10/05/2014 Talking Business with Linda Yueh

scheme. Now on BBC News, it's time for

Talking Business. With over 40% of the world's

population headed to the polls this year, and the election results due

in the world's is democracy, we ask, is democracy good for both? In

Singapore, I'm Linda Yueh, these are my guests, we are talking business.

Welcome to the programme. Nearly half of the world's population is

headed to the polls this year with 40 elections taking place in

countries ranging from the European Union to Indonesia. For Turkey, it

would be their first ever democratically elected President,

and for the US, the congressional elections could shape President

Obama's second time. Not every country votes, China is ruled by the

Communist Party, that selects its leader who served for a decade. But

China has grown more quickly than the world's biggest democracy,

India, whose election results are due this month and could see a

dramatic change in power. Earlier, I spoke to the professor of

international management at MIT. I asked him, why democracy will lead

to faster economic growth. Democracy has a logging mechanism `` building,

to provide public services to a broad segment of the population. And

in many poor countries, it is the lack of investment in public

sector, such as education and health, that are detrimental to

economic growth. There is evidence to show that democracies are more

effective in providing those educational and public health

services than authoritarian countries. There are a couple of

governments which are not democratic, but have grown extremely

well. How would they, what do they tell you, in a sense, about the

relationship between growth and political systems? For every China,

there are three or four authoritarian governments that have

failed fantastically. So it is very important when we draw policy

implications that we do not just look at a few successful countries,

we also need to look at other countries but also authoritarian,

that have failed miserably. There are many African countries that were

authoritarian, that did not grow, that did not provide health and

education to their populations. So, it is, and I think the success in

Singapore in China is due to the minority of evidence rather than the

majority. Can you run us through some of the, I would say, perhaps

why it is that multiparty systems in Africa, for instance, are more

successful than single party once? That kind of removes the democracy,

saying it is a pleura Litterick political system, is it better for

growth? If you hold lots of other things constant, there is no

evidence that democracy hurts economic growth. I have to say,

there is not very strong evidence that democracy is strongly supported

`` supportive of economic growth, to the extent there is evidence that

democracy does hurt in terms of providing these basic public

services `` does help, there are studies that show what Erin that

might `` authoritarian governments that transfer do better. `` that

transition. There is also evidence that democracy is that have

transitioned back into authoritarian countries, typically they are the

worst, those are stronger pieces of evidence to show that democracy is

better for growth than authoritarian government. Joining me now to debate

if democracy is good for growth, Richard Martin, managing director

and business adviser. Head of portfolio management at Real

Singapore. And Vice Dean of research at public policy. Richard, is

democracy good for growth? The voters will hope that because they

have just turned out for the elections in India, and in

Indonesia, voting for change. They want growth and that is what these

elections were about. As far as what is it, probably close to a billion

voters are concerned, they hope it is. But is it? IMac democracy is not

bad for growth. I think we can say at least that much. One thing that

is clear is that if you want sustained growth, democracy is

probably a good investment. If everyone is agreed on a process of

reform and the way to move ahead, they are not going to go back after

the next five years or whatever and change the mind. There is a process

element. What do you think? I think it is not a necessary ingredient for

growth, I think if you look at comparing the big countries like

India and China, you can see the command type, the way of controlling

a country that China has, we have seen the country grow by leaps and

bounds more over the democratic ways in India, sometimes there is a bit

of criticism, a lot of talk and not too much action. There are other

factors as well. But it does grow faster than India. Richard, what

about that? Democracy is a step towards what a society wants. What

society wants is a deal, an agreement between those who rule and

those who are ruled. In China, they are delivering on that deal. The

government listens very closely to the people. You think about the

spread of the internet and social media in China. You think, that will

destabilise China. But I do not think so. I think what it does is

provide the Government with another channel to listen carefully to the

people. You start to see them modify what they do in China. Suddenly,

corruption and pollution control, very big issues for people in China,

leaked to the top of the agenda. The government does listen and attempt

to respond. That is not democracy per se. You just want a government

who has gone to respond to the people. That is a good point. We

take a China does not have democracy, but on a narrow

definition of democracy, it is true, but there are democratic elements of

Chinese life. People are responsive, they participate,

express themselves, increasingly over social media. This leadership,

as well as past ones, have shown that they will take that into

account. They cannot imperiously do whatever they feel like. I think

that is quite important. When you do the contrast between India and

China, it is unfair to say the China is not democratic at all. There are

strong elements of participation by people in governments ``

governance. Reporting on China and India, if you look at Africa,

multiparty systems perform, outperform single party states. So,

if you look around the world, is there something about participation

that makes the difference? If you look across Asia, starting with

