It is my view that the most important determinant of a country's success is how libertarian that society is. When I say libertarian, I mean voluntary exchange. Those countries that allow the most voluntary exchange flourish the most. It is not democracy that is the main factor. A democracy that restricts voluntary exchange will fail and a dictatorship that allows voluntary exchange will succeed.
Democracies have a tendency to become less libertarian over time. First, politicians want to buy votes. They do this by giving free money to as many people as possible: students, the homeless, single mothers, the poor, the elderly. All of these special interest groups will only continue to vote for those politicians that promise to continue or increase the free money. Much of this money is taken from the producers in society. As the producers are taxed more, they produce less, leave to freer lands, or work in the black market and society as a whole becomes poorer. As the poor are subsidized, they become more numerous. Thus, the bankruptcy of the government is set in motion.
Second, politicians believe they are above economic laws. They believe in economic theories that stress the importance of demand rather than production. They think that having the government spend money helps the economy. They don't realize that government spending makes society poorer, not richer. They believe in the broken window fallacy - that breaking windows can help stimulate the economy. Having intellectual backing of government waste combined with political support, it amazes me that Western democracies have survived as long as they have. As government policies make societies poorer, the increase the number of people who will vote for more of those very same policies. Also, as the economy gets worse intellectuals will call for more government spending to help the economy, damaging the economy even more.
Greece provides an example of what happens when socialism takes it course. Eventually the government cannot fund itself - through taxes or through debt. The interest on the debt just becomes too high. The country's only options are too default on its debt or print money. Being part of the common currency prevents Greece from printing, and this is why there is so much talk about Greece leaving the euro zone. Printing money would destroy what is left of the Greek economy and their best option would be to default, similar to Iceland and Argentina in the first decade of the 2000s.
Countries that are not currently democracies - China, Saudi Arabia - will use the failure of the West to warn against democracy. I believe the democracies have been successful in the recent century only because they were libertarian. Now that libertarianism is becoming less prevalent, we see decline in the West.
This is not to say that dictatorships are superior to democracies. Dictatorships are just as likely as democracies to use government violence to steal wealth from producers in order to buy support among the population. But for those few dictatorships that do permit more voluntary exchange, they will have greater economic success. In my view all interaction between societies should be voluntary and coercive relations should be banished completely.
Your article is very enlightening. for now it just seems impossible to prevent democracy from running toward de facto socialism. But the US is one of the few democracies that still have about half of the people that do not like government handouts. Ben Franklin once said, When the people find that they can vote themselves money, that will herald the end of the republic. Hope that day will not come too soon!
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