Understanding Democratic Governance and Market Economy

There is an ongoing debate in academic circles and among practitioners on the linkages between democratic governance and market economies. It has intensified in light of transitions taking place after the fall of the Berlin Wall. Amidst expectations that all societies would move swiftly toward liberal democracy and market economy, we’ve seen a variety of outcomes. In many cases, countries’ progress in building sound democracies and functional market economies has been hampered by the lack of understanding of their key principles.

Strong democratic governance is a function of institutions that enable broad-based participation of various civil society groups in public life. In contrast, weak “ballot-box” democracies tend to revert back to non-democratic regimes, often fueled by popular disappointment with the lack of adequate economic reforms and society-wide economic gains.

The need for sound economic policies is essential for development and requires engaging broader civil society and private sector in the democratic governance process. Successful market-oriented reforms depend on giving citizens an opportunity to participate in policymaking. In many countries where elections are held and markets have to some degree been liberalized, the majority of the population has yet to benefit from democratic freedoms and economic growth. In such countries, far-reaching governance reforms are needed to improve the quality of democracies and markets alike.