Argument

How Democracies Grow Up

Countries with too many young people may not have a fighting chance at freedom.

These are tough times for the world's democrats. The easy democratic transitions are history, the remaining partial democracies are stalled, and the newest liberal democracies are faltering as they struggle to hold on to past reforms. Chaos in Iraq, the tightening grip of Vladimir Putin in Russia and Hugo Chávez in Venezuela, and the ability of China’s political elite to paint a veneer of international respectability on a deeply noncompetitive autocracy all seem to reinforce this gloomy picture.

But prevailing wisdom can be wrong. In fact, many developing countries could improve their chances of maintaining high levels of freedom if they would just -- demographically speaking -- "grow up." Since the mid-1970s, countries with a high proportion of young people and very rapid growth of those entering their working years (ages 15 to 64) have been far less likely to maintain democratic gains than those with more "mature" populations. In other words, a country's chances for meaningful democracy increase as its population ages. We can detect this pattern by tracking the proportion of 15- to 29-year-olds in the working-age population in states that, in recent decades, have achieved a truly liberal democracy (defined here as "free" in Freedom House's country ratings). When the young-adult proportion dropped into the range between 36 and 42 percent, full democracies evolved without the political backsliding or military coups that had been so common in Asian and Latin American politics. Where high levels of democracy emerged well before the young-adult proportion declined, countries typically settled into less liberal regimes -- as did Ecuador, Fiji, Malaysia, Pakistan, and Venezuela.

The reason a country's age structure influences its political regime lies in the details of the demographic transition -- the shift from large to small families that, after a lag of about two decades, turns societies with a "youth bulge" into more mature ones. When larger-than-average proportions of adolescents move into their working years, wages typically slump and unemployment swells, giving rise to conditions that make it easier for political groups to mobilize and recruit disillusioned and disaffected young males. As one might expect, and as numerous studies have shown, populations with excessive numbers of young people invite a higher risk of political violence and civil strife than others. Assuming Thomas Hobbes was correct when he described how citizens are willing to relinquish liberties when faced with threats to their security and property, it's not surprising that support for authoritarians should rise when a large chunk of society is young and jobless.

Where are these youthful populations? As a rule, everywhere there had been a high fertility rate 20 years before. Because a youth bulge dissipates only after about two decades of fertility decline, today more than half the world's countries remain too young for comfort. More than 40 countries are chronically young -- with total fertility rates still above four children per woman. However, in another 70 countries, the demographic transition is more advanced, and the chances for liberalization are closer at hand.

So, when can the world expect the next uptick in the number of free societies? The answer is, at best, a statistical one. Countries with a young-adult population of around 39 percent have a 50-50 chance of being considered "free." This "even-bet" benchmark provides a fair indication -- plus or minus a decade -- of the timing of stable, liberal democracy.

The first (and perhaps most surprising) region that promises a shift to liberal democracy is a cluster along Africa's Mediterranean coast: Morocco, Algeria, Tunisia, Libya, and Egypt, none of which has experienced democracy in the recent past. The other area is in South America: Ecuador, Colombia, and Venezuela, each of which attained liberal democracy demographically "early" but was unable to sustain it. Interpreting these forecasts conservatively, we can expect there will be one, maybe two, in each group that will become stable democracies by 2020.

Of course, there are caveats. By itself, a society's age can’t tell us, for example, which countries really are on the verge of democracy and why. This schedule can only suggest the timing of opportunities and the persistence of obstacles. There's also another reason to be cautious -- the schedule's past performance exposes a few whopping failures, such as China, Cuba, and Russia, which should be liberalizing but are not, and Thailand, which should have held on to its liberal democracy but did not. In southern Africa, AIDS should be making states more fragile politically, but it is not.

These aren't cause to abandon the analysis, however. In fact, its failures can be even more enlightening than its forecasts. For example, the projections hold up well in weak personal dictatorships, partial democracies, and states ruled by military "caretaker" regimes. A downward-trending young-adult proportion seems to strengthen the appeal of democrats and perhaps provides the political calm that authoritarians need to make a safe exit. However, the timetable shows that a maturing population is far too weak a phenomenon on its own to undermine strong personal dictatorships -- regimes run by tough, charismatic authoritarians (what Castro was, and what Chávez would like to be). Intensely ideological one-party systems, such as China's, look equally impervious. One might easily come to the conclusion that charismatic personal dictatorships and ideological one-party systems evolved to withstand the undercurrents of socioeconomic and demographic change.

Despite its problems, though, and perhaps because of them, this demographic schedule for democracy offers a starting point for realistic discussions about where and when in the world political freedom is likely to arise and be sustained. Above all, this outlook is imbued with built-in hopefulness: The more accurate it becomes, the more certain we can be that liberal democracy is an "end state," and that as the world develops, states join a path that -- though strewn with obstacles -- is heading in the right direction.

