How have attitudes towards economic growth changed since the 1990s?

This question is of some interest in its own right, but my interest also stems from the relationships between the priority which people give to economic growth, growth outcomes and emancipative values that promote widespread opportunities. One particular issue that I want to explore is whether the growth of emancipative values must eventually come to an end because it involves, among other things, more emphasis on “people having more say in how things are done” (e.g. workplace democracy) rather than economic growth. My last post explains the context more fully.

For a couple of decades now, World Values Surveys have been asking people to choose from four options what they consider to be the most important aim for the country they live in over the next ten years.  The options are: a high level of economic growth; strong defence forces; people have more say about how things are done; and trying to make our cities and countryside more beautiful.

The focus of the following analysis is on the United States, Sweden, Australia and New Zealand. Sweden is of particular interest because it has high and rising emancipative values, the US is of interest because it is at the centre of the universe, Australia is where I live and NZ is nearby - just across the ditch. The surveys were conducted in 1995-98, 1999-04, 2005-09, 2010-14 (referred to respectively below as 1996, 2002, 2007 and 2012). I accessed the data using the World Values Studyonline data analysis facility – which is great for this kind of exercise.

The first chart shows how the priority given to economic growth has changed over time for all four surveys for which data are available and the second shows in more detail how priorities have changed since the mid 1990s.

The first chart shows that people in the United States tended to give relatively low priority to economic growth at the time of the first three surveys. The second chart suggests that the increase in priority given to economic growth in the latest survey has occurred at the expense of a decline in priority given to people having more say. The change in priorities presumably reflects a tendency for people in the US to feel poorer following the GFC.

The relatively high priority given to economic growth in Sweden in all four surveys is particularly interesting in the light of the high and rising emancipative values in that country. It seems likely that priority given to economic growth in Sweden was lower during the 1980s, before an economic crisis in the early 1990s. The WVS indicate that priority given by people in Sweden to having more say (aims of respondent data) was certainly much higher in the early 1980s than in the mid 1990s.

This analysis supports the general conclusion that I have been coming to from previous posts that my doubts about whether the rise of emancipative values in wealthy countries will be sustainable may not be well founded. There seems to be fairly strong grounds for optimism that voters in wealthy countries are capable of managing the tension between their non-economic social objectives (e.g. their desire to have more say) and their desire for the things that economic growth can buy.

Which countries have national ideologies that support widespread opportunities for individual flourishing?

If you have not been following this blog closely you might find my answer to this question to be surprising.

Perhaps I should begin by listing some propositions that are supported by earlier posts in this series:

1. As economic development enables people to satisfy their material needs to a greater extent they tend to adopt emancipative values which enable more widespread opportunities for individual flourishing. See my review of Freedom Rising by Christian Welzel.
2. Further strengthening of emancipative values will require prevailing social norms and ideologies to support economic development. The chances of economic development are improved when prevailing social norms and ideologies support economic freedom. See: ‘Can the industrial revolution be explained by the"cool-water condition"?’ and ‘Are culture and economic freedom substitutes or complements in facilitating economic development?’.
3. There is evidence that, other things equal, individualistic societies tend to have smaller governments and that countries with high emancipative values tend to be individualistic. See my discussion of research by Gizem Arikan.
4. There has not been a general tendency for economic freedom to either rise or fall over the last few decades in wealthy countries with rising emancipative values. Economic freedom has fallen in some such countries (e.g. US and Japan) and risen in others (e.g. Sweden and Norway). See: What is the relationship between emancipative values and economic freedom?
5. There is evidence that economic freedom tends to rise in countries with a strong economic growth ideology i.e. where people consider economic growth should have high priority as a national aim and have attitudes favourable to scientific advances. See my last post.

So, one way to answer the question of which countries have national ideologies that support widespread opportunities for individual flourishing is to use the results of the regression analysis in my last post to identify the high income countries which have growth ideologies which are predicted to result in increased economic freedom. The answer is provided in the following chart, in which countries with relatively high average incomes (above $25,000 in US 2005 dollars) are shown with a red marker.

Click the chart to get a better view.

One problem with the answer provided in the chart is that it is based on surveys conducted during the 00s. In my next post I will consider whether more recent WVS survey data relating to growth ideology shows a different picture.

Can we identify the characteristics of national ideologies that promote economic freedom?

I have had to revise my views about the characteristics of national ideologies that promote economic freedom after undertaking some  research using World Values Surveys (WVS). I used data from surveys conducted around 2000 and during the first decade of this Century.

The set of questions I thought would be most relevant relate to such things as attitudes to competition, potential for hard work to lead to success, wealth accumulation, income inequality, government ownership and increased government responsibility. So, I spent a few hours standardizing data in order to average it and derive an index of economic policy attitudes. 

The next set of questions that I thought would be relevant relate to confidence in major companies and confidence in organisations that tend to interfere with markets (the government, political parties, parliament and civil service). I thought that economic freedom was more likely to increase in countries where there was greater confidence in big business than in government agencies.

Another question that I thought might be relevant asks people to choose from four options what they consider to be the most important aim for the country over the next ten years.  The options are: a high level of economic growth; strong defence forces; people have more say about how things are done; and trying to make our cities and countryside more beautiful. I thought that people who favoured a high level of economic growth might possibly tend to favour increased economic freedom. I wasn’t over-confident about that, however, because people who claim to be in favour of high economic growth often seem to me to be inclined to espouse hair-brained ideas for government interventions to advance that objective.