Asia, the biggest change we have seen in the region in the last 25

years has been the movement from what were dictatorships in several

countries. Through to full`blown democracies. I think that is one of

the reasons this region has grown very well in the last 25 years. It

has got rid of the instability that would have occurred with people

fighting over power. Do you agree? That is interesting, because putting

ourselves back to the wedding 70s, just looking at Southeast Asia, that

backed the 1970s, back then, the Philippines were ahead of Singapore

in terms of development. In that sense, you had two autocratic

leaders in charge. Put yourselves forward now a number of years, and

you can see how the countries have developed. It boils down to the

leadership rather than systems. Basically having that succession

plan put forward. Richard made a great point about dictatorships and

autocratic leaders, and I think the key to success in some of the

Southeast Asian countries like Singapore, for example, is that a

succession plan was put in place. The leaders did not stay too long.

They actually had a plan, whereas in some of the other nations... Like in

Africa, they stay too long? Coming back to Africa, I think it is an

interesting case because they have had good growth rates over the last

ten years, five, six percent on average. Democracy has something to

do with it in Africa, where the base for economic development and growth

is very low, and then democracy came along and unleashed all kinds of

pent`up energy. Part of that is being expressed in entrepreneurship

and risk`taking, a bloom of markets, and freedom. Very quickly, going

around, is democracy just good, even if it is not necessary for growth?

As an Indian, I would say yes. We love democracy. Richard? I am

Australian originally. The whole reason we vote is to kick the other

guys out. You want a change in government. Do not assume they will

get it right. I agree to a certain extent, yes. More from my panel in

just a few moments. A five week`long multistage process of voting in the

world's largest democracy is about to end with India's growth having

slowed down considerably in the past few years, could the outcome of this

election set a stronger path for its economy? I caught up with Duvvuri

Subbarao, the former central bank governor of India to find out how

significant these elections are for the country's future. Quite

important, I would say. In fact, very important, because over the

last one year, indeed, over the last two or three years, growth has

moderated, inflation has been stubborn. There has been enormous

anticipation built up that has the elections are over, new government

comes into office, the economy will revive, we will get back onto a

growth trajectory. To that extent, I think the current elections are

quite important, but at the same time, I must say that growth

recovery is not going to be instantaneous, rapid. It is going to

be quite modest, protracted, but nevertheless, it is important that

growth gets back onto a growth track. What has caused the

significant growth slowdown and what are the main reasons? I would

actually say that the one main reason for the slowdown in growth is

that investment has stalled. If you compare India today with India in

the precrisis years, the one significant difference is the rate

of investment. Investment today is production capacity for tomorrow. In

the precrisis years there was lots of investment, notably significant

corporate investment, that created productive capacity. In contrast,

over the last three or four years, investment has declined,

particularly corporate investment. For the first time, investment

growth is slower than GDP growth. I think that is the most important

reason growth has moderated. What about the crisis, because you talk

about the precrisis and post`crisis? Has the crisis caused investment to

fall? You must note that India recovered from the crisis very soon.

Indeed, much sooner than most other emerging economies. In fact, we had

the classic V`shaped recovery. Even in the crisis year of 2008`9, growth

had gone down to only as low as 6.7%, which is still higher than the

growth in the last two years, which has been below 5%. To attribute all

of the growth moderation today to the aftereffects of the crisis, I

think would be misleading. Also, wrong. What has caused growth

moderation is a lot of domestic factors, particularly investment

slowdown that I talked about. But investment slowdown is a consequence

of a number of factors, including the government's shortcomings. With

the elections and a massive transformation for the country,

which is possible any time you have big elections, what kind of reforms

will be needed to turn around investment? People talk about policy

reforms. Policy reforms are important and necessary, but what is

even more urgent is implementation reforms. There are lots of projects

on the way, lots of projects which have stalled because of bottlenecks.

Like land, raw material linkages, government clearances. Policy

reforms are important but what is even more urgent are implementations

to get the project going. That was Duvvuri Subbarao, the former Indian

central bank governor. With elections spanning Europe to Asia to

the US, it is a crowded diary. So, what can we expect? Later this

month, the Europeans go to the polls to elect the 751 members of the

European Parliament that will represent over 500 million people in

28 countries. The MEPs will then elect the new president of the

European Commission, which is hotly contested as Jose Manuel Barroso

steps down. The worlds's third largest democracy, Indonesia, will

hold its only third ever directly elected presidential contest in

July. The opposition party did poorly in local elections which saw

a public holiday declared in order to encourage the 190 million`plus

voters to go to the polls. Turkey heads into uncharted territory as it

plans to hold its first`ever elections to directly elect its

president in August. Despite allegations of corruption and mass

protests, the ruling party retained its position in the local elections

held in March. Could the Turkish Prime Minister, Erdogan, who has

served for over a decade become the first popularly elected president?

