[Note: This is an essay I wrote for university around 2009 or 2010. This would explain the ancient sources. Nevertheless, I believe that the topic this deals with is timeless and that a resolution has not yet been achieved, and so, this is my take. I have edited this for clarity and grammar, and to address points which my professor wrote in the margins of the paper.]
The question of whether democracy leads to development or is it development that lead to democracy? Is a very contentious issue in development studies? Furthermore, given the direction of said causality. How will is this apply to Philippines government policy.
In order to better understand the whether democracy brings development or vice versa, I surveyed some studies and hoped to draw a definitive conclusion to the question of causality. However the results of this review of literature were inconclusive because of the great variation in the methods and results of development literature. It seems that the assertion that economic growth will lead to political development, and the reverse, that democratization will lead to economic growth are equally valid in light of empirical testing.
In recent years however, it seems tat the idea that democracy comes before development has become more dominant than the reverse especially now that the theory that authoritarianism is more conducive to democracy has been debunked. However, I find it hard to ignore the Lipset Hypothesis—that Democratic countries can only exist at a certain level of development—because of its inherent “reasonableness,” and the fact that it is an empirical regularity.
I believe, as former South Korean President Kim Dae-Jung suggests, that economic growth and democratization are “Two Wheels of a Cart,” referring to the fact that both mutually support each other,  and in the case of the Philippines, both development and democratization must be pursued together and not at the other’s expense.
Review of Literature
The first thing one needs to understand is what is meant by the words “democracy” and “development.” Democracy can be defined in the minimalist sense—by the mere presence of elections; or leaning towards a more liberal democratic type. In fact, Larry Diamond provides a list of the kinds of government according to the degree of democracy or freedom, namely in descending order of democratization: (1) Liberal-accountable; (2) Liberal-(partially) irresponsible; (3) Semi-liberal and; (5) Pseudodemocracies. There is also the Gastill Index or more commonly known as the Index of Freedom from freedom house. Development, on the other hand, would refer to economic development, as in a rise in income for members of society followed by a noticeable improvement in living standards. It could be argued, however, that the development that occurs should also be of a sustainable and holistic type.
Literature that focuses on the question of the causality between democracy and development usually takes the nature of Longitudinal and Cross-sectional analyses of countries. In other words, a set of countries is chosen and amongst themselves and try to quantitatively correlate the countries’ level of development (using development indices) with political system they have. The same system is used to test if development leads to democracy or vice versa. Using the same type of studies, research yields differing results. Vanhanen surveyed several studies that seem to confirm the hypothesis that development promotes democracy. Alesina and Perotti seem to have come to the same conclusion with their survey of literature. In their survey, they have studies that seem to say that democracy more often than not has a positive effect on the economic development of a country although there are studies that show a negative correlation to growth.
Gerring, Bond and Brandt criticized existing studies on the direction of the causality because existing literature “rests on a set of econometric findings in which democracy is treated as a more or less immediate cause.” The problem with this is that current literature neglects the importance of a country’s history in the success or failure of its democracy in bringing development. The finding of their study is that democracy has a positive relationship when taken as a stock variable and not as a contemporary variable. One implication of this study therefore is the fact that the relationship between democracy and economic growth is of a non-linear nature.
In the context of this essay these literature points to three things: First, one can now see that democracy and development are not nominal terms, they have nuances, the Philippines for example is considered by most people as democratic, however, according to Larry Diamond’s categorization, the Philippines is only in the “semi-liberal” scale; secondly, one can see that development does not promote democracy and democracy does not promote development; and third, that the relationship between democracy and development is non linear (and the reverse as well, by implication) and that the fairer methodology would be to conduct country case studies.
Which Comes First?
It is either that development is conducive to democratization because of the Lipset Hypothesis that states that when people have achieved a certain level of economic and physical security will they start participating in political activity; or that democratization is conducive to development since it promotes civil and economic liberties and “human development.” Thus, once can see that democracy does not contribute to growth directly, rather, it targets the source of development which is the people. Ultimately, it is in seeking both democracy and development simultaneously that one gets both.
Another argument that democracy and development should go together is the fact that survival rates of democracies increase as national incomes rise, this has been empirically proven. For example, when per capita income (in Purchasing Power Parity or PPP) is at $1,000, the democracy is expected to last about eight years. Between $2,001and $3,000, life expectancy is 26 years. Above $6,000 democracy is “immortal.” Distribution of income is also very important in a democracy for the equity of distribution will affect how fast the economy grows. Definitely, a democracy would need to find ways to make money or redistribute wealth efficient and equitably if it is too survive.
This may lead one to the idea that democracy promotes development indirectly: Democracy promotes development by enhancing social participation and by promoting an environment of freedom. Democracy is a system that promotes social justice, as seen in the powerful assertion of Amartya Sen that famines do not occur in true democracies. Thus, a democracy ideally should allow its citizens freedom to participate in the market, as well as freedom from want of basic goods and insecurity, all of which are conducive to growth.
There is also the theory that states that when a country changes its political system after a long period of authoritarianism, there will be growth that occurs thanks to wealth redistribution and a freer and less corrupt business environment that will likely promote foreign investment in the country. To an extent, this is in line with the idea guiding the Asian Development Bank’s Doing Business Indicators which study government regulations that affect how business will work in a certain country.
