The Right Coast

March 07, 2005
The Relationship Between Economic and Political Freedom
By Mike Rappaport

This issue is one of the key ones for those who prize liberty and civilization. Gary Becker argues that economic liberty promotes political liberty, but the reverse is not as often the case:

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.
One might, then, question George Bush's apparent promotion of democracy throughout the world without economic freedom. I have questioned this emphasis in the past. Yet, there are at least two arguments for Bush's approach. First, democracy is more prized by the people of the world than economic freedom, so it is easier to sell it. It is hard to imagine protests in Lebanon in favor of economic freedom (but wouldn't that be nice). Second, as Richard Posner writes:

I don't think [George Bush's] principal objective was to promote economic liberty in those countries. I think the point rather is that democratic societies tend to be less aggressive militarily than authoritarian societies. The reason is that most people in any society have no taste for the risks and violence of war. Democracies may find themselves involved in defensive wars, of course, but there are very few examples of democratic societies warring with each other; that is, democracies are rarely aggressors (rarely, not never). It is therefore in the U.S. national interest to promote democracy throughout the world, because if all nations were democratic the military threat to the United States would be greatly reduced. It is true that democracy in the Middle East might bring to power in some nations radical Islamist movements. Nevertheless if they were genuinely democrat they would probably find it difficult to rally their people to support a militaristic foreign policy, or to support terrorist movements that might provoke a violent response from the United States.
Assuming then that we can promote democracy, the next task will be promoting economic liberty in those democracies. A neat trick. If we figure out how to do it, it would be great to try it in the US as well.