There are a lot of ramifications to what is going on in Egypt but one you won’t find talked about is higher productivity. Yes, this sort of pro-democracy movement is a foundational movement for a more productive economy.
Short term there may be chaos. Short-term productivity may decline. Even after our own democratic revolution, there was a fair amount of chaos in the years right after the revolution. The Articles of Confederation were a mess. Finally, we created a national constitution which helped provide a sound basis for our national democracy.
That democratic foundation was the basis for many productivity-enhancing changes in the way our government and economy operated.
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In particular, democracy is the foundation for free markets, which is a key component of long-term productivity increases. In the long run, a democratic country will perform far stronger than one run by a group of corrupt dictators.
When Nobel Prize winning economist Milton Friedman spoke of capitalism and freedom being intertwined, he was right.
It may not always appear that way at first. Some dictatorships certainly are more productive than some democracies. But even those more-productive dictatorships will be even more productive if they eventually move toward democracy. Obvious examples would be Germany and Japan.
Greater democracy is a necessary part of any industrializing nation. And, democracy isn't black and white. It is more of a continuum. A country might evolve from no elections to single-party elections, to very corrupt and regulated elections to less-corrupt elections to semi-honest elections with multiple parties and so on. All of these changes can be steps forward to greater democracy and greater productivity even if they aren't what we would consider a true democracy.
People are concerned that U.S. interests won’t be served by a governmental change in Egypt. That may be true in the short term, we’ll have to see. However, long term, increasing democracy is usually a plus for U.S. interests. The greater threats to U.S. interests in the past have usually been caused by dictators, not democracies.
The bottom line is that what is going on in Egypt today is what real productivity change looks like. It doesn’t necessarily look like our normal definition of productivity improvements. But a country getting a more democratic foundation is an important foundation for higher productivity.
No, the benefits may not be seen for some years after the change, very much like the U.S. in 1776, but like the U.S., the benefits from greater democracy for higher productivity are a gift that that keeps on giving year after year.
About the Author: Robert Wiedemer
Robert Wiedemer is president of the Foresight Group, a macroeconomic forecasting firm that customizes its forecasts for specific businesses and investment funds. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media. Click Here
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