So it seems that democracy and development support each other mutually, or like the proverbial “two wheels of a cart.” In fact, democracy and development will become more sustainable theoretically, if policies promoting both are simultaneously pursued.
Development and Democracy in the Philippines
It seems that what the Philippines lacks is democracy. More specifically, this would mean that the feature of a liberal democracy, “good governance” can be improved. What governance means, in this case, pertains no only to the government, but entails the bringing together of different sectors (government, civil society, business sector, etc.) in order to achieve certain goals or development in this context. It is in this context that improving governance would necessarily include improving Philippine standing on the democracy scales.
According to the 2005 Asian Development Bank (ADB) Report on the Philippines, good governance would entail improving on the (1) accountability of officials; (2) participation of other sectors; (3) Predictability especially in the implementation of laws and (4) transparency of government. Improving accountability and transparency is believed to reduce corruption and thereby improving the investment climate. Participation is said to mitigate the “agency problem” or the inability of governments to implement their policies. Predictability applies more specifically to the consistent application of laws. This is said to lower risks for businessmen since it makes the business atmosphere more “calculable” which is a prerequisite to taking risks. Currently, politics and business in the Philippines are characterized by a lack of these basic elements of good governance. There is not much accountability as seen in the rampant corruption in the Philippines, corruption so blatant and widespread, this needs no citation. Participation from other sectors of society also seems weak as there are not many constitutional means to affect public policy—that Filipinos would often take to the streets to be heard is hardly a desirable means of participation; the barriers of getting an elective position are also prohibitively high; and that appointment to public office depends more on who a person knows than what he knows. Transparency of government is not upheld to the level that it should, as the number of journalists “killed” attests to this. Far from being predictable in terms of the consistency of the law’s application, the general sentiment appears that laws are being applied arbitrarily in the Philippines—that the law will be applied according to the ability to pay. More importantly, this “arbitrariness” is not conducive to business, a sector which would much rather prefer a “calculable” legal environment, thus hurting the country’s ability to develop capital and productive capacity, ultimately hurting the country’s ability to develop economically. There are many more defects of Philippine governance worth noting, however, these four areas should already make enough of a case to say that the government should try to go higher up in the freedom scales.
In order to develop Philippine governance, particularly in the area of “participation,” the Philippines would have to raise a lot of its people from poverty—these people would have to be given the necessary material security in order for the Lipset Hypothesis to take place, thus, at least in the area of mass participation in governance, will development necessarily have to precede democratization. This has to be done while at the same time promoting democratization in other areas of government.
What the Philippines needs is neither development nor democracy alone, but both together. Government has to do its part to uplift the lives of its citizens in order to get them to participate in governance. The country needs good governance in order to make the country more “democratic” and thus presenting a better atmosphere for business. However, in order to uplift the lives of its poorer citizens, what is needed is a liberal democratic government as it intrinsically cares about enhancing opportunities for its citizens.
Thus, one can see that both development and democracy are mutually supporting. The development outcomes would also be much more sustainable and equitable if both development and democratization programs are applied, or more concretely, pursue democratization with a focus on where is counts for the most, in the business sectors.
 Halperin, M., J. Siegle & Weinstein. The Democracy Advantage: How Democracies Promote Prosperity and Peace. (New York: Routledge, 2005), p. 9.
 Barro, R. Determinants of Democracy. (Harvard University). P. 21.
 Dae-Jung, K. “Democracy and the Market Economy: Two Wheels of a Cart.” Democracy, Market Economics and Development: An Asian Perspective (Washington DC: World Bank, 2001). P. 1.
 Diamond, L. “Moving up out of poverty: What Does Democracy Have to Do With It?” World Bank Workshop (Washington DC: World Bank, 2003). P. 21-22.
 Supra Note 2 P. 1.
 Vanhanen, T. Prospects of Democracy. (Routledge, 1997). P. 4.
 Alesina, A. & Perotti, R. “The Political Economy of Growth: A Critical Survey of Recent Literature.” The World Bank Economic Review (September, 1994). P. 353.
 Gerring, J., P. Bond, & W. Brandt. Democracy and Economic Growth: A Historical Perspective. (Unpublished Research Paper, 2004). P. 4.
 Ibid. P. 2.
 Supra Note 7 P. 354
 Pei, M. “Political Institutions, Democracy and Development.” Democracy, Market Economics and Development: An Asian Perspective (Washington DC: World Bank, 2001). P. 27.
 Supra Note 7 P. 364
 Sen, A. “Democracy and Social Justice” Democracy, Market Economics and Development: An Asian Perspective (Washington DC: World Bank, 2001). P. 13.
In his argument, Sen cited the example of India as not having suffered a famine since it gained its independence.
 Supra note 2, Abstract
 World Bank. Doing Business 2008: Philippines (Washington DC: World Bank) P. 1.
 Supra note 3
 Asian Development Bank. ADB Country Governance Assessment: Philippines. (Asian Development Bank, 2005) p 2.
 Iqbal, F & J. Il-You. Democracy, Market Economics and Development: An Asian Perspective Ibid. p 35.
 Ibid P. XIII
 Hutchcroft, P. Booty Capitalis,: The Politics of Banking in the Philippines (Ithaca NY: Cornell University Press, 1988). P 32-33.
 Ibid. p. 35