Can political stability hurt economic growth?
The standard definition of political instability is the tendency for a government to collapse due to intense conflict or competition between different political parties. Furthermore, the occurrence of regime change increases the likelihood of subsequent changes. Political instability persists.
Economic development is closely related to political stability.
On the one hand, the uncertainty associated with an unstable political environment reduces investment and economic growth rates. On the other hand, poor economic performance can lead to the downfall of governments and political discontent. However, political stability can be achieved through coercion or through parties that do not have to run for re-election. In this context, political stability is a double-edged sword. While the peaceful environment that political stability can provide is desirable, it can easily become a breeding ground for impunity. This is the dilemma facing many countries with fragile political orders.
Political stability is by no means the norm in human history. Like all political systems, democracies are fragile. Regardless of the political system, when a country doesn’t have to worry about conflict and radical regime change, people can focus on working, saving, and investing. The recent empirical literature on corruption has identified a long list of variables that are significantly associated with corruption. One of the factors found to reduce corruption is a decades-long tradition of democracy and political stability. Yet many countries in the world today combine one of these two powerful engines of corruption with the opposite of the other: politically stable autocracies or newly formed but unstable democracies.
Some see political stability as a condition that not only prevents any kind of change but also depresses public morale. Innovation and ingenuity recede. Many people want to change all areas of life: politics, business, culture, in order to have a better future with better opportunities. Of course, change is always dangerous. There is still a need. Political stability can take the form of complacency and stagnation that do not allow competition. Competition rules don’t just apply to companies. Competition applies to everything: political institutions, education, business, innovation, even the arts. Political stability in this context means that there is no real competition among the ruling elites. The system of “political stability” imposed severe restrictions on individual liberty. Likewise, other freedoms such as freedom of the press, freedom of religion, internet access, and political dissent are abolished. This leads to abuse of power and corruption.
For example, Vietnam is completely controlled by the ruling party. The economy is the most unstable in Asia. An economy once considered promising has recently run into trouble. From 1997 to 2006, Vietnam’s macro economy was relatively stable, with low inflation rate, annual GDP growth of 7% to 9%, and moderate trade deficit. But Vietnam was unable to cope with the negative impact of the 1997-1998 Asian financial crisis, which partially prevented foreign direct investment from flowing into its economy. Starting in late 2006, companies in both the public and private sectors began to experience structural problems, inefficiencies and wasted resources. Inflation is a concern this year at an annual rate of 23%.
On the supply side
On the supply side, cross-country competitiveness assessments show Vietnam lagging behind comparable economies. The surge of so-called “zombie” workers in Vietnam’s state-owned enterprises is just one of many signs of the economy’s poor performance. The economic growth rate last year was 5.03%. Public companies account for 40% of GDP. Many of them are suffering as they take advantage of easy credit to make foolish investments. For years, powerful interest groups within the ruling Communist Party have largely resisted calls to reform state-owned enterprises. Senior party officials would see it as a source of personal income.
While some African countries that have managed to achieve high growth rates are indeed stable, relatively