Economic Structure and Democracy: Revisiting the Causal Nexus Beyond Growth

Abstract

While many theorists have explored the relationship between the economy and democracy, existing explanations fall short in accounting for the recent wave of democratic backsliding in advanced economies since the 2000s. This decline aligns with reduced productive activity, falling employment, and a shrinking global wage share. The current structural changes call for a new analytical framework, one that goes beyond traditional econometrics and distributional conflict models, to understand the erosion of democracy worldwide better and to inform future policy solutions. In this paper, first, we present an alternative perspective on democracy that emphasizes the integration of formal institutional rights (de jure) with citizens' material economic access (de facto). Second, we examine econometrically the relationship between democracy and some key structural economic variables, such as the labour income share and Human Development Index (HDI), using both static and dynamic panel models (including system GMM) across 101 countries, with a focused analysis on BRICS and G7 nations over the past decade. Our findings suggest that even the liberal democracy indices, which do not account for the economic realities of the society, is also deeply rooted in its structural economic foundations. This insight supports our normative argument for the need to transform current structures to realize a more 'organic democracy', a system that harmonizes formal political rights with collective economic agency, to ensure the sustainability of democratic societies in the global political-economic order.