Ahmedabad University

Foundation Programme

Module 4 Democracy and Justice

Position Paper

(Group Assignment)

Should businesses fight for democracy? Is too much democracy bad for
business?

Mentor - Prof. Darshana Padia

Group Members :

Ayushi Rajpura - AU2120021

Dhairya Shah - AU2140133

Sachin Dindor - AU2140091

Shaili Gandhi - AU2140089

Srushti Dave - AU2110255

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Introduction :

Democracy is related to economic growth, and it is based on businesses. Democracy is

associated with economic growth because many people believe that the economy would grow

faster if they had more rights. The opposite is true: people will lose their rights if the economy

does not succeed. Democracy is also related to business because businesses need people to vote

for them. However, this is not always the case. For example, the Soviet Union had the highest

economic growth rate in the 20th century, but it was not a democracy.

When compared to autocracy, the good impacts of democracy on economic growth, such

as transfer of authority and management of social disputes, much exceed the adverse and

restrictive effects. One of the primary reasons for this is that society, i.e., voters, may embrace

difficult trade-offs and reforms when there are no perceived alternatives. This is especially true

in nations with a higher standard of education. As a result, it ties a country's development level

as one of the crucial aspects in undergoing beneficial democratic changes and reforms. As a

result, nations that begin democratisation at a higher level of education are more likely to

maintain their progress under democracy.

Economic growth has the potential to impact democracy in a variety of ways. One of the

most effective methods is the expansion of political interest groups. While a rise in GDP is the

primary method of assessment, there is much more, such as the formation or significant change

of productive linkages, the relocation of businesses and people to cities, and the impact on

human capital and technology. This indicates that when an economic structure changes, and

since it is tied to capital intensity, money becomes more essential than land, which is one of the

reasons that states with higher per capita income do better overall.

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 Democracy is more than simply voting; it is about establishing institutions that allow us

to communicate, interact, and develop together freely. Business and entrepreneurship have been

the most essential, productive, and effective metaphors for free cooperation. The values of

communities are enshrined in democratic institutions. Business is deeply ingrained in society. It

is time for business leaders to care about democracy and democratic freedom as they do for their

own companies. It is necessary for a healthy community.

Businesses must recognise that they are competing to remain the leading metaphor for

productive human activity. Corporate accountability alone will not persuade an increasingly

apathetic generation when asked, for example, whether the government should control the means

of production. Suppose a government policy proposal undermines fundamental democratic

freedoms of conscience or speech. If a regulation makes it more difficult for businesses to

operate in minority communities, or if legislation restricts privacy or free expression, companies

should organise in opposition and propose alternatives.

Data from the World Bank and Freedom House reveal a substantial relationship between

democratic institutions and respect for human rights on the one hand and improved economic

conditions on the other. There are also important democracies that have failed to promote

bureaucratic efficiency and stable economic environments. For over two decades, Freedom

House has classed India as free, yet the World Bank ranks it at the bottom on factors such as the

time necessary to establish a business, taxes, and contract enforcement. Some African countries

that are known for defending political rights and civil freedoms, such as Benin and Senegal, also

have terrible business conditions.

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 It is concluded from the regression model that economic freedom is positively correlated

with economic growth and that despotic regimes, for example, perform poorly. We don't think

it's a complete analysis. Instead, all forms of democratic freedom are required for capitalism and

long-term economic growth to thrive. In various ways, democratic institutions ensure the

foundation for development, for example, conserving human rights like privacy, religion,

participation in the labour force, etc. In my opinion, democracy is more than just voting. It's

about establishing institutions that allow us to freely communicate and collaborate, allowing us

to flourish as a community.

Business and entrepreneurship have been the most important, productive, and effective

metaphors for that free collaboration. Businesses must take action to protect democratic

institutions and systems that ensure democratic freedom. They should become involved in

politics in other ways than lobbying. While democracy is far from the only factor contributing to

strong economic performance, it provides the long-term political stability and corrective

mechanisms required for safe investment and stable growth.

Rather than being community-minded "law-abiding citizens", they are in a position to

essentially become community builders around policy issues, views, and ideas. As CEOs and

business owners, we must demand that our elected officials act to protect economic

competitiveness and provide safeguards for expanding our capital markets. We must ensure that

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our democratic elections are as competitive and fair as possible so that voters can trust legislators

to work toward the dual goals of protection and growth.

Rajiv Kumar, the Vice-Chairperson of the National Institution for Transforming India

(NITI), recently lamented that too much democracy was hindering economic reforms and

growth. He even said that there is too much democracy globally, which is very bad for business.

The apparent cause of his outburst was the ongoing protests by farmers and trade unions against

the Central Government's various farm and labour laws. Many great economic leaders like

Gurcharan Das supported his statement. He felt that more power and authority for the

bureaucrats and the powers that be was now required in India to ensure that pro-business

legislation was passed without opposition from pesky agitators and civil rights activists. Kumar

was never in favour of democracy from the let go; he argued that from the time of independence

itself, India required Authoritarian Capitalism in the Chinese style, in which businesses are not

constrained by the need to be accountable to society.

There are various issues like the growth of rising corporate censorships in the entire

media, the sudden financial growth of large corporations, and the politicians favouring anti-

business ideologies that have led to the rise in issues over several years.

Political leaders are prone to shortsightedness in implementing developmental schemes in

democracies. They are in office for a relevantly short period. They are always concerned for the

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next election and hence are distracted from implementing more long-term schemes. Therefore,

not surprisingly, they are forced to convince the people by implementing more short-term

policies – such as policies that quickly produce favourable GDP numbers.

