PLSC Chapter 6
Economic Explanations for Democracy
Introduction to the Topic
Understanding why some countries become democratic while others do not, and why democracy survives in some but fails in others.
Focus on economic explanations, particularly the role of economic development and the structure of a country’s economy on democracy’s emergence and survival.
Previous chapters discussed political criteria for classifying regimes (democratic vs. dictatorial).
Modernization Theory Overview
Economic explanations for democracy often align with Modernization Theory, which posits:
All societies progress through similar stages of economic development.
Underdeveloped countries are at an earlier stage than developed nations (Gerschenkron 1962; Rostow 1960).
According to modernization theory, economic development leads to the agricultural sector shrinking and the industrial and service sectors growing. This shift can alter the balance of power between rulers and the people.
Characteristics of underdeveloped countries:
Large agricultural sectors with small industrial and service sectors.
As countries develop:
Shrinking agricultural sectors and growing industrial/service sectors.
Increased urbanization, improved educational attainment, and heightened societal complexity.
Political scientists who engage with Modernization Theory assert political changes often accompany economic development:
Dictatorial rule and predatory behavior prevalent in agrarian societies.
Increased economic development may change power dynamics, leading rulers to seek consent for governance.
As predicted by modernization theory, early states are characterized by dictatorial rule and predatory behavior on the part of state elites. These states often had no significant industrial or service sectors.
Modernization theory states that one way to solve credible commitment problems is through enforceable contracts. If one party reneges, the other can file a complaint with an outside agency such as a court of law that can force the other party to pay up.
Natural resources and foreign aid influence the extent to which rulers are dependent on the people. The chapter will next explore how this dependence affects the prospects for democracy.
When the state is weak, economic development is more likely to promote democracy.
modernization theory suggests it can also play a role in the emergence of democracy, although the evidence is less conclusive for emergence than survival. Remember, economic development can lead to a larger middle class with mobile assets, which can push for democracy
Under What Economic Conditions Are We Likely to See Democracies Emerge?
Classic Modernization Theory
“Stage theory” of development — all countries pass through the same historical stages of economic development.
Contemporary underdeveloped countries are merely at an earlier stage in this linear historical progress.
In the 1950s and 1960s, Latin America, Asia, and Africa were seen as “primitive” versions of European nations that would eventually develop and resemble Western Europe and the United States.
“Traditional” Society
Large agriculture, small industry, small service, dictatorship.
“Modern” Society
Small agriculture, large industry, large service, democracy.
Modernization theory predicts that as countries develop economically, they are:
(a) more likely to become democratic, and
(b) more likely to remain democratic.
Economic development and the societal transformation it produces make it more likely that rulers will need to bargain with, and seek the consent of, the people to govern.
Agrarian states are often characterized by dictatorial rule and predatory elites because land workers lack exit options.
Modernization theory posits that a shift from agriculture to industry and services increases people's exit options, influencing the ruler's need to bargain for support.
Economic development increases the value of exit options and shifts the balance of power toward the people.
as economic development progresses, education and human capital become more critical, increasing the value of exit options for the masses and growing the size of the middle class.
If rulers depend on citizens for revenue, they may feel compelled to bargain and seek consent — legislatures often emerge as bargaining arenas. When the ruling class is autonomous and can generate the revenue it requires to stay in power with little input or cooperation from the people, then there’s no reason for it to constrain its predatory behavior and bargain with the people.
The result: a political system in which rulers are constrained.
Two conditions are required for development to promote democracy:
The ruler must depend on the people.
Economic development must increase the value of people’s exit options enough that rulers seek consent.
Even when met, this link is probabilistic, not deterministic.
Early Democracy vs. Economic Development
Early democracy can occur in low economic development contexts:
Actual early democracies governed by councils and assemblies, notably in small-scale, hunter-gatherer societies with mobility and geographic dispersion.
Example:
Early democracies existed in societies with lower economic development levels than nation-states like England, China, and Iraq until the 15th century (Stasavage 2020).
Economic development not a strict prerequisite for some forms of democratic governance, but it increases the likelihood of more inclusive modern democracies in developed nations.
Historical Context of Early States
Discussed in relation to Modernization Theory.
Early states defined as agrarian or grain states (Scott 2017):
Characterized by dictatorial rule, especially as grains were tax-laden and closely monitored by state elites.
Farmers had limited mobility (through policies like serfdom) and were thus easy targets for state appropriation without needing to bargain for consent.