Finally, I thought a question relating to opinion about scientific advances might be relevant. I wasn’t sure whether people who are confident about scientific advances might be more prone to think rationally about economic policy, or whether they might be prone to scientism and have an irrational attachment to government planning. Anyhow, I also included a variable based on the percentage in each country who think that scientific advances are likely to help mankind.

The regression model sought to explain change in economic freedom over the period 2001 to 2011 in terms of initial economic freedom, as well as the four variables discussed above. My rationale for including the initial level of economic freedom is that the higher the initial level of economic freedom, the more favourable ideology must be in order to produce a further increase in economic freedom. The estimated coefficient on that variable was negative, as expected.

However, to my surprise, the estimated coefficients on the economic policy and confidence in business variables had the ‘wrong’ sign and were not significantly different from zero. Leaving those variables out of the analysis made very little difference to the estimated coefficients on other variables. Regression estimates for the revised model are as follows:

Intercept                                 1.250   (0.734)

Economic Freedom 2001        0.740  (0.081)

Economic growth priority       1.058   (0.377)

Science helps                          0.449   (0.373)

Adj. R²                                     0.60

Changes in economic freedom predicted by the model are compared with actual changes in economic freedom in Chart 1.

The outliers in the chart are of some interest because they show the importance of factors other than the prevailing growth ideology of the population – an obvious factor is political leadership – in causing changes in economic freedom. The results support the view that the anti-economic freedom policies followed in Venezuela and Argentina, for example, do not have much support from the populations of those countries.

The results of the regression analysis suggest that a country like the US or Australia with a relatively high level of economic freedom (i.e. a rating of about 8)  would need to have prevailing attitudes toward economic growth that are around average (relative to the countries included in the analysis) in order to avoid a decline in economic freedom. That may actually be less likely to happen than you might think because people in countries like the US and Australia tend to give lower priority to economic growth than do people in countries with lower average income levels. I will discuss the implications in my next post.

What is the relationship between emancipative values and economic freedom?

Followers of this blog will know that I have recently written several posts on topics related to this question. However, I will do my best to ensure you can understand what this post is about without having to read earlier posts in the series. I will try to pull the threads together in a subsequent post.

Emancipative values, as defined by Christian Welzel in his book Freedom Rising, are about such things as individual autonomy, choice in relationships, gender equality, freedom of speech and democracy. Economic freedom is about such things as the right to use your own resources for whatever purposes you choose including mutually beneficial activities with others.

There is no, in principle, reason why emancipative values should conflict with economic freedom. The niggling issue at the back of my mind is that emancipative values are being expressed increasingly in affirmative action to create ‘entitlements’ that restrict economic freedom.

An obvious place to start in considering the relationship between emancipative values and economic freedom is with an international comparison of the type presented for 58 countries in Chart 1. The chart is based on data on emancipative values from WVS surveys conducted mainly in the first decade of this century and Fraser Institute economic freedom data for 2011.

The most striking observation from the chart is that while emancipative values are weak in some countries with high economic freedom, no countries with low economic freedom have strong emancipative values. That is consistent with the view presented in earlier posts that economic freedom improves the odds in favour of economic development and economic development tends to lead toward the strengthening of emancipative values.

According to that view, we might expect a strengthening of emancipative values in Singapore in the years ahead. The chart also suggests that there is something odd about the combination of economic freedom and emancipative values in Venezuela – hopefully adjustment will occur by restoring economic freedom rather than through a weakening of emancipative values.

It is also evident from the chart that the US is no longer exceptional in terms of either emancipative values or economic freedom. Not only does the US have emancipative values that are weaker than in Sweden and Norway, it now also has levels of economic freedom lower than in Switzerland and New Zealand. Australia is not much better than the US in either respect.

Chart 2 shows how economic freedom has changed with changes in emancipative values over the last few decades in 36 countries for which data is available.

Click on the chart for a better view.

If a trend line was drawn it would appear to show a negative relationship between changes in emancipative values and economic freedom. That apparent relationship disappears if we just focus on countries with relatively high incomes (above $25,000 in US 2005 dollars) shown in red. There is no obvious relationship between change in emancipative values and change in economic freedom in the high income countries. While the US and Japan experienced a modest strengthening in emancipative values accompanied by a decline in economic freedom, Sweden and Norway experienced both a strengthening in emancipative values and an improvement in economic freedom.

The experience of Sweden and Norway goes some way toward persuading me that if the expression of emancipative values conflicts with economic freedom in high income countries, then the economic consequences will unleash social forces to rectify the problem. However, it would be nice to have a better understanding of how the attitudes and ideologies that lead to change in economic freedom are related to emancipative values.

Are culture and economic freedom substitutes or complements in facilitating economic development?

A couple of articles by Claudia Williamson and Rachel Mathers provide a good place to start to think about this question.

The authors construct an economic culture index by identifying four categories of culture likely to encourage economic interaction and hence promote economic development. The categories are: trust (percentage who say most people can be trusted); respect (percentage who choose tolerance and respect for other people as one of the most desirable qualities for children to learn at home); individual self-determination (average rating on a scale of 1 to 10 where the highest rating is given where respondents claims a great deal of control over the way their lives turn out and the lowest rating where they claim no control); and individualism (percentage who choose obedience as one of the most desirable qualities for children to learn is viewed as a negative factor). The data comes from World Values Surveys and culture index scores for each country are obtained using principal component analysis.

The economic freedom data used in the studies comes from the Fraser Institute. This economic freedom index combines economic and institutional variables relating to size of government, monetary policy and price stability, legal structure and security of private ownership, freedom to trade with foreigners, and regulation of credit, labour and business.

