Growth and development

A recent article in Foreign Affairs, relying on substantial research, challenged the view on how to allow democracy to succeed with many power groups competing among themselves.

A country cannot have modernization without industrialization. Industrialization brings social changes flowing into democracy. Iran is in the midst of this historical transition. Countries evolve and eventually establish democratic institutions. See, for instance, what has happened to China and Russia in the past 50 years.

The Industrial Revolution in the late 1700 defined England as a bastion of democracy as it allowed the interaction of several power groups. Karl Marx failed to recognize, the importance of having many competing power groups in a society.

Modernization theory believed in financial assistance – as delivered by the IMF or World Bank. It has proven to be a failure because it encourages socialist tendencies by channeling aid through governments, making governments the major players.

The rapid growth of South Korea and Taiwan shows that producing goods for the global market upgrades the human and technological capital and enlarges the middle class. Once the middle class becomes large enough, it presses for democratic institutions. This is the meaning of the protests in Iran.

The process is not simple or rapid given the different cultures and value systems of each society. The struggle for control of the process makes the objective difficult to achieve. Again, see what is happening in China, Iran, and Russia.

What is impressive is that the history of the world shows that we continue evolving and changing as we struggle to gain power and wealth while others barely survive. One thing is sure.

We cannot stand still and wait. We have to participate by educating those around us about the fluidity of political and economic systems. Why they change. To eventually reach a new equilibrium to become unsettled again by the introduction of new ideas.

To find out more about my in depth view of the markets and my strategy just visit our website https://www.peterdag.com/ where you can review The Peter Dag Portfolio. You can also call me at 1-800-833-2782 to discuss your specific money management needs.

I will be happy to speak to your investment group on how the business cycle impacts investment strategies and the choice of asset classes.

George Dagnino, PhD
Editor, since 1977