June 2, 2013, by Editor

Democracy, Property Rights and China

Written by Niv Horesh.

In the early 20th century, Max Weber’s influential theories led Western scholars of both leftist and conservative leanings to argue that the spread of capitalism and “bourgeois” democracy in the 17th century had been driven, in the face of nobility resistance, by the growth of autonomous professional elites in Western European cities. Douglass North has more recently argued that the interplay between formal societal rules governing property-right protection and informal rules such as taboos and customs ultimately determine transaction costs in any given polity. Accordingly, stronger property rights would of themselves lead to both economic efficiency and political openness. In these analyses, the West’s ascent on the world stage was in no small measure due to geographical, cultural and religious constraints on government autocracy that were absent in other parts of the pre-modern and early modern world. This had over the course of the 20th century resulted in a pronounced wealth gap between “the West and the rest” that was manifest in more advanced technological capacity, better communication and transport  infrastructure, longer life span.

Yet, as more and more non-Western societies urbanized in the latter part of the twentieth century, questions began to arise as to whether global democratization would follow along more or less parallel lines. Concomitantly, geo-political developments expedited the outward thrust of democratization quite apart from property rights. If the first wave of democratization was purely Western (American and French revolutions), Allied victory in World War II embedded the principles of democratic governance further afield, including Japan. The third wave started in Southern Europe in the mid-1970s, and soon transplanted to Latin America. The democratization processes in Eastern Europe, and limited parts of Central Asia and Africa more than a decade later were to one extent or another a result of the dissolution of the Cold War.

Tensions between Property-Rights Protection and Democracy

Our common understanding of democracy nowadays as “one man, one vote” does not befit the limited parameters of democratization in the first wave. In the American colonial period, and for some time after, often only adult white male property owners could vote; enslaved Africans, most free black people and most women could not. However, serfdom and democracy could not historically coexist in Eastern Europe as was the case with slavery and democracy in the early American experience.

The divergent routes of Britain and Russia in the nineteenth century well illustrate that variation across the continent. While in Britain checks on the monarchy had already been placed in the 18th century and manoralism had disappeared, an analogous system did not exist in agrarian Russia. Instead, Russia did not have the history of struggle between the nobility and monarchy, and serfdom persisted till the 1860s. Consequently, Russian nobility was relatively powerless while the Czar was all-important. Thus, the Russian legal system adjudicating property rights  was organically embedded within the imperial administration.

By contrast, Britain had had a long history of continuous struggle between the monarchy and the nobility, from the Magna Carta to the Glorious Revolution. By the 19th century, it boasted an independent judiciary and a Bill of Rights and an incipient separation of powers. As a result, individual rights to property and contract enforcement were relatively secure even prior to the Industrial Revolution. Subsequently, the bourgeoisie had already possessed considerable strength as a power broker in the confrontation between the monarchy and the nobility.

Nonetheless, luminaries like David Ricardo or James Madison actually warned in the early 18th century against the threats that broad participation in government might potentially pose to the sanctity of private property. The spectre of class warfare being realized through universal suffrage was often interpreted at that time in terms of poor and uneducated masses abusing electoral powers to bring about an abrupt redistribution of wealth in society or collectivize land ownership.

Such alarmist views were more common still following the Bolshevik Revolution of 1917. Although the demise of totalitarian ideologies in the latter part of the 20th century allayed this alarmism, populist and ultra-nationalists who come to power democratically can still inflame anti-tycoon rhetoric of one sort or another. Cases in point arguably include Juan Perón, Hugo Chávez and Vladimir Putin.

Wealth, Inequality and 21st-Century China

Though partly inspired by the West’s ancient Greco-Roman heritage, representative democracy is a relatively recent development. Notably, at least until recently, the Arab world, Russia, China and Africa have to a large extent proven impervious to the globalization of democracy. Economists like Douglass North and, later, Avner Greif, Niall Ferguson and Daron Acemoglu have all therefore pointed to historically weaker individual property rights and, particularly, to the persistence of slavery and other constraints on the freedom of occupation and movement outside the Greco-Roman tradition as one key determinant of the subsequent income gap between the “West and the rest” in the modern world. According to this thesis, much productive energy and an enormous investment pool were unshackled once individuals in the West could — unlike their peers elsewhere — own property, list limited corporations as legal entities and seek remedies against arbitrary taxation.

Several empirical studies have shown that democracies generally have better property rights protection than dictatorships. However, it is far from proven that free-market institutions and democratization are inextricably interdependent. Historical evolution, geography and social norms shape the interplay between property rights and  representative government in distinct ways. Moreover, the appearance of illiberal democracies around the world such as Turkey or Mongolia calls into question the extent to which property rights can be seen as a basic and universal human right; as an effective auxiliary against ethnic and religious discrimination, or as a guarantor of free speech.

The fall of the Berlin Wall in 1989 ushered in a decade of American uni-polarity that many expected to last in a linear fashion for another century. However, in recent years, the Global Financial Crisis and China’s rise have reinforced the debate about the growing global income inequality as well as wealth siphoning across borders. Against this backdrop, many observers point to perceived failings of Western-style democracy in that it postulates the sanctity of individual freedoms over collective “economic rights” for employment, nourishment or national-betterment through, for example, birth control. Others point out that democratic India has often been ranked below autocratic China on metrics such as clean government and economic efficiency. To be sure, China’s impressive growth rates over the last three decade were driven, in part, by reforms that gradually extended the notion of individual property rights from foreign firms and expatriate investors to wider swathes of society. These reforms have also seen Chinese cities absorbing over half of the country’s population, and spawning a large middle class.

Whether a more urbanized China will eventually embrace Western-style democracy, as Western social-science theories might suggest, remains to be seen. In the meantime, China’s  ruling Communist Party continues to espouse on the world stage an alternative path to modernity — one where property rights and democracy are not necessarily mutually-reinforcing.

Niv Horesh is Reader in the School of Contemporary Chinese Studies, University of Nottingham.

Posted in Economics