Treasury Secretary Janet Yellen: Protecting democracy is vital to safeguard strong economy

Democracy matters in and of itself. I believe this deeply. But I also believe deeply that a strong democracy is critical to building and sustaining a strong economy.

My conviction is rooted in the United States. I believe our democratic system, however imperfect, is central to our economic strength as the largest economy in the world, with the deepest and most liquid capital markets and the global reserve currency.

My conviction is bolstered by economic research, including a recent study finding that democratization increases gross domestic product per capita by about 20% in the long run, and by what I have observed and studied throughout my life.

But democracy is now under threat. At home, years of attacks on our democratic norms and institutions reached an unprecedented extreme on Jan. 6, 2021, with the attempt to block the peaceful transition of power that is at the heart of our (and any other) democracy.

Russian President Vladimir Putin’s authoritarian regime continues to devastate Ukraine’s future and undermine the rules-based international order. We see democratic backsliding and repression increasing around the world.

Weakening democracy undercuts economic strength

Many question whether democracy can deliver. Some even go so far as to argue that chipping away at democracy is a fair or even necessary trade for prosperity.

Let me be crystal clear: They are wrong. Undercutting democracy undercuts a key foundation of sustainable and inclusive growth.

In robust democracies, free speech and free elections means of voicing demands between elections – from public comments to protests and the free press – hold government accountable. This can help government drive economic policymaking that meets people’s needs, such as investments in public goods like health and education, and correct course over time.

Freedom to participate in the labor force drives growth by bringing more people into the economy, while the free flow of knowledge and ideas drives entrepreneurship and innovation.

And the rule of law, upheld by strong and independent institutions, gives individuals and firms the predictability and confidence they need to invest and grow their businesses. 

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In authoritarian regimes, the absence of these democratic pillars undercuts economic growth.

In Russia, repression over decades has driven highly educated workers from the country, taking their skills, ideas and capital with them to launch some of the world’s leading startups not from Russia but from the United States and other jurisdictions.

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Now, Russia’s brutal and unjust war against Ukraine is further damaging its economic outlook, with its people and businesses bearing the economic costs.

As for China, there is no denying that it has achieved a massive economic rise over the past few decades. However, the absence of the pillars I have described, including censorship and limits on transparency and coercive actions against firms, will continue to pose challenges as it navigates transitioning to an advanced economy.

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This is not to say that any country fully lives up to the promise of democracy, and ours is no exception.

America’s working families have faced challenges for far too long − from communities hollowed out by deindustrialization to stagnating real wages. We have seen a rise in deaths of despair. This has led some to question whether our system of government still works for them and their communities.

Since the start of this administration, President Joe Biden and I have worked to show that democracy can, in fact, deliver. We took office in the depth of the recession brought on by the pandemic and responded by providing funding unprecedented in its scale and in its flexibility, designed to reach every city and town and meet the needs of every American.

Our intervention saved lives, kept people at their jobs and in their homes, and allowed businesses to stay open. America bounced back quickly, with a recovery that was both historically fast and historically inclusive, reaching communities that for too long had been left out of America’s economic success.

Now, we are designing and implementing President Biden’s Investing in America agenda so that no community or worker is left out or left behind. This means spreading economic opportunity beyond the coasts and wealthy enclaves and making sure that workers without college degrees can get ahead.

Though we have much more to do, the results are promising − from infrastructure funding disproportionately benefitting lower-income states to the vast majority of clean energy investments since the passage of the Inflation Reduction Act being announced in counties with lower college graduation rates and lower median incomes.

And that same commitment to democracies that deliver has shaped our diplomacy and foreign assistance around the world.

I feel immensely fortunate to have been born and spent my life in America and to have benefited from the opportunities American democracy provided me. But there are too many people across this country and around the world who have not had such opportunities. That is not reason to question the value of democracy.

At this critical moment, I believe we have no choice but to do everything we can to protect it so that it can deliver, for Americans and for people elsewhere.

Our collective economic future depends on it.

Janet L. Yellen is secretary of the U.S. Treasury.