The studies use regression analysis in an attempt to disentangle the impact of economic culture and economic freedom on growth in per capita incomes. There are some differences in the conclusions of the two articles.

The first article, ‘Economic Freedom, Culture and Growth’, for which Claudia Williamson is lead author, was published in Public Choice (2011). The authors found that economic freedom is “relatively more important for growth than culture” and suggested that “culture and economic freedom may best be described as substitutes”. They suggested that trust and respect may become less important from an economic growth perspective as economic institutions are established to enforce property rights and contracts. The authors also acknowledged that culture may have important indirect effects on economic growth by promoting establishment of economic freedom.

The second article, ‘Cultural Context: Explaining the Productivity of Capitalism’ for which Rachel Mathers is lead author, was published in Kyklos (2011). This article extends the line of analysis by including an interaction term (the product of the culture and freedom indexes). The authors find that “such interaction does demonstrate a significant and positive effect on economic growth”. They conclude that if economic culture is deficient, “economic freedom alone may not possess the necessary binding constraints to be as effective as theory predicts”.

After reading these articles again I wanted to get a better feel for the data which the authors use. The first chart has been constructed using the summary data provided in Appendix 2 of the Public Choice article. (The culture index has been rebased from a 0-10 scale to 1-10 scale to assist subsequent analysis) The size of the balls in the chart (it would not be appropriate to refer to them as bubbles) represents the per capita income level for each country in 2000 (That year is chosen for consistency with other data used in the studies. The relevant variable is rgdpl Penn World Tables version 6.2).

What the chart shows is, of course, consistent with some substitution between culture and economic freedom – for example, both Singapore and Sweden manage to have relatively high per capita income levels. It suggests, however, that substitution possibilities are limited. The countries that rate highly in terms of culture also tend to rate highly in economic freedom, and vice versa.

The finding in the Kyklos article concerning the importance of interaction between culture and freedom suggested to me that it might make sense to use a Cobb Douglas production function in further regression analysis. The isoquants in Chart 2 have been constructed using the coefficients of such an analysis. The isoquants show the differing combinations of culture and freedom that are estimated to produce a given level of average income. The per capita income level of the US in 2000 was about 4.25 times that of Mexico, which in turn was a bit more than 4.25 times that of Ghana.

 (For those with an interest in such esoteric matters, the estimated coefficients of the regression are as follows:

Intercept         2.44 (0.64)

Ln Culture       0.66 (0.21)

Ln Freedom     3.20 (0.47)

Adj R²= 0.68

N=81)

If the isoquants are interpreted as reflecting a production function, the Chart suggests that in the absence of a supportive culture, high levels of economic freedom cannot produce high average income levels. However, it might be more appropriate for the isoquants to be interpreted as being determined simultaneously by interaction between culture, economic freedom and development levels. Under that interpretation, a high level of economic freedom is unlikely to be sustainable in the absence of some cultural support because law and order problems would constitute a major threat to lives and property.

It seems to me that in trying to put together a plausible story of economic development, it makes sense to speculate that interactions between culture and economic freedom facilitate market exchanges, which in turn provide incentives for participants to gain reputations as being worthy of trust. As people become more trustworthy and trusting, and more respectful of the rights other people, they could be expected to support greater economic freedom. We may thus observe a virtuous cycle where economic freedom promotes economic development and economic development promotes a culture supporting greater economic freedom.

However, I have yet to provide a satisfactory answer the question raised in my last past of whether emancipative values (as defined by Christian Welzel) support economic freedom.

Do emancipative values support economic freedom?

What do I mean and why should you care?

Emancipative values, defined by Christian Welzel in his book Freedom Rising (discussed here) cover values relating to autonomy, choice, equality and voice (democracy). There are two reasons why you should care whether emancipative values support economic freedom:

• First, people tend to have happier lives in societies with strong emancipative values. As more countries have experienced economic development and accompanying improvements in material living standards, a rise in emancipative values has resulted in more widespread opportunities for individuals to flourish.
•  Second, societies have a better chance of being able to sustain improvements in material living standards if their values support economic freedom. As discussed in my last post, there is evidence that the industrial revolution, which began the process of economic development, was influenced by a change in values toward support of economic freedom.

The question of whether emancipative values support economic freedom is too big to answer in this post, but I can make a start. My search for literature relating to links between values and economic freedom led me to Gizem Arikan’s article: ‘Economic Individualism and Government Spending’ (WVR: 4(3),2011). Using data from the World Values Survey, the author tested whether countries in which values of citizens are more individualistic have smaller government (as measured by government spending as a percentage of GDP). She found that individualistic societies do indeed tend to have smaller government. She also found that the effect of individualism on size of government is more pronounced in societies with majoritarian elections and presidential systems (which I find very interesting, even though it is not particularly relevant to the present discussion).

The study uses central government spending as its measure of government spending, but allows for the possibility of lower central government spending in federal systems by including federalism as a control variable. Other control variables include per capita GDP, the percentage of the population over 65, democracy, and institutional variables to account for majoritarian and presidential systems. The results are inconclusive on the question of whether high income countries tend to have big governments. The results are consistent with the view that an aging population tends to result in larger government, but suggest that democracy, majoritarianism and presidentialism all tend to reduce the size of government.  

The individualism variable used in the study incorporates values relating to: whether respect for parents should be conditional on their behaviour; ideal qualities for children to learn at home e.g. independence, imagination and feelings of responsibility; and qualities important in a job e.g. responsibility and opportunity to use initiative.

