Washington – The United States and other democracies can help nondemocratic governments realize that press freedom and the rule of law are essential to healthy capital markets, the head of the U.S. securities regulatory agency says.

Securities and Exchange Commission (SEC) Chairman Christopher Cox said March 14 that engaging nondemocratic countries economically by itself is unlikely to lead to the expansion of democratic freedoms.

He suggested that pro-democracy efforts must be broader and more specific to help both governments and the general public understand the economic benefits of freedom of speech and other democratic institutions.

Cox was speaking at a joint meeting of the National Endowment for Democracy and the Foreign Policy Association in New York.

He said the work of democracy promoters has been made more difficult by rapid economic growth in such countries as China and Russia.

The economies of the two countries have grown, the Chinese at a rapid pace, while their move toward democracy either has stalled or been reversed, Cox said.

“The question is no longer ‘will economic liberalization lead to political liberalization,’ but rather ‘is rapid economic growth in these nations even compatible with democracy?’” he said.  

Cox said many people in China and Russia are fed propaganda by the state-controlled media and perceive democracy and a free press as a threat to, rather than a necessary element of, economic growth.

He said those people often erroneously view U.S. efforts to expand democracy in their countries as veiled attempts “of a competitor seeking to contain their nation and to inhibit its greatness.”

Cox acknowledged that economic growth produced by nondemocratic systems makes democracy promotion more difficult. But this should not discourage world democracies from economic engagement, particularly when emerging and developing market nations try to advance their economies, he said.

Cox said that neither China nor Russia has capital markets capable of producing the investment their growing economies will require. For those markets to mature and succeed, China, Russia and similar countries will need the basic ingredients of market freedom, he said.

Cox cited as such ingredients shareholders’ rights and related legal remedies, an independent regulatory body, the rule of law and an unrestricted flow of information about publicly owned companies.

Transparency and the free flow of information are particularly important for market efficiency and investor protection, he said.

“That is why China’s and Russia’s restrictions on the media … are of direct concern to investors,” Cox said.

As U.S. regulators work with their foreign counterparts, he said, the implicit message they try to impart is that markets cannot be truly free and efficient without the freedom of speech and information and the rule of law.

The  full text of the remarks by Cox is available on the SEC Web site.

For more information on U.S. policies, see Russia, The United States and China, Freedom of the Press and Rule of Law.