The Battle Between Political And Economic Freedom

It’s the ultimate political chicken and egg question: which comes first, economic freedom and the market economy, or political freedom and human rights?

Of course, some claim the chicken has no relation to the egg at all. Or worse, chickens are constitutionally incapable of providing eggs – many argue that free markets actively encourage political and civil repression.

The interaction between market freedom and social freedom is one of the most important questions in development. It’s crucial to the future of China and the Arab world, and it animates much of the revived anti-capitalist movement.

So a recent paper by two European economists, Indra de Soysa and Krishna Chaitanya Vadlamannati, is extremely important. Published in the journal Public Choice in July this year, the paper sets out to determine, as empirically as possible, whether human rights violations truly are the unhappy companion of pro-market economic reforms.

Soysa and Vadlamannati compare two sets of data. The first is the CIRI Human Rights Dataset, which assesses human rights practices in 195 countries – in particular the rights not to be tortured, summarily executed, imprisoned for political beliefs, or to be “disappeared”. Using US state department and Amnesty International sources, the coordinators of this dataset give each country a single human rights score.

The second is the Fraser Institute’s Economic Freedom of the World Index, which assesses 42 indicators of economic freedom – from property rights to tax rates to the regulatory burden – also spitting out a single score.

These are the two most comprehensive and authoritative indexes we have at the moment. Soysa and Vadlamannati also control for other factors which might affect the results: a country’s size, for instance, can make governing hard and therefore make repression more likely. Same with entrenched ethnic differences. By contrast, economic growth calms both population and government, so they control for that too. The famous “resource curse” has unpredictable effects, so they also factor in how dependent each economy is on oil exports.

And, critically, the authors control for democracy. Just because a country is democratic provides no guarantee human rights will be protected. The tyranny of the majority makes democracy an unstable foundation for civil liberties – unless there are significant countervailing pressures like a liberal culture or a free economy.

Even after taking all those factors into account, Soysa and Vadlamannati find that market-orientated economic reform is unambiguously beneficial for human rights. Between 1981 and 2006, freer economies have been freer societies.

This shouldn’t be a surprise.

Market reform takes economic power away from political interest groups. Indeed: it eliminates much of the financial reward from politics. In a market economy there are none of the vast sums of money to be made controlling nationalised industries. Economic freedom undermines power rather than strengthens it.

Property rights are revolutionary – reorientating sovereignty from the state to the individual. And private competitive industries mean people do not have to rely on the government and patronage for employment.

The liberating effects of economic freedom are particularly strong in the developing world. In the 20th century, many poor countries merged their traditional autocracies with socialist economics. The result was corrupt bureaucracies and networks of political power controlling entire economic systems.

Of course, market reform in these countries has to be done well. Crony capitalism can easily perpetuate corruption – an issue faced by countries like China. But when reform is done well, it breaks down those entrenched power structures.

So then why have we heard for the last two decades that market reform and globalisation are threats to human rights?

Many academics specialising in “globalisation studies” have long argued that humanity is being trampled by a single-minded race for corporate profits. And Naomi Klein’s bestselling Shock Doctrine: The Rise Of Disaster Capitalism claimed the greatest human rights violations of the last 35 years have been by governments terrorising their own population to prepare for privatisation and market liberalisation. For Klein, political repression is a necessary precursor to free market reform.

Soysa and Vadlammanati’s paper demonstrates just how wrong this claim is. And how desperate. The first-comes-privatisation-second-comes-murder story is apparently too seductive to check. Perhaps that’s because it gives otherwise dry debate over political economy a moral dimension. But more likely because it implicitly claims corporate power is more dangerous than state power – exactly the story you’d want if your goal was to increase state intervention in the economy and society.

The Public Choice paper finds that even edging towards economic reform is positively correlated with human rights protections. For the chicken and the egg question, this suggests economic freedom comes first.

Market reform is good for human rights. The corollary is true as well: reversing that reform, or simply delaying it, can be bad. We should be worried how the global financial crisis has taken much of the energy out of pro-market reform in the third world. Combine lack of reform with an increased likelihood of political unrest when economies stagnate, and the risks to human rights over the last few years have grown substantially.

The anti-globalisation crowd – by fighting economic reform in poor countries – could be unintentionally encouraging the human rights problems they claim to oppose. Economic freedom and political freedom are part of the same package.