In highlighting the need for political reform in developing
countries, President Bush's call for a "new compact for global
development" will deepen the discourse at this week's UN summit in
Most of the debate leading up to Monterrey focused on how to
raise more money, setting off a somewhat myopic bidding war among
donors. The problem is not largesse, though more funds are certainly
needed to achieve the UN's ambitious goal of halving global poverty
by 2015. Rather, the weakness lies in the donors' failure to link
development to democracy.
Indeed, the record of aid shows that only democratic rule can
provide long-term support to economic development in an era of
globalization. That is why Bush's appeal last week for developing
countries to "walk the hard road of political, legal, and economic
reform" is so important to the debate on development aid.
In fact, the entire draft Monterrey Consensus is based on the
relationship between political and economic development. At the
summit's close, world leaders will make a commitment "to promoting
national and global economic systems based on the principles of
justice, equity, democracy, participation, transparency,
accountability, and inclusion."
However, to implement this rhetoric, world leaders will need to
strengthen each of the six instruments of development finance that
form the Monterrey agenda - domestic capital, foreign investment,
trade, official development assistance, debt relief, and the
international financial architecture.
They can do so precisely by advancing democracy at both the
national and global levels.
First, while a democracy cannot ensure that economic policies
will always be sound, it can provide a more productive environment
for the saving and investment of domestic capital. It can do so
because the democratic values of equality, transparency, and
accountability translate in the economic sphere to clearly defined
property and labor rights, free but well-regulated exchanges in the
marketplace, just settlement of contract disputes, and fair
Second, the presence of these institutions attracts foreign
investment. Whether foreign investors risk their capital in emerging
markets greatly depends on the stability of local financial and
legal systems. A foreign investor has a better chance of finding
transparent banks, effective market regulation, and independent
judges in a democracy. …