Economic Freedom Is Best Policy

Of course, we now live in different times. The critics of free trade are still there, but the enthusiasm of the free-traders somehow has faltered and withered away. Even if one does not agree with them, one cannot help but admire the critics of free trade for their stubborn obstinacy. Since the days of Cobden and Bright, the same old argument has been repeated and repeated and repeated all over again. Free trade, this argument says, serves only those who are already rich and want to become even richer. The poor are deliberately made poorer while unhampered market forces are unleashed against them. Over time the argument has come up in several disguises—a nationalist one, a socialist one, and today a politically correct one. But essentially it has remained the same.

The persistent repetition of this argument over more than 150 years has not made it intellectually more valid, but it obviously has helped to anchor it deeply in the minds and hearts of the people. If you look back in historical perspective at those who predicted that free trade would impoverish the already poor, you will find nothing but a mass grave of false prophesies. Indeed, classical liberalism, under which free trade flourished so much, has been the most successful economic policy in world history. In the nineteenth century it put an end to famines in Europe, which were seen as the inevitable lot of mankind. We forget that, for instance, in eighteenth century France nine famines killed more than five percent of the population. When we think of the liberal period of the nineteenth century too much in Charles Dickens’ terms, we ignore that, in those days, this kind of misery was effectively put to an end. Free trade was not the cause of, but the response to misery. When we see famines today, we will only find them under non-capitalist, non-liberal, and non-free-market dictatorships such as North Korea. The era of free trade in the nineteenth century for the first time in human history made wealth for all possible.

That the free market is a source of wealth today is unquestionably true. The data confirm this. The Friedrich Naumann Foundation is one of around fifty co-publishers of an annual study called “Economic Freedom in the World,” which was originally masterminded by no one less than Nobel Laureate Milton Friedman. The purpose of this study is the measurement and the comparison of economic freedom in 118 countries. Measurable indicators like the tax rate, the government share of GDP, and the extent of trade restrictions are used to find the place for each country in a comparative ranking. This is not of mere academic interest. The study has clearly demonstrated that there is a remarkable connection between economic freedom and economic growth. The heavier the burden of government on the individual, the more stagnant becomes the economy. Moreover, by correlating the results of “Economic Freedom in the World” with “standard of living” criteria other than mere growth rates, it has been shown that the freest countries of the world have less illiteracy, less corruption, and a higher life expectancy than the least free ones. This alone should be enough of an argument to say farewell to any form of economic collectivism.

But what does this study say about those “left behind”? We all hear that the gap between rich and poor countries is widening. This is actually true. In the Third World there are poor countries with zero or even negative growth rates, while most countries of the First World are—at least moderately—growing. But this fact is substantially explained only if, again, you correlate it to the degree of economic freedom. Then one can see that the group of the poorest and slowest growing countries is almost identical with those who have not opened their economy and constantly interfere with the freedom of their people. Yes, there are people who are “left behind,” but they are not the victims of free trade or globalization. They are victims of their own governments!

A growth rate taken in aggregate, one could argue, does not say much about the internal distribution of wealth. In the industrialized countries, so the media say, the liberalization of the economy may have created new jobs, but those are only low-skill trash jobs or “McJobs,” as the pundits say in order to add the usual anti-American tone to the argument. The “working poor” is the new stereotype that is supposed to give some rhetorical ammunition for the crusaders against globalization and free trade on the right and on the left. If it was all true it still would be better than the exclusion of the less qualified from the labor market that is practiced by the over-inflated welfare states in Europe. But it is not true at all, at least not in the way it is generally presented. Not only did the new technologies not destroy jobs, they created new and better ones. Those countries that kept their markets fairly open saw an increase in demand for highly qualified employees rather than an increase in demand for the least qualified employees. In the United States, 55 percent of the jobs created between 1983 and 1996 were for the highly qualified, about 32 percent required medium qualification, and only 18 percent required little qualification. Sometimes one should just take a look at the figures to find out what is behind the common stereotypes on globalization.

Is there, then, nothing to do any more? Has the world economy been switched to auto-pilot? Do, as some prophets seem to believe, national governments completely loose their grip on the economy? Is anarchy lurking around the next corner? Again, our discourse on globalization obviously is polluted by all sorts of unrealistic clichés. Government will not perish. It still can solve many of the problems ahead. International governmental or quasi-governmental structures are already established for the solution of those problems that cannot be solved by national governments. I rather fear that we have too many governmental do-gooders on the international scene than too few. The danger is not that governments—whether national or international—will loose control. The danger rather is that they will keep control and steer the plane into the wrong direction.

The present climate of opinion, which is dominated by anti-globalization NGOs and media attention to demonstrations against free trade (such as the one in Seattle in late 1999), is not favorable to any reasonable policy approach. We should concentrate on the essentials. The WTO, for instance, must not be overburdened with social and environmental agendas. Yes, there is misery in this world. But the best strategy for help is to begin with the essential tasks of government before we impose Western European standards of welfare-statism and green ideology on other people. These essential tasks are peace, the rule of law, and free trade. We should be cautious with everything that goes beyond this. Governmental arrangements should adapt to the diversity of human civilization. The principle of subsidiarity should be applied as much as possible. Peaceful competition is not only good for the economy, it is also good for governmental arrangements. Hence, we should not harmonize standards of governance where this is not necessary, except that the right of every individual to be free must not be infringed.

Let us remember what happened when the liberal era of free trade of the nineteenth century ended. Everybody was optimistic then. People believed nothing could go wrong anymore. It was, nevertheless, the dawn of a century dominated by war, totalitarianism, and genocide. Don’t let us make this mistake again. Perhaps the free-traders of our time should learn from their predecessors of the age of Cobden and Bright to restore their self-confidence. Or they should learn from their present-day opponents, who diligently repeat their arguments over and over again until everyone believes them—even if they serve the wrong cause! How much better this strategy would be if it served the right cause!