 

There is not much direct overlap between Arikan’s individualism index and Welzel’s emancipative values index. The only components they have in common relate to desirable child qualities. While Arikan’s index focuses on values that relate fairly directly to individual autonomy, Welzel’s index has a broader focus, incorporating values relating to sexual morality (divorce, abortion and homosexuality), gender equality and voice (freedom of speech and democracy).

However, the chart below suggests that there is high correlation between Arikan’s individualism index and Welzel’s emancipative values index.

The surprising observation in the chart is that the Nordic countries – normally thought of as prime examples of countries with big government - rank much more highly than the United States on both the individualism and emancipative values indexes. Does this mean I should reconsider my view of the US as the land of the free? Perhaps we can shed some light on the matter by considering the relationship between emancipative values and attitudes toward big government and competition.

Can the industrial revolution be explained by the "cool-water condition"?

In my last post I discussed how Christian Welzel’s book, Freedom Rising has reinforced me in the view that the story of human flourishing is all about emancipation. As people obtain more action resources (wealth, intellectual skills and opportunities to connect with others) they tend to adopt emancipative values and to engage in collective action to attain more civic entitlements. Life provides greater opportunities for most people as this process occurs.

Before proceeding further it may be worth noting that there is evidence that poor people in low-income countries place value on economic freedom and the right to express their opinions e.g. the survey evidence by Deepa Narayan, Lant Pritchett and Soumya Kapoor discussed by William Easterly in The Tyranny of Experts, p 150 (which was reviewed on this blog a few weeks ago). It is hardly surprising that poor people do not like governments stealing their property or impeding their endeavours to earn more income and then telling them to shut up when they complain. Humans don’t have to become wealthy before they perceive that they have natural rights that should be respected.

In this post I consider whether or not Freedom Rising provides a satisfactory explanation of the conditions that got the ball rolling toward improved civic entitlements by enabling people to achieve higher material living standards, first in western Europe and then in many other parts of the world. It is important to have an understanding of the factors that led to the industrial revolution in order to consider whether a reversal of those factors could cause the processes of emancipation and human flourishing to be interrupted.

Professor Welzel identifies an environmental condition, the cool-water (CW) condition, as the source of the expansion in action resources associated with the industrial revolution. The CW condition is a combination of moderately cold climates, rainfall in all seasons, and permanently navigable waterways. These conditions are important because cool temperatures diminish infectious diseases, decelerate soil depletion and diminish physical exhaustion from work; continuity of rainfall improves land productivity and keeps water sources healthier; and permanently navigable waterways are a lubricant for economic exchange. Under the CW condition, soil is arable without irrigation, small farming households can work relatively large sections of land on their own, there is no need for extended families with many children to provide labour, and families do not have much need for community support. The CW condition enables people to have water autonomy – it prevents a central power from monopolising access to water as a means of controlling people.

 The development of urban markets occurred late in the CW societies, but once urban markets emerged in the CW societies of western Europe, the CW conditions made those societies more vibrant by generating “derivative autonomies, such as autonomy in marketing one’s skills, ideas and produce – the engine of technological advancement”.

It seems plausible to me that the CW conditions improved the odds that the industrial revolution would occur in western Europe rather than in some other part of the world at a comparable stage of technological development, e.g. China. My problem is that narrowing the source to western Europe provides, at best, a partial explanation. Why did the industrial revolution begin in north-western Europe rather than, for example, in south-western Europe?

If we want to answer that question then it seems to me that it is useful to look at economic history and, in particular, the works of people like Joel Mokyr and Deidre McCloskey. I suppose it is predictable that I might take that view since that is the approach taken in Chapter 7 of my book, Free to Flourish, and in posts on this blog (for example here and here).

Joel Mokyr has suggested that the industrial revolution should be referred to as the industrial enlightenment. He argued in The Enlightened Economy that a sustained period of industrial innovation was made possible because the “legitimisation of systematic experiments carried over to the realm of technology”.

Deidre McCloskey presented her views about the importance of value change as follows:

“In particular, three centuries ago in places like Holland and England the talk and thought about the middle class began to alter. Ordinary conversation about innovation and markets became more approving. The high theorists were emboldened to rethink their prejudice against the bourgeoisie, a prejudice by then millennia old. … In northwestern Europe around 1700 the general opinion shifted in favour of the bourgeoisie and especially in favour of its marketing and innovating. … People stopped sneering at market innovativeness and other bourgeois virtues …”.

In Free to Flourish I concluded my discussion of drivers of opportunity in the following terms:

“This account of the historical drivers of opportunity underlines the importance of economic freedom in determining the advance of technology and innovation. Yet, the ongoing expansion of opportunities depends on much more than just formal rules and economic incentives. It also depends importantly on beliefs, ideologies and social norms.

One implication is that inter-personal trust and supportive public attitudes toward commerce need to be recognised as important factors influencing the growth of opportunities. Another implication is that the economic freedom necessary for ongoing growth of opportunities cannot be sustained unless prevailing beliefs, ideologies and norms are supportive.”

The relationship between prevailing values and economic freedom seems to me to be a topic worth exploring further. It would be interesting to see to what extent emancipative values are correlated with values that support economic freedom. Are emancipative values protective of economic freedom, or is there reason to be concerned that such values are leading to increased pressure for “entitlements” that threaten economic freedom and hence the further growth of action resources?

Is the story of human flourishing all about emancipation

Yes, the story of human flourishing is all about emancipation. There is no other word that better describes what human flourishing is about.

At least that is the way it seems to me - and that view has been reinforced by reading Christian Welzel’s book, Freedom Rising, which is subtitled: Human Empowerment and the Quest for Emancipation.