Predictions of Modernization Theory
As economic development progresses:
Expected shifts toward reduced agricultural sectors; increased prominence of industry and services.
More individuals gaining valuable exit options leads rulers to negotiate for consent, typically through assemblies for tax revenue and support.
Greater inclusiveness in political systems over time.
Conditions for Democracy From Economic Development
Ruler’s Dependence on People:
Ruler should rely on the populace for revenue, or they may operate independently, especially if wealth derives from natural resources. Natural resources and foreign aid influence the extent to which rulers are dependent on the people. As a result, they influence the prospects for democracy around the world.
Increased Exit Options for Citizens:
Economic growth should enhance the citizens’ mobility and options enough to make rulers seek consent.
Causal Story Underpinning Modernization Theory
Examines economic factors (natural resources, foreign aid, income inequality) affecting democracy.
Looks deeper into the causal relationship between income and democracy.
Relationship Between Income and Democracy
Economic development is often operationalized as GDP per capita.
Strong positive correlation between national income and the likelihood of democracy.
Clearly, there is a strong relationship between income and democracy — but does this mean modernization theory is right?
Data also show that economic development may primarily help democratic survival, not necessarily democratic emergence.
Modernization Theory vs. Przeworski
Modernization theory: as countries become richer, they are more likely to become and remain democratic.
Przeworski: democracy is more likely to survive in rich countries but not necessarily emerge from dictatorship.
Wealthy people in democracies see autocracy as a big gamble.
Poor people have less to lose under dictatorship.
Income as a Comparative Measure
GDP per capita: total economic output divided by the population size.
Purchasing Power Parity (PPP) allows valid international comparisons of income levels.
The Big Mac Index illustrates how prices differ between countries.
Empirical Evidence:
No democracy with income above $15,869 (2017 PPP US$) has ever collapsed. In effect, countries with sufficiently high income seem to be immune from democratic collapse.
About 61% of the world’s democracies in 2019 had income levels above this threshold.
Conversely, no dictatorship with income above $28,233 (2017 PPP US$) has transitioned to democracy.
Empirical Analysis of Income and Democracy Transition
Przeworski’s assertion: increased income mainly helps sustain democracy, not create it.
Figure 6.2: lowest income quintile shows 8.96% democracy; countries above $43,247 have much higher rates.
Democratic collapse is rare in wealthy states, but authoritarian regimes can persist at high income levels (e.g., Bahrain, Oman, UAE, Saudi Arabia).
Modernization Theory and Structural Change
Structure of the Economy
Modernization involves transformation in economic sectors: from agriculture to manufacturing and services.
These structural changes occurred in early modern Europe — peasants moved to urban areas, and the gentry became involved in commerce.
This shift moved economic power from agricultural elites (with visible, taxable assets) to merchants and financiers (with mobile, hidden assets).
States could only tax visible assets, so rulers had to bargain with mobile-asset elites for revenue.
The English Crown, needing money, negotiated with Parliament, leading to parliamentary supremacy and checks on royal power (North & Weingast 1989).
This resolved a credible commitment problem: rulers needed to credibly promise not to predate on elites’ wealth.
Parliament emerged as the institutional solution by empowering taxpayers to constrain the monarchy.
Exit, Voice, and Loyalty Game
The Crown confiscates elite assets → elites can:
Exit (disinvest),
Voice (petition for protections in exchange for taxes), or
Loyalty (keep investing).
Representative government emerges when rulers depend on elites with mobile assets — often the middle class — to provide revenue.
Democracy and the Middle Classes
Representative government and constrained states are more likely when rulers depend on mobile-asset holders (the middle class).
A constrained state isn’t necessarily democratic, but checks on elite power create conditions for democratic growth.
Economic Development and Democracy
Development increases the number of citizens with credible exit threats (education, capital mobility, private employment).
Dependent governments become more responsive and constrained — democracy expands over time.
The Conditionality of Modernization Theory
Two conditions must hold for development to promote democracy:
Ruler must depend on the people.
Economic development must increase exit option value enough that rulers seek consent.
Condition 1: Are Rulers Dependent?
The Resource Curse
Countries reliant on natural resource revenues (oil, diamonds, minerals) struggle to democratize. The text notes that countries that depend on revenue from natural resources, especially oil, don’t become stable democracies. They’re also more prone to corruption, poor governance, low-quality institutions, and civil war.
Resource wealth reduces tax dependence and citizen bargaining power.
