More aid, more democracy

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 Monterrey, Mexico.

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 taxation.

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.

Third, the democratic process can help resolve the intense social conflicts generated when a developing country opens up to international trade. The consequences of liberal trade and participation in the World Trade Organization are lucrative to high-tech entrepreneurs in Guadalajara, but potentially costly to coffee growers in Oaxaca. In trying to create an enduring social contract, a democracy is better equipped to balance competing interests.

Fourth, democracy can similarly foster the kind of partnership between government and civil society that donors now view as a basis for official development aid. In the case of the World Bank's assistance to the poorest countries, recipient governments must craft a national strategy for poverty reduction in concert with leading nongovernmental organizations. Democracies are much more likely to take NGOs seriously, thus boosting the prospects for the national plans.

Fifth, whereas democracies are not immune from amassing huge amounts of external debt, they do have built-in mechanisms (such as a free press and regulatory agencies) to monitor debt levels and uncover corrupt uses of public money.

Democratic governments can also be more trusted to implement reforms in exchange for debt relief.

Finally, greater democratization can force international financial institutions actually to implement the Monterrey goal of "strengthening the participation of developing countries in international economic decisionmaking." In seeking reform of the global financial architecture, democratic leaders of developing nations can be effective, because they share a political legitimacy and common interests with their counterparts in industrial nations.

Thus when Bush speaks in Monterrey today, he will correctly expand his message beyond the need for more development aid. Just as important, he will assert the critical link between development and democracy. In this way, the United States can lead the world by connecting the war on terror with a long-term strategy of attacking two of terrorism's greatest sources: poverty and tyranny.

• David W. Yang is executive director of the Institute for Global Democracy. He was the State Department's senior coordinator for democracy promotion during the Clinton administration.