You only vote once every two years.  You serve on a jury less than that.  On the other hand, you go to work and the market every day.  For most people, who they work for and what they do is more important than who wins an election.  In a nutshell, this is why capitalism comes before democracy. 

Elections aren’t enough for democracy

For years we’ve thought the best way to spread democracy is to encourage countries to have elections as soon as possible.  Unfortunately, that doesn’t work.  Scholars have developed terms like “ineffective democracy” to describe the many countries that have elections but are otherwise not terribly democratic.  There is a pattern to it.  Among other problems, these countries have weakness in the rule of law, exemplified by rampant corruption, coercion on the part of the military, police and government overall, and manipulation of “laws” to prevent true political discourse and competition. India, Nigeria, Brazil, and Russia are good examples of such “democracies.” 

Poor countries have weak democracies

There is another critical aspect to the pattern of “ineffective democracies.”  They are all poor countries.  Developed countries don’t have the same problems and one reason is because the rule of law is much stronger in developed countries.  But it goes beyond the rule of law.  Less developed countries do not have the appropriate cultural foundation to support effective democracy.  The rule of law is one aspect of this cultural mismatch, but not the only one.  If you understand the cultural pattern of less developed countries then it isn’t too difficult to surmise why capitalism actually paves the way for democracy.  Below are some examples of how capitalism drives cultural change in a way that leads to democracy:

The free market cultivates the empowerment of people

We think people naturally understand they can shape their own future and have a voice in society.  That’s not true.  In traditional societies, before modernization, nothing changes. Every generation is the same.  Society is rigidly hierarchical—those on top stay on top, those on the bottom stay on the bottom.  People have little power over their own lives.  Capitalism changes that by introducing opportunity.  Peasants become engineers, managers, teachers, entrepreneurs and millionaires.  Hierarchy gives way to social mobility.  Plus, the market gives people the power to choose—what to buy, where to work, etc.  People grow accustomed to directing their own future and having a voice.  Eventually the desire to have a voice spreads from economic life to the political realm. 

The free market instills accountability in society

In traditional societies, might makes right and leaders hold on to power by any means necessary.  In a free market economy, if you don’t satisfy customers, you won’t succeed.  If you can’t attract good employees, you won’t succeed.  Instead of being authoritarian, leaders become accountable and empowering.  It is the only path to success.  Eventually, egalitarian leadership becomes the norm not only in economic life, but in government as well. 

The free market rewards and encourages honesty and fairness

Without the free market, politics and connections are the only way to improve one’s standing in life, which isn’t fair to those without connections.  The market, on the other hand, rewards only value and honesty.  If you don’t satisfy customers or you rip them off, soon you won’t have any customers.  So honesty, fairness, and respect for the interests of others becomes popular.  Eventually, people who learn to appreciate the honesty and fairness of the market then want the same of their laws and courts.  The rule of law spreads to encompass all of society, including government. 


Still skeptical that capitalism comes before democracy?  Consider some more big-picture evidence as described below.


Prosperity decreases corruption; elections don’t

According to the Corruption Perception Index (CPI) which is produced annual by the NGO Transparency International, there is virtually no high income country that has relatively high corruption and no developing country that has low levels of corruption.  This pattern is remarkably consistent, with the correlation between prosperity and low corruption (eliminating oil rich but non-advanced countries) of about 80%.  It is also important to note that elections don’t seem to impact corruption.  Poor “democracies” are as corrupt as poor non-democracies, with perhaps the best evidence being India which has remained widely impoverished and corrupt despite almost 70 years of elections.

“Economics-first” countries outperform “elections-first” countries

As more evidence, over the last fifty years, those countries that have pursued economic liberalization first and democratization later, like Taiwan, South Korea, Hong Kong, and Singapore, have outperformed, both economically and politically, those that have begun with political reform, specifically, elections, like India, Nigeria, Russia, and Brazil.  In all cases, the countries that experienced sustained economic development end up with much lower levels of corruption. 

Research supports the “capitalism-first” model

Lastly there is the World Values Survey (WVS), a group of social scientists that has been conducting cultural surveys in 150 countries around the world for 40 years.  Key conclusions of WVS research is as follows.  First, there is a large cultural gap between developed and developing countries.  Secondly, as countries develop economically, their culture changes so that, eventually, the less developed countries become more culturally similar to the developed countries.  Lastly, this cultural change, which is driven by economic development, is necessary for true democracy to take root.  In other words, according to the WVS, economic development comes first, causes cultural change, which then opens the door to democracy. 

It’s the economy, stupid!

The key to understanding this is to understand the culture issues that relate to democracy—how democracy needs the right cultural foundation and that poor countries don’t have that foundation but can develop it.  If there are no cultural issues, then any country can just have elections and sail smoothly into democracy.  But it never works that way.  If you think about it, it makes sense that capitalism comes first becomes our economic fate is more central to our lives than our political fate.  Maybe not more important, but more present on a daily basis.  As candidate and eventual President Bill Clinton once famously said, “It’s the economy, stupid.”  That applies to not only campaigns, but to democratization itself.