Among them, there are examples of both market-oriented authoritarianism (for example, in the regions of East and South East Asia and the Gulf) and anti-market and populist dictatorships (for example, in Latin America, Africa and Middle East). Nevertheless, there are still many non-democratic regimes, as demonstrated by the FHFIW and BIT surveys.

This changed gradually during the 20th century, with most of the high-income countries having both democracy and a market economy. In the early stages of capitalism (18th, 19th and early 20th century), a free-market economy (with a very limited government role) was accompanied by political regimes that, by today’s standards, were either non-democratic or only partly democratic. Before we try to answer this question, we will look into historical interrelation between democracy and market economy. The key question for economists is whether the observed authoritarian trends lead or will lead to more government interference/dirigisme in business activity, less economic freedom and transparency and, as a result, more distortions and macroeconomic imbalances. For example, scores for the US deteriorated in both HFFIW and BTI surveys.ĭemocracy and market economy – are they interrelated? This negative trend affected not only emerging-market and developing countries with a short historical record of political freedom and democracy, but also some developed countries considered as stable democracies that suffered from the wave of political populism. The list of countries that recorded substantial deterioration in political rights and civil liberties since 2007 includes, among others, Azerbaijan, Bahrain, Burundi, Central African Republic, Congo (Brazzaville), Dominican Republic, Ethiopia, Gabon, Honduras, Hungary, Mali, Mauritania, Mexico, Nicaragua, Russia, Tajikistan, Turkey, Venezuela, and Yemen (Abramowitz, 2018). Correspondingly, between 20 the population in countries ranked as democracies by the BTI increased from 4.0 billion to 4.2 billion, while in countries ranked as autocracies the number climbed from 2.3 billion to 3.3 billion (Bertelsmann, 2018). Figure 1 shows that between 20 the percentage of countries rated by the Freedom House as “Free” and “Partly Free” decreased, while the percentage of “Non Free” countries increased.

Development and freedom