Democracy on Life Support, Fueling Growing Instability

Many Frontier and Emerging Market nations susceptible to the short-term narrow-mindedness of power-hungry politicians. 

Many forms of Government have been tried and will be tried in this world of sin and woe. No one pretends that democracy is perfect or all-wise. Indeed, it has been said that democracy is the worst form of Government except for all those other forms that have been tried from time to time.

— Winston Churchill, then-Prime Minister of the United Kingdom, November 11, 1947

It is a sad fact of life, increasingly so it seems, that democracy is becoming a less efficient form of government among developed and emerging nations alike. In many cases, the sole variable between countries is the “fat of the land,” or the natural resources, human resources, or wealth accumulated over time that allows nations in the developed world to persist with evidently self-destructive policies for longer than emerging countries.  

Ironically, certain emerging countries are prevented by the markets from introducing destructive policies by what remains of their imposed discipline. Depressingly, however, more and more countries are collapsing under the pressure of misguided policies that end up with permanent succor to the global donor community led by the International Monetary Fund (IMF).  

To be clear, while not all IMF policies are ideal for every country, they nonetheless usually represent reasonable economic sense. The problem is that they are borne in a theoretical environment that defies the reality of democratic political cycles. Or the whims of narcissist autocrats. 

What results is the common definition of insanity

The world, in following the directives of the IMF, as well as The World Bank, regularly repeats unworkable policy prescriptions for struggling countries, which consistently fail to meet their objectives or improve their lot. Besides improper implementation, which occurs most of the time, when the reforms are introduced within a democratic environment, the governments simply run out of time for them to bear fruit. 

Consider Latin America, where Americas Quarterly said incumbent parties across the region have just won five of 31 presidential elections since 2015, and the leftist wave in place since 2019 is starting to show signs of fatigue. The unfulfilled promises brought about by regular regime change appear poised to enter a new phase of disappointment. 

Although as public sentiment swings from one philosophical position to another, we’re reminded of an 1811 observation by Joseph de Maistre: “Toute nation a le gouvernement qu’elle merite.” ("Every nation has the government it deserves.")

Case in Point: The UK in the 1980s   

Reversing bad policies and introducing good policies—whether they’re of a social, political, or economic nature—takes longer than most democratic cycles.  

For example, consider Margaret Thatcher’s run as Prime Minister of the UK from 1979-90. Even in a political structure that is frequently described as an “elective dictatorship,” Thatcher needed the help of Argentina to win her second election.  

Initially, Thatcher was elected as the UK was mired in a desperate state after misrule by multiple governments of various hues, which had given up power to the labor unions that ruled the country for their own benefit rather than the country’s.  

Following the introduction of various reforms, Thatcher found herself in hellacious battles with various powerful unions that left the country in a poor state and Thatcher deeply unpopular.  

Then came Thatcher’s stroke of good fortune via the dictator of Argentina, General Leopoldo Galtieri. Galtieri thought it was an opportune moment to take advantage of the chaos in the UK and reclaim the Falkland Islands, or the Islas Malvinas, as they’re known by Argentinians.  

Galtieri did not realize that he had taken on the wrong person. Thatcher quickly dispatched a British Armada and within 10 weeks, the Argentine military was defeated and the Falkland Islands were restored to British rule.  

In a wave of patriotic fervor, Thatcher called an election and received a second term that proved crucial in the implementation of further economic reforms that after eight years started to bear fruit. A third election at a moment of relative economic prosperity was won giving Thatcher a record majority in Parliament. What has followed since her rule has been a slow but steady decline as her successors ate off the fat of the success of her government’s policies.

Argentina’s Tale Doesn’t End There  

A more recent example of failure takes us back, unfortunately, to Argentina.  

Two decades after Galtieri was removed from power, Nestor Kirchner was elected the nation’s President in 2003 and his wife, Cristina Fernandez de Kirchner, served the subsequent two terms between 2007-15. Due to years of destructive and corrupt economic policies implemented by the husband and wife, Argentina was a failing state, having defaulted on payments to the IMF and various other international lenders and investors.  

In a rare moment of clarity, in 2015, the country elected Mauricio Macri as President and he assembled as good a team of reformist and honest technocrats as you are ever likely to see. The hole they inherited, however, was so deep that despite the laudable reform efforts, they simply ran out of time and a disgruntled populace went back to the Peronist well to elect Alberto Fernandez in 2019. 

Today, on the eve of the country’s next Presidential election, Argentina is in an even worse situation, with inflation higher than 100%, a moribund economy, and rampant poverty. Furthermore, the nation is teetering again on the edge of default with the IMF and other large creditors. 

It’s so bad that we now fear Argentina is a permanently failed state.  

The country’s only hope? We believe it would take 10-15 years of the best reforms implemented in the best way and with the munificence of the international lender community to even hope for success. Just as critically, it would take an electorate patiently committed to seeing reforms through, which admittedly would take some pain and sacrifice.  

The List of Un-Investable Countries Growing   

Argentina isn’t alone as we are confronted by multiple examples around the globe of governments that are grotesquely corrupt and implement not just bad policies, but the worst possible policies. And even if there is political commitment to reform and implementation among the ruling party and country’s elite, the peoples’ resolve frequently weakens when individuals realize the whole country must take its medicine for things to get better.  

One used to live in hope that there would be an enlightenment and unfortunately occasionally we invested in such hope.  

But no longer.  

Hope is not an investment strategy and the gulf between the losers and the winners widens every day. Especially since quasi-rationality, or the sense that governments will ultimately act rationally in the end, has disappeared over the last 10 years. 

Governments, including those in the developed world, do really stupid things and continue to do them. Meanwhile, the invasion of Ukraine brought much greater acuity to core risks related to water, food, and energy security.  

More specifically, Argentina, Pakistan, Sri Lanka, Egypt, Nigeria, Kenya, and a few countries are relentlessly slipping into the un-investable bracket with a sense that they might never recover.  

And just recently, Turkey’s populace renewed its faith in President Recep Tayyip Erdogan with strong election day support. Yet, despite Erdogan’s appointment of a Finance Minister and head of the Central Bank of the Republic of Turkey that both appear to have better policy chops, we believe vulnerabilities remain—especially as we remain unconvinced that his commitment to the “more” orthodox policies recently introduced will endure. 

Glimmers of Promise Selectively Surface

The global landscape, however, is not all gloom and doom.  

We take heart in the social, economic, and political reform process that has been introduced in Kazakhstan by President Kassym-Jomart Tokayev. Admittedly, it’s too early to call a victory, but it does seem that he is the rare individual who has risen from within an autocratic structure and genuinely wants to do the right thing.  

And yet, this is the trickiest of paths, especially as powerful well-entrenched oppositional forces remain in existence. So far, however, Tokayev has handled the domestic front with deftness and aplomb. All while he navigates international relations with Russia under its unpredictable President Vladimir Putin.  

The potential good news is that as Putin and Russia self-destruct, the opportunity for countries such as Kazakhstan and neighboring Uzbekistan to move toward a working democracy and clean economic policies increases.  

It takes time, though. And with any reform, there’s pain first, followed by benefits later. When ruling governments switch every four or eight years, getting through the 3, 5, or 10 years required for success can be a challenge. 

Nonetheless, with all due respect to Sir Winston, democracy as a form of government isn’t dead. 

It merely seems to be in an extended coma that is spreading across the globe and making recovery seem more distant every day.