Democracy Pays Dividends

03/02/2011 12:27 pm EST

Focus: MARKETS

The popular revolutions sweeping the Arab world deserve our full support, and should eventually result in greater prosperity for all, writes Chloe Lutts, editor of Dick Davis Investment Digest.

Tunisian leader Zine al-Abadine Ben Ali was in power for 23 years before widespread protests forced him to retire on Jan. 14.

Hosni Mubarak was president of Egypt for almost 30 years before resigning on Feb. 11.

And Muammar al-Gaddafi has been in control of Libya for a staggering 42 years, after taking power in a coup.

Now, two of them are out of power and the third is on the ropes. And people with similarly oppressive leaders are standing up to them across the Arab world.

The contagious nature of revolutions stems from a sense of shared humanity. When people anywhere stand up and demand freedom and self-determination, it causes the oppressed everywhere to say, “Hey, we’re human too! We deserve the same rights as them!”

Freedom Is Contagious
As communication speeds have increased to today’s near-instantaneous pace, the speed with which democracy movements follow each other has also increased.

The French Revolution began six years after the American Revolutionary War ended; the Haitian Revolution began another two years after that. Today’s Arab protests have already toppled two despots in as many months.

Ideally, the revolutions would be followed by the orderly institution of democratic, transparent, accountable governments. However, that probably won’t happen right away, at least not everywhere.

It took Americans six years to elect a president after the end of the Revolutionary War. Romania erupted into violent protests after the successful 1989 revolution against Nicolae Ceauşescu; however, it is now considered free and democratic and is a member of the European Union. Indonesia’s 1998 ouster of dictator Suharto was likewise followed by a tumultuous period, but the country eventually held its first direct presidential election in 2004 and is now a free republic.

I hope the world continues to support the cause of self-determination and freedom in the Arab world even after the excitement of these first few weeks has passed. That may mean embracing global political instability and insecurity for some time—but some things are more important than political stability.

And eventually, demanding democracy pays off. [Thus, the Middle East is far from a lost cause, argues Jim Jubak.—Editor]

Next: Bull Market in Democracy

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Bull Market in Democracy
In fact, democracy’s progress over time has paralleled the rise of the stock markets—though halting at times, it always moves upward over the long term.

Almost 60% of the world’s people now live in democracies, with 38% of all people living in “liberal” democracies that are also considered free and respectful of human rights and the rule of law.

The graph below shows the number of countries that rank an “8” or higher on the Polity IV scale, which measures the democratic character of regimes (with a -10 being completely autocratic and a 10 being completely democratic):

chart
Click to Enlarge

As you can see, democracy has been sweeping the world for decades, and picking up speed over time. It’s a very positive graph.

It also looks interestingly similar to a chart of the Dow since 1900:

chart
Click to Enlarge

While the time scales don’t line up well enough to draw any conclusions (and correlation is not causation anyway), I don’t think it’s far-fetched to say that the spread of democracy benefits the entire world in many ways.

The second message I hope Americans take from the Arab protests is one of gratitude. We should all be thankful every day that we live in a country where we elect our representatives and they must respect term limits; where we have a free press and freedom of speech; where we can live and work where we like; where equal protection is both law and reality; and where the police and army work to protect us.

Sure, America isn’t perfect—we often feel like we’re voting for the lesser of two evils; the government keeps more secrets than it should; unemployment is higher than it should be; women still earn less than men; and there are some corrupt people in law enforcement. However, we’re still far and away some of the luckiest people alive.

Can you even imagine having the same president for 42 years?

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