For More

For a map of the countries where young populations should decline and democracy should rise, visit ForeignPolicy.com/extras/youngdemocracy.

Argument

China's Currency Crunch

Why China needs to adopt a floating exchange rate.

As the U.S. trade deficit continues to balloon, American politicians are back on the warpath against their favorite target: China. The rising bilateral trade deficit with Beijing, which could now top $250 billion, provides ammunition for those in Washington who argue that Chinese currency policies are at the root of the U.S. trade imbalance. China's surging foreign exchange reserves (now more than $1.5 trillion) and massive current account surplus (about 12 percent of its gross domestic product) fuel American accusations of Chinese currency manipulation: By maintaining a fixed exchange rate against the dollar, China keeps its currency cheap and therefore gains an unfair advantage selling its products overseas. Until Beijing lets the value of its currency appreciate, critics contend, there is no hope of a more level playing field.

Chinese leaders, of course, see it differently. They accept that their exchange rate will someday need to be determined by market forces. But, faced with the pressures of running the world’s hottest economy, they view currency reform as a distraction. These days, they are more preoccupied with completing their country’s dramatic transformation from an agricultural backwater to industrial powerhouse. For Beijing’s bureaucrats, there is little reason to let their currency appreciate, even modestly; doing so could dampen exports, which might cool their ability to create jobs for the millions of migrants pouring into their cities each year. And then there is the matter of pride: Who wants to do anything a bunch of American politicians tell you to do?

But never mind what the Americans think. China has a better reason to adopt a more flexible exchange rate: It would be good for China. For all its economic success, Beijing is juggling a number of dangerous imbalances. For example, China’s astonishing growth—now more than 11 percent a year—has been largely fueled by domestic investment and exports, while domestic consumption remains relatively stagnant. Most countries would envy the surge of money flowing into China from overseas. But so much, so fast has made capital very cheap. Tremendous sums are flowing into real estate and equity markets, raising the risk of asset price bubbles that could easily burst.

To avoid those dangers, Beijing should aim for an independent interest rate policy whose main objective is to keep inflation low and stable, rather than being preoccupied with tightly managing the level of the exchange rate. Trying to keep the yuan from rising against the U.S. dollar means that China’s central bank must print more money to keep interest rates low and the currency cheap. There’s then a chance that too much money will end up chasing too few goods. Low inflation creates a healthier environment where people, companies, and governments are able to make sounder savings and investment decisions based on more certainty about prices. That doesn’t mean that monetary policy should ignore other economic goals such as high and stable growth. But by focusing on low inflation, the economy is less likely to lurch forward recklessly, stumble, and fall.

Exchange rate flexibility, however, is hardly an end in itself. But it would make some of the other reforms that Beijing seeks easier to push forward. Take, for example, controlling bank-financed investment. Right now, China’s central bankers target a particular exchange rate because they have no choice. That means there’s little wiggle room to raise interest rates sufficiently to help deter reckless investment in overheated industries, such as China’s auto industry, where manufacturing plants continue to pop up even as car prices fall. If China’s central bankers had the ability to raise interest rates within a system of flexible exchange rates, it would reduce the risk of boom-bust cycles. But if they were to try and sharply raise domestic interest rates while the country is still maintaining its fixed exchange rate, more money could flow in to take advantage of these higher rates. That money would remain too cheap, fueling even more investment, eventually causing the economy to overheat. With a flexible exchange rate, China’s central bankers could tackle these problems much more effectively.

Chinese officials often argue that their outdated and stodgy banking system must be fixed before they can even begin to think about currency reform. But they have it backward. As China has opened its markets during the past decade, the central bank has been trying to get banks to function like modern financial institutions that respond to interest rates, rather than just getting their marching orders from Beijing. But since the central bank has little control over interest rates, it has essentially reverted to its old practice of telling banks how much to lend and to whom. That doesn’t encourage those banks to behave like normal, independent commercial entities carefully assessing and pricing risk. With a flexible exchange rate and the freedom to change interest rates, central bankers would be better able to encourage state-owned banks to become robust and efficient financial intermediaries that could in turn aid in the transformation of the economy by financing the more dynamic private sector.

Allowing the exchange rate to appreciate would also boost domestic consumption. China is a country of diligent savers, with about one quarter of after-tax personal income tucked away for a rainy day. But if Chinese households could get more dollars for their yuan, their purchasing power would go up and they would spend more, not only on items made at home but on global goods as well. And isn’t that what economic welfare is all about—the ability to spend more?

After all, that is the ultimate goal of Chinese leaders: for its citizens to eventually enjoy the same kind of spending power that people in richer countries like the United States enjoy today. Beijing shouldn’t dismiss currency reform simply because American politicians are using it as a rhetorical weapon back home. Chinese leaders should view a flexible exchange rate as a healthy step in their society’s transition to a market economy. And doing so will have one other benefit: American politicians will have to find something else to complain about.