Democracy or not for economic development

The first precursor to economic development is resources. South Sudan has oil reserves as its primary resource. The country's oil wealth is sufficient to provide a much higher standard of living than what presently exists in the country. GDP per capita is on par mostly with nations that do not have this oil wealth. This means that there is at least the potential for economic development in South Sudan. That said, Yemen has the same oil reserves, and it is also unable to capitalize on them. This begs the question -- with the baseline resources to generate wealth, what is required to actually deliver it? South Sudan is also a rich agricultural area, fertile for many uses (CIA World Factbook, 2016).

There are a few factors. The first is political stability. For the most part, economic development in an undeveloped country like South Sudan is dependent on foreign investment. Foreign investment, for its part, is dependent on the ability of foreign corporations or governments to earn a return on their investment. In the normal course of business, earning a return on oil is not difficult. But exploitation of petroleum resources requires long-term investment. For companies that want to make such an investment, it is necessary that there be enough stability that they feel comfortable that they will earn return for taking on the risk of investing in South Sudan. Political stability is one of the key prerequisites for foreign investment, along with economic stability, infrastructure, quality of labor force, reliability of legal system and openness to foreign direct investment (Asiedu, 2006).

South Sudan presently has none of the precursors to economic development. Infrastructure is poor -- only 200km roughly of paved roads exist and the country's electricity is mainly provided by diesel generators (CIA World Factbook, 2016). The country has been mired in civil war since independence, further complicating the political environment. One in six South Sudanese has fled their homes, and the fighting is related to ethnic conflict and land disputes (BBC, 2016). Essentially, the people are engaging in land conflict as the consequence of the country's power vacuum.. With no credible source of central power, there is always the risk of conflict, and in South Sudan that has been the situation.

The literature on government structure and economic development is interesting, because it does not really apply to an active conflict zone. Economic development simply does not take place during active conflict. Foreign firms are unwilling to invest, even when there are oil reserves to be exploited, because they cannot guarantee the security of their operations, nor the supply chain to sustain such operations. While South Sudan is fertile and can be a solid agricultural economy, economic development sufficient to life a landlocked nation out of poverty can only really come from the development of the country's oil resources.

There are no real lessons to be learned from the disbursement of oil revenues. Democracies like Canada and Norway do just fine, but so do absolute monarchies like Qatar and the different United Arab Emirates. It is questionable as to whether there are lessons to be learned with respect to the distribution of revenues from oil development. If there are, they come from other multi-ethnic African countries like Nigeria. More likely, the lessons learned will reflect the means by which economic growth is generated. If South Sudan has oil, how best might that resource be exploited.

Democracy is an interesting idea where resource exploitation is concerned. South Sudan is faced with a number of challenges. First, having never had the institutions of democracy, it would be challenged to set up a democracy strong enough to function as one in any meaningful way. A paper democracy is easy, a functional one is harder. South Sudan's land mass is populated by many ethnic groups, most of whom depend on the land for their livelihood. As a result, there are tremendous stakes where land use is concerned. With no group holding majority, a functioning democracy would rely on the South Sudanese to form coalitions among themselves in order to govern effectively. Such coalitions would be at risk of dissolution, given the differences between tribes, the stakes involved in land disputes (of which there are many) and the sheer number of tribes that would have to come together to form a majority.

No one tribe could hold power in South Sudan, and so compromises and deal-making are necessary for the sustainability of any democracy in the country. But under a democratic system, South Sudan could easily run into a Nigeria problem, where the groups that live on oil-rich lands are poised to benefit substantially while other groups have no real means by which to take a share in that wealth. In Nigeria, the groups who live on oil rich lands are not the ones controlling the government, and this has led to significant conflict because the government wishes to disburse the oil revenues as it sees fit while these groups see this wealth come from their land, and receive little benefit because they are a relatively small part of the population..

Indeed, studies have shown that oil wealth is inversely related to democratization. The basic premise here is that when government with weak democratic institutions realizes that it controls tremendous wealth, it has no particular motivation to improve democratic institutions, as to do so would reduce its power with respect to distribution of that wealth (Anyanwu & Ehrijakpor, 2013). Many have speculated that oil wealth in particular reduces the ability of governments to operate successful democracies, because of the strongly uneven distribution of natural resources within the country that occurs (Ko, 2014).