The central idea in the book is that a desire for emancipation from external constraints is deeply rooted in human nature. It stems from the ability of humans to make conscious choices and to imagine a less constrained existence.

Emancipative values remain relatively dormant when people are poor, illiterate and isolated in local groups - they tend to place lower value on freedom of choice and more equal opportunity than on meeting their most basic needs.  Emancipative values emerge strongly as people acquire more action resources (wealth, intellectual skills and opportunities to connect with others). As people recognize the value of civic entitlements, such as the right to vote, they are inspired to take collective action to achieve them.

A society ascends a utility ladder of freedoms as its people obtain more action resources, adopt emancipative values and attain more civic entitlements. Life provides greater opportunities for most people as societies ascend this ladder. That is fundamentally what human flourishing is about in my view.

For individuals, ascending Welzel’s utility ladder of freedoms is much the same as ascending Maslow’s hierarchy of needs. However, Welzel’s emancipation theory has the advantage of being able to explain movement up the ladder in terms of forces of social evolution as well as desires that are deeply rooted in human nature.

Some implications of Welzel’s emancipation theory are capable of being tested empirically. The index of emancipative values used in the empirical work incorporates twelve items from the World Values Survey covering values relating to autonomy, choice, equality and voice (e.g. protecting freedom of speech and giving people more say in government and workplace decisions). Action resources are measured using various indexes of technology, education and national income. Civic entitlements are measured using Freedom House indicators and various other sources such as Vanhanen’s index of democratization.

The results of four tests of implications of Welzel’s emancipation theory are briefly reported below.

First, the empirical work confirms that emancipative values tend to become more widespread as action resources become more widespread. The results indicate that action resources (particularly intellectual resources) strengthen emancipative values at both the individual and societal level, but operate most strongly at the societal level. An individual’s intellectual resources strengthen her emancipative values more when she lives in a society in which intellectual resources are more widespread.

Second, the empirical results reported are consistent with the view that the sequence of change runs from emancipative values to civic entitlements rather than vice versa. Increases in emancipative values are explained by action resources rather than civic entitlements.

Third, evidence is presented that as emancipative values become more widely shared, the dominant life strategies in a population shift from an extrinsic focus on material circumstances to an intrinsic focus on emotional qualities. As emancipative values become more widely shared, people become less preoccupied with their financial situation and their satisfaction with life becomes more closely related to their emotional state (happiness).

Fourth, evidence is presented that a strong sense of general well-being becomes more common as intrinsic life strategies become prevalent. In other words, levels of life satisfaction tend to be higher when life satisfaction becomes more closely related to emotional state rather than material circumstances.

   

To sum up, Welzel’s emancipation theory seems to me to fit the facts pretty well in terms of what we know about the ways in which values have changed and civic entitlements have expanded as living standards have risen.

I will consider in my next post whether or not Freedom Rising provides a satisfactory explanation of the conditions that got the ball rolling by enabling people to achieve higher material living standards, first in Western Europe and then in many other parts of the world. That is not just an important historical question. It is also relevant in considering what factors could cause the processes of emancipation and human flourishing to be interrupted in future.

Should we put our faith in development experts or democracy?

The Tyranny of Experts, by William Easterly, is an important book which deserves to be read by anyone with an interest in economic development.  

Easterly argues persuasively that in viewing economic development as a technical problem requiring expert solutions, development economists have strengthened the hands of autocrats and deprived the poor of their rights.  His examination of economic growth experience suggests that leaders matter very little for either good or ill – the influence of leadership is overshadowed by other factors such booms and busts in commodity prices. 

He concludes:

“This is not good news for the experts. If leaders do not drive growth, then the experts advising them do not drive growth either. The experts had promised to deliver high growth in return for giving them and their autocratic pupils more power. There is no evidence that they have delivered. The growth-payoff justification for the Tyranny of Experts has turned out to be spurious”(p326).

In my view, Bill Easterly’s attack on strong political leaders (and their expert advisers) involves too much collateral damage. My reading of history (as well as my own experience in the economic advice industry) suggests to me that strong political leadership is not always at variance with “spontaneous solutions arising from political and economic rights”. Some strong political leaders have been able to use democratic processes to overcome interest groups which have been using their political muscle to restrict freedom. Surely the relevant choice is between freedom and its alternatives. I will return to this point later.

Bill Easterly argues that proponents of the technocratic approach to economic development have failed to establish that it delivers greater development in exchange for sacrifices in individual freedom. He does not argue that such aid always requires sacrifices in freedom. The technocrats who claim rigorous evidence in favour of some forms of development aid (e.g. treated mosquito nets and deworming drugs) can reasonably claim that such assistance expands opportunities available to individuals without in any way restricting their freedom.

Easterly’s point is that by viewing development as a purely technical problem, the technocrats systemically overlook the human rights abuses of the autocrats they help to keep in power. He cites the example of Meles Zenawi, an Ethiopian autocrat who has been praised by Bill Gates and Tony Blair for reductions in child mortality that may not actually have happened. Zenawi used aid funds to blackmail starving peasants into supporting his regime and he forcefully relocated farmers in the Gambella region to model villages so that he could sell their land to foreign investors.

In some other instances there is a more direct link between aid and the abuse of individual rights. For example, the book begins with the story of a World Bank funded forestry project in the Mubende district of Uganda. This aid project involved the forced evacuation of local farmers to enable a British forestry company to take over their land.