Leaders use resource income to:
Lower taxes,
Fund patronage networks,
Repress opposition, and
Avoid accountability.
Dependence, not abundance, drives this “political resource curse.”
The resource curse affects the emergence of democracy, not its survival. One of the ways that resource revenue reduces the likelihood of democratization is by making governments autonomous from the demands of their citizens. Although resource revenue hurts the emergence of democracy, it doesn’t have to harm democratic stability.
Natural resources may change the preferences of rulers by increasing the value of remaining in office. This encourages rulers to invest more heavily in activities that enhance their survival in office than they otherwise might. Resources from things like oil and natural gas can be distributed as patronage to preempt or co-opt opposition groups; it can also be used to repress them.
One reason that natural resource revenue hasn't been a curse in countries like Canada, Norway, the United Kingdom, or the United States is that the discovery of natural resources in a democracy occurs after the emergence of institutions that are capable of holding the government accountable.
Foreign Aid and Democracy
Aid optimists: foreign aid promotes democratization.
Aid pessimists: aid entrenches autocracy by freeing rulers from citizen demands. foreign aid can have a negative impact on these efforts.
Aid increases regime autonomy by providing “slack resources.” By freeing governments from the need to raise taxes and providing them with access to 'slack resources' that can be strategically used to reward supporters and co-opt opposition groups, foreign aid increases the autonomy of recipient governments from the demands of their citizens
Democratization through aid occurs only if:
The country depends on aid.
Donors want to promote democracy.
Donors can credibly threaten to withdraw aid if reforms stall.
Reforms under aid pressure are often limited in scope.
Increased pressure to adopt democratic reforms from foreign aid donors is a potential explanation for the apparent decline in the importance of income for democratic emergence. The result is that we’ve been seeing more transitions to democracy at low levels of income than we’ve seen in the past, thereby reducing the positive association between increased income and democratic emergence that we’ve seen historically.
While natural resource revenue makes governments more autonomous in a general sense, this isn’t the case with foreign aid revenue. While foreign aid makes governments less dependent on their citizens, it makes them more dependent on their foreign aid donors.
Condition 2: Are Exit Options Sufficiently Valuable?
Development promotes democracy more when states are weak rather than strong.
In state-driven economies, citizens become more dependent on the state → fewer exit options → less democratization.
Private-sector-led development increases citizen autonomy, mobility, and leverage → higher democratic potential.
In high-capacity states, rulers maintain control and can monitor or suppress dissent.
In low-capacity states, development enhances citizen leverage, forcing rulers to bargain.
Two Alternative Ruling Strategies
Democratic strategy: consult citizens via assemblies for revenue and governance.
Dictatorial strategy: build strong bureaucracies and suppress dissent without consultation.
How Economic Inequality Influences Democratization
Common claim: inequality undermines democracy because elites fear expropriation by the poor.
However, evidence is weak.
Elites with credible exit threats (mobile assets) have less to fear and thus resist democratization less.
Land inequality (immobile wealth) hinders democracy, while income inequality (mobile assets) does not.
Equality’s Influence on Democratization
Economic inequality plays an antagonistic role, with correlations to democratization trends depending on elite asset mobility (Acemoglu & Robinson, 2000).
Conclusion and Perspective
Modernization theory provides a contingent narrative: economic development increases democratic likelihood only when rulers depend on citizens and citizens possess mobile assets.
Historical evidence supports this pattern — oil-rich autocracies remain authoritarian, while diversified economies democratize more readily.
International factors like foreign aid and resource dependence continue to shape the prospects for democracy’s emergence and survival.
Main Idea: Economic conditions affect whether democracy emerges and survives.
Key Points:
Modernization Theory:
Societies move from agriculture → industry → services.
Development brings education, urbanization, mobility → people gain power → democracy more likely.
Two Conditions for Economic Development to Promote Democracy:
Rulers depend on people for revenue/support.
People have exit options (can move, protest, invest elsewhere) → rulers negotiate.
Middle Class Matters:
Mobile assets = leverage → forces rulers to include citizens.
Exceptions:
Resource curse: Wealth from resources → rulers don’t need citizens → less democracy.
Foreign aid: Helps only if donors push for democracy and rulers care.
Inequality:
Only matters if elites have immobile wealth (land); mobile wealth doesn’t block democracy.
Takeaway: Economic development helps democracy if citizens have power and rulers need them, but growth alone isn’t enough.
Economics: Growth + citizen power = more democracy.