Why are rich countries democratic?

INVISIBLE HAND OF MARKET: A free and open system is vital to provide right kind of environment for modern economies.

WHEN Adam Smith was 22, he famously proclaimed that, “Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice: all the rest being brought about by the natural course of things”.

Today, almost 260 years later, we know that nothing could be further from the truth. The disappearance of Malaysia Airlines Flight 370 shows how wrong Smith was, for it highlights the intricate interaction between modern production and the state.

To make air travel feasible and safe, states ensure that pilots know how to fly and that aircraft pass stringent tests.

They build airports and provide radar and satellites that can track planes, air traffic controllers to keep them apart and security services to keep terrorists on the ground.

And, when something goes wrong, it is not peace, easy taxes and justice that are called in to assist; it is professional, well-resourced government agencies.

All advanced economies today seem to need much more than the young Smith assumed. And their governments are not only large and complex, comprising thousands of agencies that administer millions of pages of rules and regulations; they are also democratic — and not just because they hold elections every so often. Why?

By the time he published The Wealth of Nations at age 43, Smith had become the first complexity scientist. He understood that the economy was a complex system that needed to coordinate the work of thousands of people just to make things as simple as a meal or a suit.

But Smith also understood that while the economy was too intricate to be organised by anybody, it has the capacity to self-organise.

It possesses an “invisible hand”, which operates through market prices to provide an information system that can be used to calculate whether using resources for a given purpose is worthwhile — that is, profitable.

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