Bill Easterly presents evidence that poor people value freedom as an end in itself, but his defence of freedom is not based entirely on those grounds. He argues that freedom promotes individualistic values that favour economic development. By contrast, autocrats promote the interests of the kingdom (or state) above those of the individual and foster collectivist values that are inimical to economic development. That view is consistent with the recent history of rapid economic growth in countries such as China, as well as with the longer history of economic growth in high income countries. Easterly points out that the rapid economic growth in China can be related to the major change toward greater freedom that occurred in China after 1978.

This might be an appropriate point to return to a discussion of the merits of strong leadership. Autocrats sometimes promote freedom. Mancur Olson’s distinction between the incentives faced by roving and stationary bandits (discussed here a few years ago) comes to mind at this point. However, I am more concerned to defend the strong leadership of democrats like Margaret Thatcher than that of autocrats like Deng Xiaoping.

                                       

Bill Easterly recognizes that voting is not a sufficient condition for individual rights, but in my view he does not pay sufficient attention to the current problems of democracies, which were discussed here last week. Some democracies have had relatively good records of defending individual rights and ensuring widespread opportunities for individuals to flourish. In recent years, however, weak leadership in quite a few democracies has permitted an explosive growth of public debt which has ended up subjecting citizens to the “tyranny” of experts in the IMF and ECB. 

Democratic political institutions are not always good enough to ensure that political rights produce spontaneous solutions to economic policy problems.

"What's gone wrong with democracy?"

That was the title of an essay published in The Economist a few weeks ago.

For the most part I think the essay is quite good. That judgement wouldn’t surprise anyone who has read my book, Free to Flourish because the main points in the essay are similar to those in Chapter 8 of my book. The biggest challenge to democracy comes from the tendency of governments to overreach – by creating entitlements that they cannot pay for, or by waging “wars” that they cannot win “such as that on drugs”. The solution lies in finding ways to ensure governments and electors accept appropriate restraint.

However, the essay has got me thinking that there is something odd about the argument that democracy is such a good thing that it needs to be restrained in order to be preserved. I suppose what we might be saying is that democracy is, in some respects, like wine - it is good, but you can have too much of it. If that is what we are saying then we should probably admit that we view democracy as a means to achieve more fundamental objectives, rather than as an end in itself. If we think it is possible to have too much democracy we must be saying that too much democracy would conflict with some fundamental objective that is important to us.

The introduction of The Economist’s essay suggests reasons why people prefer “rules-based democracy” to “corrupt, abusive and autocratic governments”. But, why do we need reasons? If a “rules-based democracy” enables us to avoid or remove corrupt and abusive government, that would have to be better than living under corrupt and abusive government. The end we want to achieve is to enable corrupt and abusive governments to be replaced peacefully. Democracy provides a means to that end. The fact that the democratic systems used in southern Europe don’t seem to have been capable of replacing corrupt governments with non-corrupt governments might suggest to us that those systems of government are deeply flawed.

The reasons given in the essay as to why people prefer democracy are as follows:

“Democracies are on average richer than non-democracies, are less likely to go to war and have a better record of fighting corruption. More fundamentally, democracy lets people speak their minds and shape their own and their children’s futures”. 

Perhaps those are reasons why many people say they prefer democracy, but it is far from clear that democracy causes all those things to happen. The assertion that “democracy lets people speak their minds and shape their own and their children’s futures” seems to me to be more a statement of what should happen rather than what actually happens.

Democracy requires that candidates for election have sufficient freedom in presenting their views to enable electors to choose between them. That doesn’t necessarily mean that democracy “lets people speak their minds”. For example, just last year, the former Australian government was proposing to introduce laws that would make it illegal to, among other things, “offend or insult” people on the basis of their “political opinions”. People elected to power via democratic processes do not always support free speech.

Similarly, the idea that democracy lets people “shape their own and their children’s futures” seems to me to be more a statement of what should happen, than a statement of what actually happens. Governments have become far more involved in shaping the lives of people since the advent of democracy. The governments that are attempting to shape the lives of people through their wars on drugs, alcohol, tobacco, gambling and, more recently, fat and sugar, are democratic governments.

When we ask ourselves what has gone wrong with democracy, we tend to begin by convincing ourselves that democracy is good for us because all other systems would be worse. We then proceed to worry that the self-destructive tendencies of democracy are becoming more evident and to consider how democracy can be constrained in order to be preserved. The message is important, but is complicated.

We might have more hope of moving toward a better system of democratic government if we were to adopt a more straight forward approach. What I have in mind is that we should approach the issues by considering the characteristics of good government and how our existing systems of government would need to be modified to have those characteristics to a greater extent.

At this point I might be well advised to elaborate what I mean by good government and then spend the next few years researching what others have written about the characteristics of good systems of government. But the essential characteristics of a good system of government seem fairly obvious. It would:

• defend the lives and property of individuals and their right to live as they please, provided they do not interfere with the similar rights of others;
• ensure widespread opportunities for individuals to flourish by using their personal resources for purposes they value in mutually beneficial endeavours with others; and
•  provide a mechanism for peaceful removal and replacement of governments that do not defend individual rights and ensure widespread opportunities for individual human flourishing.

So, how can we move further toward a system of government that has those characteristics?

How do peaceful societies come about?

Although this blog is still taking a long holiday, I want to write about this issue now because I have been turning it over in the back of my mind for a few months.  

A good place to start might be to think of a poor country, or even a developing country, with a law and order problem. In this country, the people who can afford to do so live behind high fences and they are protected by security guards. The rest of the population are highly vulnerable to criminal activity of many kinds. Crime has a dampening effect on all forms of commercial activity that cannot be adequately protected by high fences and security guards. For example, any economic activity involving road transport to and from the rural areas, where most people live, is constrained by the high risk of banditry by people living near the roads.

