The Implications of China’s Economic Slowdown

News of a credit crunch and broader economic slowdown in China once again raises the question of how that country’s evolving economy might affect its political trajectory. The traditional view of modernization theory suggests that China is likely to transition to democracy as its people become wealthier, better educated, more urbanized, and the like.

A new CFR book that I co-edited, however, finds that economic crises—not economic progress—typically spur movements from authoritarianism to democracy.  Citizens, perhaps willing to accept limited political rights in times of growing prosperity, might rethink this view when a recession strikes. Such shocks can also deprive authorities of the resources they need to maintain patronage networks.

Several case studies in the book, Pathways to Freedom: Political and Economic Lessons from Democratic Transitions,  clearly illustrate this theory. Brazil, for example, suffered a toxic mix of inflation, debt, and falling reserves after the global oil shock of 1979. Popular faith in the military government’s economic stewardship fell and protests broke out. Military leaders began a liberalization process that led to the restoration of civilian government several years later.

In Mexico, the 1982 debt crisis began a decade of subpar growth and rising poverty. The 1994 peso crisis struck another blow.  All of this reduced support for the long-ruling Institutional Revolutionary Party, which then lost the presidency in the 2000 election.

In Indonesia, change came even more quickly. The Asian financial crisis in the late 1990s took the shine off of President Suharto’s economic policies.  Although his three decades of rule brought a significant increase in the standard of living, he could not survive the discontent that swept Indonesia when the crisis hit.

As my co-editor, Isobel Coleman, and I point out in Pathways to Freedom, economic crisis can trigger democratization both immediately and over time, as several examples show. Either way, shocks are often a force for change.

Other scholars have also addressed this issue. In their classic book, Political Economy of Democratic Transitions, scholars Stephan Haggard and Robert Kaufman argue that economic downturns rupture the “authoritarian bargain” that exists between citizens and their non-democratic leaders, making it harder for rulers to maintain support. Jan Teorell, author of a chapter in Pathways to Freedom, agrees in his own book, Determinants of Democratization.

Of course, if economic crises can destabilize autocracies, some argue they can destabilize democracies as well. However, as Teorell writes in Pathways to Freedom , democracies seem less susceptible than autocracies to the destabilizing impact of crises.

It is clear that in many developing countries, economic crises have invalidated the authoritarian bargain and spurred democratic change. The same could happen if growth falters more seriously in China. Furthermore, grinding economic hardship in the European Union, for example, could even threaten some established democracies as well, as Ireland’s president recently warned.