Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
Spring is the time of year when many cultures celebrate rebirth and freedom from oppression. Christians celebrate Easter, Jews celebrate Passover, and Chinese and many other cultures have spring festivals. What does economics have to do with freedom and rebirth? Economist Joseph Schumpeter’s celebrated theory of creative destruction comes to mind.
Schumpeter saw modern market economies as historically unique incubators of innovations and technology. The rise of modern capitalism, from roughly 1800-1950, destroyed old production methods, leading to radical and often wrenching changes in the lives of many. Yet it also generated unprecedented economic growth that improved the quality of life of ordinary people in a way never experienced before.
Since Schumpeter died in 1950, his vision of the market economy being home to relentless and never-ceasing change has become even more prescient. Just compare the latest iPhone to the land-line rotary dial phone of 1960! Few of the largest firms and industries in the 1920s are the largest firms or industries today. Death, destruction and rebirth, followed by unheralded improvements that are often difficult to foresee, are economic parallels to the narratives of religious faith.
Any discussion of economics will inevitably turn to the nature and effects of economic freedom. Ancient philosophers typically considered only the elites—such as government officials, large landlords and high-ranking military officials—capable or worthy of freedom. Most people—such as women, children, workmen, artisans or enslaved people—were of lesser value and neither capable nor deserving of freedom.
Elites also despised merchants and traders. Their freedoms were unimportant and expendable. Yet economic freedom, extended to all, has been a linchpin of the last two centuries’ economic growth and social improvement.
The Fraser Institute’s index on economic freedom looks at four basic economic freedoms: 1) personal choice, 2) voluntary exchange coordinated through markets, 3) freedom to enter and compete in markets, and 4) protecting people and their property from aggression from others.
To no surprise, nations that garner high scores on these measures of economic freedom also enjoy higher living standards than those that score lower, extending even to the poorest 10th of the population. In addition, citizens in countries with more economic freedom also are more literate and live longer than their less-free counterparts.
Broader freedom, better world! Happy spring!•
__________
Bohanon and Horowitz are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
Please enable JavaScript to view this content.
Yes, the four freedoms are important. And they take active support in order to be sustained. Non-compete agreements forced on workers and non-poaching agreements among employers interfere with employee freedoms and lower wages. The massive consolidation we have seen among producers reduces choice for both consumers and employees while raising prices and lowering wages. Long and strong intelectual property rights restrict entry into many fields. Licensing is good for a number of occupations, but can be carried to excess. We need laws and their administration that support the four freedoms. However, we often seem to confuse market-friendly policies with business friendly policies that favor incumbents. They are not the same thing.