My thoughts are based on the book The Economic Origins of Dictatorship and Democracy by Daron Acemoglu and James Robinson. The book discusses how the economic conditions of countries affect their paths of political institutions. Here the word “democracy” is defined by Schumpeter to be
The institutional arrangements for arriving at political decisions in which individuals acquire power to decide by means of a competitive struggle for the people’s vote.
There are four paths of political development: nondemocracy to democracy (Britain), unconsolidated democracy (Argentina), nondemocracy without repression (Singapore), and nondemocracy with repression (South Africa before the collapse of the apartheid regime).
Social choices are conflicting because there are two groups: the elite and the masses. Here the elite might be the (relative) rich and the citizens be the (relative) poor. In a nondemocracy, the political institutions represent only the interest of the elites who have de jure political power. But the citizens have de facto political power in a sense that they can launch a revolution to topple the existing political institutions. This is referred to as a revolution threat. Faced with a revolution threat, the elite can repress or make a concession. When costs of repression are low (South Africa in apartheid regime), they choose this. Otherwise they make a concession. For the latter choice, they have to transfer the de jure political power to the citizens. Because de facto political power is transitory, citizens require long-lasting political institutions to ensure that majority preferences will be the yardstick of future policies.
For democracy to make it, the society should be moderately unequal, because there’s no reason to adopt democracy in an egalitarian society and too much inequality will greatly increase the burden of the elites once resources are redistributed. I find the inequality argument convincing. If the country is too unequal, on the one hand the citizens want very much to revolt, on the other hand the elites take all means to repress. The result is bigger loss of physical and human capital, and an unstable regime or even one switching between democracy and nondemocracy
The composition of wealth also matters in the process of a country’s potential move to democracy. If the major source of income is land, it can be easily taxed, so land owners are more afraid of democracy for its redistributive nature. By contrast, if the main source of income becomes human or physical capital, it is harder to tax them and the elites who own them fear democracy less.
The level of democracy cannot be easily measured, mainly because not all the countries have the institutional arrangements of democracy. There are measures like the Freedom of Houses Index and Composite Polity Index and so on. Countries with higher income and education level are generally more likely to be democratic, but correlation is not causation and once we take out many country specific factors, the relationship is not so significant.
Daron Acemoglu and James Robinson. The Economic Origins of Dictatorship and Democracy. Cambridge University Press, 2005, chap 1-3.