So, what should be done about this? The main options that seem to come up in public discussion are:

1.  Promote higher ethical standards by encouraging increased religious observance.
2. Deter crime by ensuring that criminals are more frequently caught and punished.
3. Make a life of crime a less attractive option to potential criminals by promoting more widespread economic opportunity.

I don’t hold much hope for the first option. Church attendance is at record levels in the particular country that I am thinking of.  My reading of history also suggests to me that religion is not enough to promote peacefulness.

In my discussion of “the drivers of peacefulness” in Free to Flourish I wrote:

“Adherents of the major world religions all subscribe to a vision of ethical behaviour corresponding to the golden rule of treating others as one would like to be treated. It would seem reasonable to expect that followers of those religions would always have obtained satisfaction from acting in accordance with this ideal. Yet, this was not sufficient to bring about an outbreak of peacefulness outside of religious orders.

Why not? We would need a model of moral progress to answer that question. Such a model would specify that the way people behave and how they perceive themselves depends on the incentives in the environment in which they live. If they believe that people outside their family group or tribe are not to be trusted, they will not risk attempting to engage with them in cooperative ventures or mutually beneficial exchange. If they believe that the incentives in their environment favour predatory behaviour, they will tend to adopt a sense of personal identity that enables them to feel comfortable with such behaviour despite paying lip service to higher ideals.

A model of moral progress would recognise that the emergence of governments that showed greater respect for the rights of citizens ameliorated a major threat to life and property. It would recognise the importance of the emergence of mechanisms for contract enforcement in both promoting trustworthy behaviour and encouraging greater trust of strangers. This, in turn, enabled mutually beneficial exchange involving larger groups of people.”

That way of thinking emphasizes that the peacefulness of societies depends to a large extent on the attitudes of individuals and groups. Perceptions of incentives are important not just in affecting the expected rewards from crime relative to alternative pursuits, but also in influencing the perceptions that individuals have of themselves. 

So, we should be thinking about the impact that interventions might have on attitudes rather than just about altering incentives. Devoting more resources to fighting crime will not necessarily have much impact if perpetrators perceive themselves to be justified in their actions and are supported by their relatives and the community groups to which they belong. A post I wrote last year about crime in Tipperary, Ireland, at the beginning of the 19^th Century illustrates the problem.

However, that doesn’t answer the question of what can actually be done to help induce a transition from a situation in which incentives tend to favour predatory attitudes and behaviour to one in which incentives favour productive activity and market exchange. Some would argue that more government spending to expand the police force is the only practical option. After all, the societies that have made the transition to peacefulness in the past have achieved the desired outcome by investing vast amounts of public money in protecting property and deterring crime, haven’t they?

Actually, when we look at the history of Britain, peacefulness didn’t happen quite like that. In his book, The Enlightened Economy, Joel Mokyr points out that the Hobbesian view that order can only be achieved through firm third-party (i.e. government) enforcement was not true of Britain in the 18^th Century. Large parts of Britain were virtual “lawless zones” and in others, legal practice often deviated considerably from the letter of the law. Enforcement was largely a private enterprise with the courts at best serving as an enforcer of last resort. There was no professional police force. Daily law enforcement was in the hands of amateurs and part-time parish constables. Justice had to rely to a large extent on volunteers, local informers, vigilante groups and private associations specializing in prosecution of felons. Private law enforcement remained of substantial importance until well into the 19^th Century (pages 376-379).

Mokyr argues that the economic system functioned because the crucial economic actors – merchants, craftsmen, bankers, farmers etc. – were bound by moral codes of concern about their reputations. (I wrote more about that here, as well as in Free to Flourish.) There were credible signals that property rights would be protected, even though such signals were, for the most part, not sent via government law enforcement agencies.

So, what does all that mean for promoting law and order in poor countries in which economic development is being held back by criminal activities? The only insight I have to offer is that history seems to support the view that economic opportunity holds the key to peacefulness. 

If you want to start a virtuous cycle where peacefulness supports the growth of economic opportunity, you first need to have sufficient numbers of people who are able to perceive of opportunities to engage productively in mutually beneficial activities, and hence, to want to live in peace. If politicians want to help (a big ‘if’ I know) they should be thinking about what they can do to encourage the relatives of people with predatory tendencies to engage productively in mutually beneficial activities. For example, if the risk of banditry is making it too costly for farmers to send their produce to market then, perhaps, there might be some way to get the some of the relatives of the bandits productively engaged in the transport of goods, perhaps even as security guards.  Anyhow, that might be an option worth thinking about as an alternative to expanding police numbers. 

Can kindness be motivated by self-interest?

This blog is taking a long holiday, but a few days ago I thought it might be a good idea to draw attention to some posts that I felt deserved more attention than they have received so far.

The first post I came across that I thought might belong in that category sought to answer the question: How should we encourage kindness?

However, when I read it again, I was not quite so impressed by what I had written.