Brazilian president Dilma Rousseff faces re`election in October to try

and keep her workers' party in power after a 12 year run. Much will

depend on the middle`class voters who have taken to the streets to

protest against inadequate social spending against the large amount

spent on the World Cup, to be held this summer. Still with me to

discuss the significance of these elections are Kanti Bajpai, Vice

Dean of Research at the Lee Kuan Yew School of Public Policy, Richard

Martin, managing director at business adviser firm IMA Asia, and

Daryl Liew, head of portfolio management at Reyl Singapore. Daryl,

let me start with you. Will the elections coming up in Europe, will

they be significant? I am not sure how significant they can be. If you

look at the European experiment, there are lots of issues about

whether it is truly working. You have got one kind of rulership for

so many different countries with different interests. I think we are

still going through a bit of the crisis. The Euro crisis is not over.

There are still countries in rescue programmes, Greece and Cyprus.

Moving closer to home, Indonesia has very big elections which are coming

up. Will those be significant, because Indonesia has such growth

potential? Could a change in government allow them to go on a

faster growth path? I think so. Charges of corruption and a bit of

fatigue with SBY, all that has brought Indonesia to the point where

they want another personality, another take on how to move forward.

As you say, it has great potential, there has been a cooling off, partly

due to the global economy. Whoever it is will bring a renewed sense of

purpose and direction. It is interesting that all these

elections, in a sense, they have foregrounded economic issues very

importantly. Do you agree that when you look at Turkey, Brazil, you're

looking at countries which are having elections, and could these

elections address some of the fundamental issues in the economy,

if, for instance, Erdogan stays in power and so does Rousseff? Will the

protests they have seen in their countries result in them staying in

power or meaningful change? The opinion polls suggest that they are

going to stay in power and what is probably going to keep them in power

is as much as the middle`class, the urban middle class, does not like

what is going on and wants change, it is one man per vote. We are

talking about mass support at the lower level for these two

candidates, these two leaders, to be returned to power. Both have been in

for just over a decade and it looks like they will get through again.

Rousseff's ploy has been to pump more money into the social welfare

programmes that work at the bottom. 36 million Brazilians depend on that

programme and she will lock that vote in. Erdogan as well, he proved

in the local elections that as much as you have a secular middle`class

in the urban areas that want change, that sort of right of centre

religious group dominates across the country, it is very conservative and

they like Erdogan. If you give them one man per vote, these two leaders

stay in office. When we look at business conditions in these

countries, and also other elections coming around the world, which

elections are you keeping your eye on in terms of which vote could

actually transform a country's business prospects? Effectively I am

looking at India and Indonesia. As the two key ones? Yes, my main

concern is that because there are so many parties, it is unlikely for one

party to get the majority win anyhow. It is likely to be a

coalition kind of government that will take power. Whatever impact

that can achieve will be severely diluted. Richard, which elections

are you keeping a keen eye on? Both of them. The markets, the capital

markets, love these two leaders. They love the idea of Modi getting

in. They love the idea of Jokowi getting in. We have seen a real bump

in the currencies. I agree with the points you made. It depends on how

good these guys are at building coalitions. As much as we like them

as individuals, and they have proven they can do well in their own

states, or at least Jokowi, where he was governor briefly for Jakarta,

they have proven they can deliver, but the national stage is bigger,

more complex. Let's see what the voters give us after the election,

because that is still not clear, how it will go, and we will see if they

can build workable coalitions. Finally, speaking of workable, the

US Congress is having mid`term elections later this year. Could

that be a game changer for President Obama's second term? I hope so. The

US Congressional elections, they turn on local things as well. There

is departisanship in the United States. Obama is now going into the

second half of his presidency. It is not clear whether he will hurt the

Democratic candidates out there or help them. All bets are off, but I

sense there will be a bit of resurgence by the Democrats. That

might be good in both houses. Thank you all very much indeed. That was

Kanti Bajpai, Richard Martin and Daryl Liew. Billions of people are

going to the polls this year with protests in countries ranging from

Brazil to Turkey and concerns over political impasse in the US and

Europe. The process can be messy and it is certainly unpredictable. But

as Winston Churchill said, democracy is the worst possible system, except

for all of the rest. That is all we have time for. Check out our website

and me on Twitter. I am @LindaYueh. Join us next time for more Talking

Business, with me, Linda Yueh. Good evening. We have got some

strong winds out there at the moment. Still be heavy showers