"Democracy" and "Corruption" in the BRICS

This essay will present some recent numbers on the status of democracy and on corruption for a selected group of countries, covering the BRICS and other emerging markets of systemic importance. The analysis is descriptive, comparing 2015 with 2005 data on country rankings provided by the Bertelsmann Foundation, the Economist Intelligence Unit and Transparency International. It also explores the interaction of (subjective or impressionistic) measures of democracy and perceived corruption by looking at rank correlation coefficients.

Shifting Wealth (defined here[i]) has been in decline. Income per head convergence, social inclusion and the accumulation of foreign assets have slowed down or even reversed in the BRICS and other emerging countries. Nobel laureate Michael Spence has recently attributed the BRICS slowdown to external factors[ii]:

“Developing countries are facing major obstacles – many of which they have little to no control over – to achieving sustained high growth. Beyond the headwinds generated by slow advanced-economy growth and abnormal post-crisis monetary and financial conditions, there are the disruptive impacts of digital technology, which are set to erode developing economies’ comparative advantage in labor-intensive manufacturing activities.”

Other observers have stressed governance issues. Corruptions scandals involving the political leaders in Brazil, Malaysia and South Africa; the strengthening of authoritarian rule in China, Russia and Turkey; and the lack of social inclusion fanning internal conflict top the list of concerns. The Guardian[iii] has recently concluded:

“To take their rightful place in the 21st century, the Brics countries must create more open, accountable, and trustworthy systems of governance. This is a challenge of leadership, not profit and loss.“

Both democracy and corruption can matter for sustaining growth and development, although the relationship is much more complicated than many governance zealots would have us believe.

Barro (1996)[iv] has analysed growth and democracy (subjective measures of freedom) for a panel of about 100 countries from 1960 to 1990. His findings suggest a nonlinear relationship in which more democracy enhances growth at low levels of political freedom but depresses growth when a moderate level of freedom has already been attained. He also finds that improvements in the standard of living—measured by GDP, health status, and education—substantially raise the probability that political freedoms will grow.

The Transformation Index of Bertelsmann Foundation (BTI) includes ´democracy status´. This political component tries to quantify an unweighted composite of measures for stateness; political participation; rule of law; democratic institutions; political and social integration. Table 1 reports for the five BRICS (in bold) and seven relevant emerging countries how country rankings have developed in the past decade, from 2005 to 2015.

Table 1: BTI Status Index 2015 v 2005

Country	Change	Rank 2005	Rank 2015
Brazil	+	20	19
China	+	85	84
India	-	24	28
Indonesia	+	52	39
Mexico	-	27	41
Morocco	-	79	94
Nigeria	-	66	85
Russia	-	46	81
Saudi Arabia	-	93	100
South Africa	-	16	26
Singapore	-	22	25
Turkey	0	34	33

Source: https://www.bti-project.org/en/index/status-index/

For the majority of countries, Barro´s earlier finding that economic progress furthers democracy (´freedom´) is not confirmed. Western press sentiment that the BRICS have failed to become democratic during their Golden Age seems to be confirmed. Country rankings (for a sample of 130 countries) deteriorated (and in most cases the index scores) in eight of the twelve countries selected here. But not always where some would expect it. Sure, Russia scores the worst decline but it is fairly closely followed by OECD members or darlings Mexico and Morocco. Among the BRICS, only China and India kept their ranks, albeit at grossly different levels. The only major emerging country to rise markedly in the BTI rankings over the period is Indonesia.

Table 2: EIU Democracy Index 2015 v 2005

Country	Change	Rank 2005	Rank 2015
Brazil	-	42	51
China	+	138	136
India	-	35	37
Indonesia	+	65	49
Mexico	-	53	66
Morocco	+	115	107
Nigeria	+	124	108
Russia	-	102	132
Saudi Arabia	0	160	160
South Africa	-	29	35
Singapore	+	84	74
Turkey	-	88	97

Source: http://www.yabiladi.com/img/content/EIU-Democracy-Index-2015.pdf; http://www.economist.com/media/pdf/DEMOCRACY_INDEX_2007_v3.pdf

Table 2 presents the Economist Intelligence Unit (EIU) Democracy Index ratings, again for the thwelve selected countries and the ranks in 2005 versus 2015 for 167 countries. The EIU Democracy Index is based on five categories: electoral process and pluralism; civil liberties; the functioning of government; political participation; and political culture. Based on their scores on a range of indicators within these categories, each country is then itself categorised as one of four types of regime: “full democracies” (20 countries only); “flawed democracies”; “hybrid regimes”; and “authoritarian regimes”. (Note that France is now considered a ´flawed democracy´ by the Economist…).