So the relationship between democracy and oil wealth is generally poor. The exceptions tend to be nations that had already established strong democracies prior to the development of their oil resources -- Norway, Canada, the UK among them. For nations whose oil wealth was evident prior to independence, democracy has seldom taken hold, and when it has, only in flawed form.

There is an argument to be made in favor of autocracy over democracy where economic development is concerned. While it is nothing more than circumstantial evidence that most oil-rich countries are not democracies, there are nevertheless some interesting lessons to be learned from those countries. The first lesson is that stability matters. Whether in the Gulf States or Brunei, there is a clear lesson that political stability is more important than anything to do with political structure. Venezuela isn't much more democratic than anywhere else with oil but it has struggled to achieve the same level of investment in its resources -- a lot of its oil is refined in Aruba because the political environment in Venezuela simply is not stable. Oil in particular requires a long-term investment, and that investment only pays off when the company trusts in the political stability. South Sudan is a five-year-old nation that has spent the past three of those years wracked with civil war. If it cannot end this conflict, the form of government is irrelevant.

Among countries with political stability, economic development can be studied. Many nations have benefitted from a lack of democracy, at such times as the government placed its focus on economic development. The Gulf States and many east Asian nations in particular have evolved strong economies, even diversified ones, without the benefit of democracy. This has happened when the central government did two things. The first was focus on economic development, by adopting some form of policies that would promote economic growth. Those have been different in different countries. But there has to be something. Typically this means exploiting an asset, and taking that money and investing it in education, transportation and communication infrastructure and adopting policies that encourage foreign direct investment. But where there are examples of wealth entirely disproportionate to population -- Qatar is a good one -- those are not necessarily corollary with the South Sudan situation. A more likely corollary could be Angola, which has oil wealth offshore, but is otherwise a typical African country made up of dozens of tribal factions, a colonial legacy and fairly poor non-oil infrastructure.

The thing that is worth remembering in the South Sudan situation is that democracy and economic development has only really ever taken two forms. The first is the large, diversified economy. So the United States, UK, Germany, Canada, France, etc. The second is the niche economy -- small offshore banking places like the Isle of Man or Luxembourg. Democracy seems to work well in either of those situations. In other situations, it might exist on a limited scale. Many Asian countries -- Singapore, South Korea, Taiwan, have imperfect democracies, but democracies nonetheless. Hong Kong used to. There are few wealthy democratic countries that are relatively large and dependent on a single industry. So South Sudan has no democracy it can look to.

But there are countries with a single industry that have done well when a government single-mindedly focuses on the development of that industry. This is what South Sudan needs. The problem is that it may not work in a democratic environment. The interests of the different ethnic groups are generally aligned in the sense that they all want to do better economically, but there is no meaningful consensus with respect to how that might occur. There is no system in place by which the proceeds of economic development would be portioned out evenly. This is an issue in Nigeria and will be an issue in South Sudan. In South Korea, everybody is Korean. In Singapore, three-quarters are Chinese. In the Gulf States, everybody with political power is Arab. There are no benchmarks for South Sudan to have both ethnic differences about resource allocation and economic growth. The corollary nations at best have high wealthy disparity, and at worst have never really enjoyed economic development at all. Some end up stuck in the proverbial "middle class trap" (Schuman, 2010), where they have a comfortable level of development but cannot find a way to diversify into an innovation economy -- they live well but lag in terms of growth and realized potential.

There are certainly questions with respect to whether democracy hinders or aids in economic development. The underlying argument in favor of democracy is that the people will vote in their economic interests. We all like to think that is the case, though to do so requires an educated electorate, and honesty economics is not taught well in many countries. People might vote for what they think will be an economically beneficial regime, but that is not the same thing as voting for an actually beneficial economic regime.

It is more accepted that economic growth causes democracy. That as nations become wealthier, they demand a higher standard of rights, and are better able to provide an education for their children. Over time, this results in an educated populace that is aware of concepts like human rights and freedoms, and insists upon them. As this becomes the pain point for the autocratic ruler, they either devolve some powers to the people, or they devolve largesse, as has occurred in the Gulf States.