Thomas Friedman, of the New York Times, writes in his book The Lexus
and the Olive Tree of what he calls the Golden Straitjacket. This is the
broad set of social and economic policies that are required to participate
in the global economy: balanced budgets (at least when measured over several
years time), moderate tariffs, moderate taxes, corporate transparency,
capital requirements for banks, ongoing state privatization, recognition
of intellectual property, and open
media. Countries that adopt these policies satisfy international investors'
requirements for risk, thus attracting greater international investment
which leads to greater domestic productivity, higher wages, and faster
economic growth which itself spurs greater investment in a virtuous circle.
This has its downsides. As Friedman points out:
Two things tend to happen: your economy grows and your politics
shrinks...The Golden Straitjacket narrows the political and economic choices
of those in power to relatively tight parameters. That is why it is
increasingly difficult these days to find any real differences between ruling
and opposition parties in those countries that have put on the Golden Straitjacket.
Once your country puts on the Golden Straitjacket, its political choices get
reduced to Pepsi or Coke--to slight nuances of policy, slight alterations in design
to account for local traditions, some loosening here or there, but never any major
deviation from the core golden rules.1
Recognition of the role of golden straitjacket policies is one of the few
points on which both the pro and anti-globalization agree, although they
differ wildly in their assessment of those policies' effect. The pro-globalization
movement views the adoption of these policies as morally responsible because
the increase in income tends to improve the standard of life for citizens
as does the concomitant human rights and open government laws necessary in a liberal
democracy. Others aren't so sure: environmentalists worry that the policies don't
leave room for local conservation and protective action, nationalist groups see it
as a surrender of sovereignty to global capital markets, trade unions resist
the competitive effects of lowered tariffs and other reduced barriers to trade.
There are notable exceptions to the hypothesis, either liberal
countries that remain poor or closed or repressive economies that have grown
wealthy, include Argentina, Singapore, and South Africa. The difference between Friedman's theory and actual performance in each, though, appear to be specific to their individual cases and not a general refutation of the Golden Straitjacket hypothesis.
Argentina, after growing strongly throughout the 1990s, is mired in a persistent economic crisis that has reduced GDP by more than 10% over the past several years. This in spite of making policy decisions that made it the darling of the international finance community throughout the 1990s. The biggest of these decisions was a controversial move to tie the Argentinian currency to the America dollar at a 1 to 1 exchange rate. This effectively removed inflation risk from the Argentinian economy, spurring foreign investment and economic growth. When other economies in the region, particularly that of Brazil, began to experience financial problems and falling currencies Argentina discovered that it's currency peg had a darker side. Argentinian firms discovered that they were no longer competitive with other firms in the region because of the expensive dollar; this made investment plunge, which initiated the vicious circle of economic collapse that pops up over and over when looking at financial issues.
South Africa is another example of a liberalizing democracy that has experienced significant economic problems. Unlike Argentina, South Africa's problems are entirely domestic, stemming from the horrific legacy of apartheid in the past and the crushing weight of AIDS in the present.
Finally, Singapore provides one of very, very few examples of an authortarian society that is economically competitive. Once again, though, this doesn't appear to be a condition that could generalize to the broader world, at least not without substantial changes to the overall global order. Singapore is unique in its small size and extremely high level of education. Perhaps other nations of similar size and educational achievement could also make a greater level of authoritarianism work, but this is certainly the exception that proves the broader rule that open societies are more successful than closed.
1- As quoted in The Economist, September 27, 2001