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Sandra Peart: Economic Freedom, Per Contra Interview Continued

PC-  Given the nature of competition, is it possible for all members of a society to benefit from economic freedom, or does it promote an imbalance that is deleterious to some members in a society?

 

SP- People sometimes think that competition in the economy is like a baseball game where someone wins and someone loses. This argument was made in the nineteenth century by the famous art critic, John Ruskin, who opposed free trade.  But Ruskin's alternative was something like non-development -- art, furniture, etc., that were hand made but too expensive for the vast majority of people to enjoy.  The same could be said for Wal-Mart.  As a whole, Wal-Mart has helped get lots and lots of goods to people cheaply. 

 

Economic competition, trade and growth, aren't zero sum, aren't win/loss phenomena.  Instead, they mean that more stuff is made so that there is the possibility of more stuff for everyone.

 

In spite of Ruskin's argument -- and it's sometimes used now to oppose free trade globally -- trade benefits both parties.  You buy a watch from me and you value the watch more than the $10 you give me for it.  I value the $10 more than the watch.  We're both better off than we were before the trade.  Now maybe you got a "better deal" out of the trade than I did:  you benefit more from the trade than I do.  This doesn't mean that I didn't benefit or that my envy of you should make me forego the trade.  I did benefit and I'll likely opt to make the trade again.  The same could be said for international trade.  2 countries think about reducing tariffs.  Both will benefit, but one may benefit more than the other. 

 

PC- How do government policies affect economic freedom?  Could you give specific examples of how a government policy would effect a person's economic freedom?

 

SP- Suppose I want to live and work where the expected benefits for me (and my family) are greatest.  I'm Canadian.  I decide to work in the United States and I get a job and a green card to do so.  Canadian-American relationships are such that I'm able to do so with minimal problems (though there is still a lot of red tape to go through!). 

 

But what if I live in a country that won't allow me to emigrate?  I'm forced to stay there, against my will, and to work there at a job that doesn't reward me as well as the job I want to take in another country.  This is perhaps the worst sort of restriction on human economic freedom -- an absolute prohibition on doing what's best for one and one's family.  It's a sort of forced habitation.

 

There are many, less extreme examples of how governments impinge on our economic activity every day.  I work in a city (Berea) that forces me to pay income tax even though I don't live in the city and I use few of its services.  Being an academic, I watch students struggling to fill out paperwork to obtain government assistance for their college degrees.  Every institution of higher education across the country now has banks of persons we've had to hire simply to help students figure out increasingly complex student loan information. 

Continued Below 

PC- Joel Miller, in his book Size Matters, argues that big government has a measurable negative impact on economic freedom.   Do you agree with that assessment?  If so, are those measurements consistent globally?

 

SP- To the extent that big governments impose heavy tax and regulatory burdens on their citizens, then, yes, large governments reduce economic freedom, all else equal.  But this doesn't mean that all countries with large governments are going to be less free than countries with small governments (because of that "all else equal" phrase).  Suppose a country has a small government that is headed by a dictator.  His (or her) government is small simply because there aren't many resources in the country.  But he keeps his government intact by impinging on the economic freedom of his people.  His country is less free than (say) the people in Canada or the US, both with larger governments than his.

 

We can find examples of countries that are economically "free" but whose governments have large fiscal burdens.  Using the Index of Economic Freedom, Israel scores 2.0 overall on the freedom index but 4.1 on the fiscal burden measure.  The measure for fiscal burdens includes year to year changes in government spending relative to GDP.  The US has similar scores to Israel, of 2.0 for economic freedom overall and then 3.9 for fiscal burdens.  Countries like Iran and N. Korea score high across the board i.e. are unfree and have high fiscal burdens.

 

PC- Are there specific ways to measure a government's effects on economic freedom?

 

SP- There are some variations, but most freedom measures take account of  i) the size of government (expenditures, taxes, enterprises); ii) the legal structure and security of property rights; iii) access to sound money (monetary policy); iv) international trade; v) regulations on credit, labor and businesses.  (These categories and groupings are taken from the Economic Freedom Watch, published by the Fraser Institute.)

 

PC- Do factors such as stability, regulation and corruption affect economic freedom?  If so, how does a society best cope with these factors to facilitate economic freedom?   For instance, how does a society balance regulation and free markets to promote an equitable system, or does a free market provide its own regulation?

 

SP- Absolutely.  Political economists since the time of Adam Smith have wrestled with the question of balance.  In the late twentieth century, James Buchanan took the insights of classical political economists and updated them for our policy world, arguing that we should presume our policy makers are neither more nor less public spirited than (say) our neighbours.  So, we should trust policy makers with as many -- or as few -- economic choices as we would trust our neighbours.  We should be as willing, but no more, to let a politician choose for us as anyone else, when it comes to such issues as where and when we go to college, how much to save for retirement, or how many children to have. 

 

But where does equity come into the picture?  Although there are of course within country variations, one robust result of the freedom studies is that economic freedom tends to promote prosperity and growth.  The bottom fifth countries in economic freedom have per capital income of $2,409 US, while the top fifth most free countries have per capita income of US$25,062 (in 2003), according to the EFW 2005 report.  Economic growth follows similar patterns at least for the bottom and top quintiles.  Life expectancy for the top quintile is 77.7 yrs; it is 52.5 years at the bottom quintile of freedom.  Perhaps the most telling piece of evidence for the perspective on equity has to do with child labor -- in the least free fifth of nations, 22.6% of children work in the labor force; while in the top quintile of free nations, only one tenth of one percent of children work.  Removing close to a quarter of the children from the opportunity to obtain basic schooling, is surely a means by which inequity is perpetuated.  John Stuart Mill wrote that equity is matter of ensuring all start fair in the race of life; child labor -- often coerced and rarely chosen freely -- means the starting line will be grossly uneven.

 

PC- Is there anything else that you would like to add to explain how economic freedom relates to individual freedom?

 

SP- The research that David Levy and I have done on hierarchy and equality in the 19th and early 20th centuries leaves me convinced that, historically, choice has been restricted and competition has been limited in order to preserve hierarchy, not equality.  In The Vanity of the Philosopher:  From Equality to Hierarchy in Post-Classical Economics (UMich Press 2005), we show that commentators in Victorian England who criticized economic growth and competition lamented the passing of a supposedly ordered but hierarchical world and the coming of a democratic age in which workers might choose their own art forms and make other, possibly more significant, economic and political choices.  Political economists at the time advocated for broader economic and political freedoms for the laboring classes as the means by which workers would improve their standards of living.  The most repressive of all policies, eugenic forced sterilizations, were "justified" well into the twentieth century by "well-meaning" "experts" in the name of the "general good".  Such an episode in the history of policy making provides a cautionary tale when it comes to freedom and equality:  when policies that would not be otherwise freely chosen are imposed on a subset of the populous, one must wonder whether, in fact, they serve the broad population or a small subset of it; whether freedom is being curtailed in order to benefit the few.

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