Hierarchy, Liberty, and Innovation: Democracy's Unique Advantage in Promoting Growth Restated
Forthcoming from Kyklos, Vol. 71, No. 4, Nov. 2018
55 Pages Posted: 26 May 2018
Date Written: May 15, 2018
Bringing together classic defense of liberty and democracy, the political economy of hierarchy, endogenous growth theory, and the new institutional economics on growth, we propose a new institutional theory that identifies democracy’s unique advantage in prompting economic growth. We contend that the channel of liberty-to-innovation is the most critical channel in which democracy holds a unique advantage over autocracy in promoting growth, especially during the stage of growth via innovation. Because all human societies are hierarchical and hierarchy facilitates growth by bringing stability and order yet harms innovation and growth by demanding obedience to authority, an economy must strike a balance between maintaining stability and facilitating innovation. Democracy achieves this balance by protecting liberty whereas autocracy sacrifices innovation for stability. Democracy thus does hold a unique advantage in promoting growth over autocracy, but this advantage is indirect, channel-specific, and conditional. Evidences from three historical cases demonstrate that although key scientific breakthroughs can indeed pop up under autocracies, democracy is a necessary, though insufficient, condition for protecting major scientific breakthroughs that may challenge orthodoxies.
Keywords: Democracy; Hierarchy, Liberty; Innovation; Growth; Institutional Theory
JEL Classification: O10, O11, O43, B15
Suggested Citation: Suggested Citation