Among the BRICS, the EIU finds only Russia (??) to have slightly move up in the democracy rankings, from extremely low levels. The score in the other four BRICS deteriorated, as it did in OECD members Mexico (confirming the BTI) and Turkey. (What has the OECD Governance directorate been doing in all those years?). Strong improvements are found over the past decade in Indonesia (BTI agrees), Nigeria, and – WTF! – Saudi Arabia.

Sustained growth can also be endangered by a rise in corruption. Mauro[v] has found some subjective indices of corruption to lower investment, thereby lowering economic growth. According to the media, corruption scandals involving the presidents of Brazil, Russia and South Africa as well as anti-corruption drives in China suggest this is indeed a problem in most BRICS. Transparency International produces a Perceived Corruption Index, again a subjective index (Table 3).

Table 3: TI Perceived Corruption Index 2015 v 2005

Country	Change	Rank 2005	Rank 2015
Brazil	-	70	76
China	-	70	83
India	-	70	76
Indonesia	+	130	88
Mexico	-	70	95
Morocco	-	79	88
Nigeria	+	142	136
Russia	+	121	119
Saudi Arabia	+	70	52
South Africa	-	51	61
Singapore	-	5	8
Turkey	-	60	66

Source: http://www.transparency.org/research/cpi/

Popular and press sentiment about corruption seem confirmed by the TI index. All BRICS recorded deteriorating country rankings in a sample of 167 countries, except Russia (sic!). OECD members Mexico and Turkey dropped sharply in the corruption rankings, as did Morocco. Strong improvements, by contrasts, were noted in Indonesia and Saudi Arabia.

Table 4: Rank Correlation BTI, TI, & EIU 2015

- Spearman´s Rho (p-value in brackets)-

Year	BTI 2015	TI 2015
BTI 2015	/	/
TI 2015	0.43 (0.165)	/
EIU 2015	0.76* (0.004)	0.18 (0.58)

Source: Own calculation based on http://www.socscistatistics.com/tests/spearman/default2.aspx

*denotes significant by normal standards.

Rank correlation measures (Spearman´s ρ) do not indicate a significant relationship between the two democracy measures (BTI, EIU) and the TI corruption rankings. The relationship between democracy and corruption is complicated, as suggested by a vivid debate in India, for example. The only significant relation noted in Table 4 is among the two subjective democracy measures provided by Bertelsmann and The Economist.

Some tentative conclusions: The BRICS have mostly receded in international country rankings on subjective measures of both democracy and corruption. But this finding would not necessarily imply that this undermines long-term growth. The link between more ´democracy´ (as Bertelsmann and The Economist understand it) and more economic prosperity seems weaker than often thought, both over time and across countries. After all, Singapore´s authoritarian capitalism and China´s market socialism have gone a long way along rising wealth. The relationship between corruption and democracy seems weak as well. Or should we say: it´s complicated Maybe the, say, Brazilian corruption scandals will reinforce its independent judiciary and hence democracy in the end.

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[i] ShiftingWealth Blogspot, “Defing Shifting Wealth”, 4 April 2011.

[ii] Michael Spence, “Growth in a Time of Disruption”, Project Syndicate 27^th July 2016.

[iii] The Guardian, “Has the BRICS bubble burst?“, 27 March 2016.

[iv] Robert J. Barro, „Democracy and Growth“,Journal of Economic Growth, March 1996, Vol 1, Issue 1, pp 1-27.

[v] Paolo Mauro, „Corruption and Growth“,The Quarterly Journal of Economics, Vol. 110, No. 3 (Aug., 1995), pp. 681-712.