Economic and Political Freedom: Does One Lead to the Other? BECKER

President Bush’s January inaugural speech stressed the importance of improving political freedoms worldwide: “So it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in the world”. The right to vote freely and other political freedoms are valued everywhere, clearly demonstrated by the happy faces of many Iraqis when they went to vote for the first time in free elections. Pressure to liberalize politically may be spreading throughout the Middle East, as shown by recent small steps toward greater democracy in Egypt, Lebanon, and Saudi Arabia. Men and women “in every nation and culture” also place high value on economic freedoms. These include the ability to own property and have it protected by law and contracts, the opportunity to change jobs, including moving off farms and to different cities and regions, the right to become self-employed, and the freedom to choose among hundreds of varieties of goods and services at competing establishments. The Chinese are so happy with the economic freedoms granted them during the past 25 years that for the moment they have accepted sharp limits on their political freedoms, including a one party system, a controlled press, and attempts to limit access to many websites. Similarly, Indians were content enough with their extensive political freedoms acquired after independence from Great Britain in 1947, so they did not press for economic freedoms until four decades later. Since both economic and political freedoms are highly valued, it is essential to understand how they interact as nations evolve. The history of different countries during the past century strongly indicates that economic freedoms over time typically push societies toward political freedoms. To take a few examples, South Korea, Taiwan, and Chile all started their economic development under military regimes. Korea and Taiwan both began freeing their economies around 1960 after centralized direction of their economies failed to produce economic growth. Chile began opening its economy under General Pinochet in 1981, also after his centralized approach to the Chilean economy failed. Within two decades, all three nations had achieved, or were moving rapidly toward, political democracies, with vibrant competition for elections among competing parties, and a mainly free press. The path from political to economic freedom, by contrast, is slower and more uncertain. It took India over four decades to begin to loosen its extensive controls over private companies, labor markets, start-ups, imports from abroad, and numerous other activities. It still has a long way to go. Mexico has had a free press and considerable political freedom for a century or so, but economic freedoms did not begin to evolve until the latter part of the 1980’s. Israel has fierce competition among political parties, but continues to have an overly controlled economy. To be sure, a few case studies are not conclusive, partly because one may pick and choose to come up with favorable examples. So examples have to gain support from analyses of as many nations as possible. International comparisons of these questions were started by the sociologist, Seymour Martin Lipset, and continued by many others, especially more recently by the economist Robert Barro. The consensus among these studies is that countries are likely to become democratic if economic growth succeeds in raising their average incomes to high enough levels. And countries with greater economic freedom, that is with freer markets and more secure private property, produce faster growth and greater prosperity than countries that sharply limit economic freedoms. Moreover, this strong positive relation between economic freedom and growth is largely independent of the degree of political freedom. These studies also find that the effect of political freedom on subsequent economic growth is weak. There is probably greater variability in economic performance under dictators, but on the average, totalitarian regimes and democracies do not differ greatly in their rates of economic progress. I believe that democracies are not especially successful at generating economic prosperity because powerful interest groups develop under democracies (and other political systems too). These groups compete for economic favors that often are at the expense of economic efficiency. For example, democratic nations have difficulty shifting away from policies that say restrict foreign and domestic private investments, as India did for so long, because both government and private enterprises that benefit from these restrictions lobby to continue them. By contrast, when economic freedoms lead to greater prosperity, that encourages a widespread desire for more political freedom. With freer markets,entreprenuers and management travel abroad more often to meet customers and suppliers, and incidentally learn about the freedoms elsewhere. A growing middle class takes trips to other countries, and they send their children abroad to study at top schools. University students read the great works that show the advantages of political freedoms. More families become highly literate as education progresses, and families learn about the world from cable and satellite television, and from the internet. As a result of these activities, a steadily increasing fraction of the population become aware of the political freedoms enjoyed by the leading nations, the great satisfaction from having the right to speak openly, to read conflicting opinions on different issues, and to vote for candidates with competing agendas. They begin to agitate for greater political freedoms, and eventually they become too powerful a force to be ignored. This analysis implies, in particular, that if China continues to grow rapidly, the Chinese people will become increasingly dissatisfied with censorship and their limited political freedom. Already they have much greater freedom than under Mao to voice different opinions, and to criticize the government -if not done too stridently and openly. These forces will gather steam, and I believe they will lead before long to a much more open political process. To be absolutely clear, I am not claiming that people value economic freedoms more than political freedoms. Rather, the argument is that economic freedoms tend to lead before long to political freedoms, while the reverse causation is slower and less certain. Put differently, private property and open markets help economies grow, which gives the political process a strong shove toward democracy. For this reason, the President’s inaugural speech should have paid more attention to economic freedoms, along with his stirring and convincing case for democracy.

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