Currently, public opinion about democracy, particularly the federal system of government, is being criticised in daily discourse and across all social media platforms. Some Nepalis are engaging in discussions that label federalism as a costly administrative system. A growing sentiment is leading many to question whether a democratic government is the way forward. Several staunch critics have even suggested that Nepal might now require an authoritarian government, reflecting the broader public frustration stemming from governmental ineffectiveness, economic decline and the inability of public institutions to provide effective services. The increasing instances of kakistocracy, plutocracy, cronyism and nepotism in the country also fuel this disillusionment.

Democracy and economic growth

Democracy was traditionally viewed as a universal path to development, equated with human freedom, pluralism and free elections. It was associated with modernity and advancement, especially against the “undemocratic” Third World. Francis Fukuyama declared liberal democracy as the “end of history” after the Cold War. Fukuyama linked the victory of democracy with economic development and the ideological presumption that capitalism drives social progress. He argued that economic development is compatible with democracy and creates a virtuous circle by which democracy fosters stability and growth.

Empirical data primarily seem to support the idea that democracy promotes economic growth. For example, in their book The Democracy Advantage, authors Halperin, Siegle and Weinstein suggest that democracy is more effective at improving the level of life in poor countries than authoritarianism. Drawing on 40 years of data from countries like China, India, Iraq and Chile, the authors show how poor democracies are more economically successful than poor autocracies. The book also argues that compared to autocracies like Egypt, Saudi Arabia and Pakistan, democracies with less civil war, humanitarian disasters and global terrorism are more peaceful.

In a paper titled “Democracy Does Cause Growth” (2018), the authors analysed 184 countries for 50 years and found that democratisation could increase GDP per capita by around 20 percent in the long run (over 25 years). Democracy promotes investment in human and physical capital, boosts the availability of public goods, reinforces economic reform and reduces social turmoil. The benefit relies on democratic continuity.

In a paper titled “Is democracy good for growth? — Development at political transition time matters”, the authors show that democracy only supports economic growth when a nation is already developed upon democratisation. Developed democracies maintain the rule of law, property rights and good governance. Democratisation is not all good. However, 40 percent of third-wave democracies had no growth due to low levels of development at transition. One estimate by a study puts the impact of democratisation in raising GDP per capita by 20 percent to 25 percent over 25 years. Democratic governments improve economic performance by delivering essential public goods like education, health and infrastructure, stimulating investment and implementing economic reforms.

Democracy has long been considered a gateway to economic progress and prosperity. This was the common view in the 20th-century global experience. Developed countries in the West credited democracy for their economic prosperity. During the Cold War, communist dictatorships in Eastern Europe remained impoverished, thus solidifying the view that dictatorships lack a foundation for long-term prosperity.

Challenge to the narrative

China’s and, lately, Vietnam’s prosperity defies the expectation that democracy is necessary for wealth creation. They have limited political freedom but significant economic autonomy. Thus, economic democracy seeks to expand people’s choices—better health, education and representation. Globalisation, EU centralisation and financial crises have revealed the failure of democratic institutions to defend economic sovereignty, as seen in Greece. Rising economic nationalism has challenged the liberal and globalist ideology of democracy, while the populist wave throughout Europe and the US has raised doubts about the effectiveness of democratic institutions. Consequently, more scholars and policymakers increasingly believe that democracy is irrelevant or not necessarily a condition for economic growth.

Means to economic prosperity

The ultimate objective of any political system, such as democracy, is the welfare and economic prosperity of the citizens of any country. In this sense, democracy is a path to economic growth and development, even more so in the context of individuals’ satisfaction in choosing their masters or rulers to govern. This is a universally accepted norm of social contract from the French Revolution up to our struggle to adopt a federal republic constitution. The ability of the democracy to deliver on the expectations and aspirations of the people squarely hinges on the compliance of this social contract by both parties—the elected and the electorate.

Democracy has failed to deliver economic development and prosperity in those countries where the rulers have cultivated authoritarian ambition and compromised the very principles and foundations of democracy. Wherever democracy has failed to meet the people’s ordinary economic expectations, democracy itself has suffered victimhood at the hands of instability, violence and anarchy. Its strengthening involves the building and consolidating of democratic institutions such as Parliaments, independent judiciaries and accountability bodies. Some key tools employed are legal reforms, strengthening marginalised groups’ representation, regular elections, a fair and unbiased bureaucracy and promoting participatory processes in public initiatives.

What does this bode for Nepal?

Democracy must exist in practice, not just in institutional structures. Democracy can bring growth in Nepal, but only with robust institutions, policy stability, inclusion and long-term investment in people. Political instability, policy inconsistency and the weak link between education and skills are today’s reality. To bridge these gaps, Nepal needs to strengthen institutions like the judiciary, Election Commission and local governments, including women, youths and other marginalised communities in a meaningful way; increase economic independence through local production and reduced dependence on imports; leverage its position between India and China to the fullest; and invest in human capital through acquisition of skills, health and innovation networks.

Democracy is a means of economic development, but it will become unstable if people’s needs are unsatisfied. A robust economic foundation is necessary to ensure democracy consolidation and to bring economic choice, employment, fair regulation and institutional support. For Nepal, the future lies in strengthening local governance, encouraging youth and innovation investment and co-creating stories of prosperity.

Democracy is not just about voting; it is about living with dignity. Overall, democracy remains the best option, but it must be deliberate, inclusive and accountable. Growth must be democratised, opening opportunities to all and reversing the narrative from ritualistic engagement to meaningful empowerment.