Even if it’s a mistake on behalf of political leaders due to the nature of elections, voters

also contribute to further worsening the same problem. They are interested in policies and

schemes for their benefit instead of which are beneficial in the long-term for future generations.

Short-term electoral cycles are one of the root causes of the poor performance of

democracy. As political leaders are driven by rational desires to win an election, they fail to

address and fix deep-rooted, long-term economic challenges which are detrimental to a nation to

become economically prosperous. Generally, they are less politically rewarding for the

administration implementing such policies.

As democracy is about listening to the opinion of each individual, the political leaders

may encounter a dilemma on whether to implement the policy or not. On top of that, there are

many checks in the system that have to be thoroughly scrutinised before the policy is valid.

Hence the process can be time-consuming. Whereas in an autocratic regime, no such problem

will arise if the leader understands the country's situation.

According to a study (Ruiz Pozuelo et al., Democracy does not cause growth: The

importance of endogeneity arguments 2016). A country's transition to a democracy can be a

result of some economic turmoil, which in the study is referred to as “endogenous” reasons. In

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contrast, a transition could also take place due to exogenous reasons such as the death of an

autocratic leader.

Figure 1

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 Figure 2

Figure 1 shows GDP changes around democratic transition due to exogenous reasons.

Figure 2 shows GDP changes around democratic transition due to endogenous factors.

Figure 2 proves that democracy has no cause or effect on economic growth. In figure 1, it

is depicted by the red line that there’s no significant change in GDP after transitioning into a

democracy.

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 On the contrary, Figure 2 shows economic growth after transitioning into a democracy

due to endogenous reasons that accounted for a small significant change. In contrast, with

transitions due to exogenous reasons(Figure 1), the difference in GDP is statistically the same.

Hence, democracy isn’t the sole factor correlated with better economic development.

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The new economic policy brought the nation a lot of options and liberty to trade across different

countries to increase business relations and expand trade with the help of the democratic

government’s policy. This policy has proven a boon to our nation as the GDP rose from 1.1% in

1990-91 to 7.5% in 2015–16. liberalisation is more of a democratic feature as the citizens have

the freedom to choose the leader and put them down on their choice. This gives the government

power to formulate policies that are best for the citizens to be at their seats to conserve their

power with their actions benefiting the ordinary people. Globalisation inferred the vast pool of

opportunities traders, and business people have to do business with different countries and

intellectuals. Privatisation has brought opportunities to industrialists to increase efficiency in the

company.

On the other hand, when we compare the three economies with different political systems

take different sides of the GDP, whereas China being a communist political system, has proved

its best ability to drive the economy from scratch through other policies. India used a new

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economic policy while China used different tactics, which led to cottage industries and more

governmental powers, which pressurised people to move into trade and thus increased exports

even before the new economic policy of India, thus regaining the whole economy with its first-

mover advantage in the market. Pakistan had different policies regarding trade and market

where the system or organisation wasn't enough and efficient to drive the economy with time and

observe other countries’ policies and techniques for business and the global market.

When we compare different countries according to GDP from 1980 to 1990, China's GDP

reached over double-digit of 10.30 per cent while India didn't introduce a new economic policy.

Still, it was 5.70%, but Pakistan was still leading India with 6.30 per cent. Still, as the

reformative changes happened in India and China with the help of their political systems there,

India is a democratic nation while China has a communist political system. In 2015-17 India was

leading the position among the three Nations with 7.30%. China was behind India with 6.80%

and Pakistan at last with just 5.30%.

When it comes to the GDP and the two most emerging economies of the world, China and India

are at positions which conclude that China occupies around 26% of the total global wealth and

India occupies 21% of total global wealth. This all comes from reform with two increase the

exports through their nation and does rich to the level India also introduced privatisation

liberalisation and globalisation to increase and reform the trade market within the nation and still

today India is preparing for entrepreneur wave and also introduced skill India as well as made in

India project to increase the dependent on itself.

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In conclusion, we can say that the political systems of the individual countries help a lot, as we

saw in the case of China, where the pressurisation of the individuals was proved as a boon to the

nation. At the same time, democracy imposed and improved the reforms with a new economic

policy in 1991. Still, the motivation and pressurisation of the citizens wasn't enough and didn't

drive people as much as it was potent to do so. The failure of reforms and lack of efficiency can

be seen in Pakistan's case, where the issues of terrorism and instability of political systems.

References:

● Ruiz Pozuelo, J., Slipowitz, A., & Vuletin, G. (2016). Democracy does not cause growth:

The importance of endogeneity arguments. https://doi.org/10.18235/0000497

● Repucci, S. (2015, August 3). Democracy Is Good for Business. Freedom House.

Retrieved May 5, 2022, from https://freedomhouse.org/article/democracy-good-business

● Knutsen, C. H. (2021, June 30). Playing the long game: why democracy is good

for business. The Loop: ECPR's political science blog. Retrieved May 5, 2022,

from https://theloop.ecpr.eu/playing-the-long-game-why-democracy-is-good-for-

business/

● Is Too Much Democracy Bad for Business? Does Democracy Help or Hinder

Growth? (n.d.). Management Study Guide. Retrieved May 5, 2022, from

https://www.managementstudyguide.com/is-too-much-democracy-bad-for-

business.htm

● Freeman, E., & Burton, J. (2019, August 19). Should Businesses Fight for

Democracy? MIT Sloan Management Review. Retrieved May 5, 2022, from

https://sloanreview.mit.edu/article/business-in-society/

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● Knutsen, Carl Henrik, The Business Case for Democracy (October 2020). V-Dem

Working Paper 111, Available at SSRN http://dx.doi.org/10.2139/ssrn.3710437.

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