Is the Democracy Good for the Economy of the Country Essay

Is the Democracy Good for the Economy of the Country - Essay Example Institutions in a particular country matter and history plays an important role because, in order for an economy to perform well, it should have started off well [Sokoloff et al 2000]. A country with a history of poverty is likely to remain poor. A worker who is on low subsistence wages is likely to be struggling to gather his basic necessities and to simply survive. Therefore he cannot function as an entrepreneur. He is caught in the vicious cycle of grinding poverty and is unable to accumulate enough money to invest in any business enterprise or even earn interest from savings. Further, such an individual will not be considered a good risk by credit institutions and he will not be able to secure loans either, in order to invest in capital and another start-up costs to fund any enterprise [Ghatak 2002]. Therefore the extensions of credit facilities and loans of money are restricted to rich entrepreneurs, who become a select few who cannot accelerate the growth of the per capita inco me of the majority and thereby also accelerate economic growth. Â  As opposed to this, the United States and Canada, for example, started off working on land that was not rich in crop and was difficult to cultivate. Hence, there was more scope for individuals to thrive and adopt the role of the entrepreneur as they took up the challenge of land cultivation. This resulted in a more egalitarian society where wage differences were not really so high. Therefore these nations started off with a predominantly higher per capita income, and this improved and advantageous economic situation continues even today. Credit institutions in these nations are strictly monitored by Government and interest rates are controlled. Due to the safety net of Government regulations and control and a historically corruption-free environment, more people are able to qualify to receive and repay loans {Piketty 1997] thereby increasing economic activity by investments and consequently improving economic growth.