctiveness of its unusual origins

and the unusual journey.

Abbreviations

CCP Chinese Communist Party

ECLA Economic Council of Latin America

EFF Extended Fund Facility (IMF)

FDI foreign direct investment

GATT General Agreement on Tariffs and Trade

GDP gross domestic product

IMF International Monetary Fund

ISI import substitution industrialisation

KMT Kuomintang (Taiwan)

LDC late developing country

LDP Liberal Democratic Party ( Japan)

MITI Ministry of International Trade and Industry ( Japan)

MNC multinational corporation

MOF Ministry of Finance ( Japan)

NATO North Atlantic Treaty Organisation

NGO Non-Governmental Organisation

NICs newly industrialising countries (South Korea,

Taiwan, Singapore, Hong Kong)

ODI Overseas Development Institute

OPEC Organisation of the Petroleum Exporting Countries

PAP People’s Action Party (Singapore)

PR proportional representation

TNC transnational corporation

WTO World Trade Organisation (successor to GATT)

ix

Introduction

Yet another book on ‘liberal democracy’?

I wrote this book to present an original argument, an argument that

is aimed at a better understanding of why and to what extent ‘liberal

democracy’ is a good system that delivers ‘economic development’: Does

democracy really cause development? How tight is the connection? How

does it do so? What really is the connection? What are the limits of that

connection?

In other words, in this book I ask a series of questions that few people

seem to be asking any more. By examining how ‘liberal democracy’ can

or cannot contribute to ‘economic development’, I challenge readers to

think about what ‘liberal democracy’ really is, what it can be, and espe￾cially what it can do – how, and under what circumstances.

These are important and long-overdue questions. Since the late 1980s

and throughout the 1990s to now, ‘liberal democracy’ has been celebrated

and ‘democratisation’ seemed ‘the only game in town’. The universal

goodness of ‘liberal democracy’ is almost always assumed: it will bring

economic development, social harmony, enhancement of human rights,

etc. In this atmosphere of triumphalism, there is little critical reflection

on the concept of ‘liberal democracy’ itself.

The original argument presented in this book is constructed around a

‘2 × 3 + 1’ axis: the first set of three concepts are ‘economic’ liberalism,

‘civil’ liberalism and ‘political’ liberalism (achieved by ‘decomposing lib￾eral democracy’, in chapter 2); the second set of three concepts are

‘security’, ‘stability’ and ‘information and openness’ (achieved via a top￾down overview of liberal democratic theories, rendered in chapter 5).

These six concepts interact together and are embedded in a particular

‘institutional matrix’, the seventh concept, which I use to explain the

democracy–development connection in Japan and the Asian newly indus￾trialising countries (NICs) (chapter 6).

In the course of examining and questioning this assumed connection

between ‘liberal democracy’ and economic development, therefore, I use

1

2 Liberalism, democracy and development

a set of cases to underscore some of the points. These countries have not

strictly followed the path of ‘democratisation’ but have at the same time

achieved the ‘economic development’1 that Western ‘liberal democracies’

are often said to bring (some call this the ‘Asian miracle’). It is com￾mon to explain this success by some variants of ‘authoritarianism’, ‘state

autonomy’,‘strong government’, whether these were culturally predi￾sposed or not (‘Asian values’, Confucianism, etc.). This type of autho￾ritarianism-was-responsible-for-the-economic-development-of-the-Asian-NICs

argument, I assert, needs to be unravelled; at the same time the ‘liberal

democracy’-goes-hand-in-hand-with-economic-development argument needs

also to be unravelled. Having set up the three-fold framework of

‘liberal democracy’, and then having unravelled some of the theories

that purported to explain democracy–development, I ask the questions

that really need to be asked about Japan and the Asian NICs: in what

way and to what extent were ‘liberal’ and ‘democratic’ elements involved

(or not involved) in their economic development, and what may this in

itself say about ‘liberal democracy’ and about theories that connect it

with economic development?

My concern in this book is not so much to describe the Asian suc￾cess story as to bring into focus the theoretically interesting things the

Asian success story reveals about ‘liberal democracy’ – its historical and

theoretical underpinnings and the inter-connections as well as the contra￾dictions amongst some of these. That is its relevance, and its ambitions.

The conclusions, I believe, are important and interesting: first, that

the ‘economic’ and ‘civil’ dimensions of ‘liberal democracy’ impact on

economic development in a different way and to different levels than

the ‘political’ dimension does; second, that a proper understanding of

the democracy–development connection requires an understanding not

only of the different ways in which those three dimensions of ‘liberal

democracy’ impact on economic development, but also of how the mani￾festation of those differences depends on the particular ‘institutional

matrix’ of the particular states and how that institutional matrix furnishes

and builds ‘security’, ‘stability’ and ‘information and openness’. These

conclusions, I believe, should be heeded by scholars and policy-makers

alike.

The materials presented in this book cross boundaries of three fields:

political theory (including globalisation), development studies and East

Asian studies. The story told here makes unexpected use of elements

within Western liberal democratic theory to construct an explanation

1 The definition of ‘economic development’ is of course a contested one; one need only

look at the debate over the recent 2000 World Development Report. My position on this is

stated in chapter 1, note 1.

Introduction 3

of the political economy of a set of non-Western countries (but not

necessarily to reach an unexpected conclusion). I hope thereby that it

will help practitioners and academics understand Western theory better

(its tensions, inconsistencies, pretensions, etc.).

Isn’t it true anyway that the financial crisis of 1997–8 put an end

to the ‘Asian miracle’?

The reader may well ask: what is the relevance of your argument in the

light of the Asian ‘financial crisis’ of 1997–8? Does the 1997–8 Asian

financial crisis affect what is presented in chapters 1 to 6? To what extent

does it either strengthen or weaken the argument presented?

I want to note six points.

First, the countries most directly affected by the ‘crisis’ are not the

ones I discuss in this book. The only exception is South Korea. Japan

and Taiwan (as well as Hong Kong and Singapore, the other two NICs)

were not significantly hit by the crisis.

Notwithstanding this, discussions about the crisis have centred around

several themes: what were the forces driving (shaping) the incidence,

timing, nature and extent of severity of the crisis? In particular, the ar￾guments centred around the question of whether it was predominantly

domestic factors – such as the inadequacies of the domestic financial

system, ‘cronyism’, etc. – or whether it was more factors to do with the

inadequacies in the international financial system – such as the lack of a

powerful international financial regulatory agency, the internationally

widespread trend of financial liberalisation, etc. – that were responsible for

the way the crisis emerged and developed (‘endogenous’ versus ‘exoge￾nous’ causes).2 Identifying the causes of the crisis is important not only

because it directly links with the proposed steps for the future (or ‘lessons’

from the crisis), but also because it has relevance for the broader questions

about the nature and future of capitalism, ‘liberal democracy’ and ‘global￾isation’. More specifically, what does the incidence of this crisis mean for

‘neo-liberalism’, the doctrine of liberalisation and de-regulation? What

does it mean for the ‘Asian model’ – would the aftermath of the crisis

create more pressure in Asia towards a convergence with American-style

capitalism?

2 One important collection of scholarly work on the Asian crisis is the Cambridge Journal

of Economics, 22:6, November 1998, Special Issue on the Asian Crisis. One interesting

thing to note is how a report from the Japanese government issued just before the crisis

was already producing some very pertinent analyses; see IDE Spot Survey (1997). For

some official after-the-event analyses, see World Bank (1998b) and IMF (1998a and

1998b).