The line of argument was broadly as follows:

·         Kindness is the greatest of all virtues.
·         There is evidence that kindness is good for those who practice it as well as for those who benefit from the kindness of others.
·         Kindness should also be encouraged because benefits of kindness spread beyond those immediately involved in kindly acts. Kind people tend to be trustworthy and trust facilitates mutually beneficial interactions, even among strangers. (In economic terms, kindness is the opposite of opportunism. It reduces the transactions costs of engaging in economic activities and enables people to enjoy the benefits of specialization and trade to a greater extent that would otherwise be possible.)
·         It isn’t clear whether kindness is increasing or decreasing in western societies. There is evidence of a secular trend toward less violence, but also some evidence of increased incivility in workplaces.
·         It is doubtful whether greater kindness can be encouraged by imposing more rules of conduct. The apparent increase in incivility in workplaces has occurred at a time when there has been increased regulation to enforce politically correct behaviour.
·         The best way to encourage kindness is to make people more aware that kindness is good for those who practice it.

My problem is that the bottom line seems too glib.

How would you respond if someone you had just met told you, “I know I am an arsehole”?  When I met such a person a month or so ago, it didn’t cross my mind to tell him that it was in his interests to be kind because kindness benefits the people who practice it. A person who sees himself as an arsehole is not likely to be receptive to such a message. I just suggested that he was not doing himself any favours by having such a low opinion of himself. He seemed to listen. Perhaps if he heard the message more often it might have some impact on his behaviour. If we want to influence the behaviour of such people it may be more effective to speak to their better selves than to try to appeal to their self-interest in reaping the benefits of kindly behaviour. (There is, of course, also the possibility that such people can be influenced by pointing out any penalties they might suffer as a result of bad behaviour.)

The other reason why I think my bottom line was too glib is that I doubt that the claimed beneficial impacts of acts of kindness apply when a person is just going through the motions of appearing to be kind. I suspect that in order to benefit you need to have your heart in it. Nevertheless, we all have to begin somewhere.  We may never change if we wait for our hearts to lead us. As Aristotle said, people acquire virtues by putting them into action. We become kinder by practicing kindness.  

To answer the question posed at the beginning, I think kindness can be motivated by self-interest if that is understood as the interest every individual has has in becoming more like the person that he or she would like to be. The main problem is that too few people ever give serious serious consideration to the question of what kind of person they would like to become.

Which are the most popular posts on Freedom and Flourishing?

This blog is going into recess for a couple of months.

Meanwhile, you might like to read some of the most popular posts on the blog, listed below:

Is push-pin as good as poetry?

How does income inequality affect happiness?

Once a neurotic always a neurotic?

What are the characteristics of a good society?

What did Milton Friedman have to say about human flourishing?

Was the industrial revolution mainly about the growth of manufacturing industry?

Is enlightenment humanism a coherent world view?

You might also consider spending a dollar and reading my book, Free to Flourish.

Do realistic optimists have more successful lives?

I think realistic optimists probably do have more successful lives than optimists and pessimists, but unfortunately I cannot claim that I have a particularly strong basis for that view.

A couple of months ago I notice a story by Tia Ghose on Huffington Post reporting on research findings by Sophia Chou of the National Taiwan University. The research apparently suggests that realistic optimists – people who combine the positive outlook of optimists with the clear-eyed perspective of pessimists – get the best of both worlds. Their realism enables them to perform better at work because they don’t delude themselves that they can do well without working hard. Their optimism enables them to avoid getting bogged down by unhappiness.

I was particularly interested because of something I wrote on this blog a couple of years ago entitled: Why can’t we have a realistic basis for optimism? My consideration was prompted by a discussion by Martin Seligman of issues relating to possible circumstances where expectations may influence reality.

After reading the article by Tia Ghose, I decided to go looking for the relevant paper by Sophia Chou, which was presented at the American Psychological Association in Hawaii earlier this year. I haven’t been able to find a copy of the paper on the internet. I could write to the author and ask for a copy, but I don’t think I will bother. My qualifications are in economics, so I have reason to be pessimistic about my ability to judge the quality of the research behind these findings.

Sophia Chou’s research findings seem to me to make a lot of sense, but I guess a realistic optimist would wait for her paper to be published in a peer reviewed journal before getting excited about them.

Why seek out the statue of Adam Smith when visiting Edinburgh?

When I visited Britain in August I was pleased to see the image of Adam Smith on £20 notes. I was even more pleased to find a statue of Adam Smith in Edinburgh.

The statue, by Andrew Stoddart, stands in the Royal Mile, in High Street, next to St Giles Cathedral and opposite Edinburgh's City Chambers. It is not difficult to find.

Unfortunately, it seems that the birds are not treating Adam Smith with the respect he deserves, but I doubt that he would care.

I went looking for Adam Smith because he is the father of modern economics and because his views on the benefits of specialization and free trade have contributed to a vast improvement in living standards over much of the world over the last couple of centuries. But I suppose that is the kind of thing that might be said by anyone who views himself as a disciple of Adam Smith.

When asked to be more specific about Adam Smith’s contributions, people who are familiar with his writings tend to emphasize different things. One important contribution lies in fundamental thesis of Wealth of Nations that the extent to which people are able to enjoy ‘the necessaries and conveniences of life’ depends largely on labour productivity – ‘the productive powers of labour’. Economists debate whether Smith told the right story about productivity growth – perhaps he gave too much emphasis to capital accumulation, gains from specialization and scale economies, rather than to technological progress. I think the important point is that Smith understood and emphasized the importance of economic freedom in promoting productive use of resources (including good management) as well as an efficient allocation of resources among industries.

Mention of economic freedom brings me to the contribution that Smith made in pointing out the role of the ‘invisible hand’ of the market in translating the pursuits of individuals into desirable social outcomes. Smith noted:

‘It is not from the benevolence of the butcher, the brewer, or the baker, that we can expect our dinner, but from their regard to their own interest’.

Smith would not have approved of that oft-quoted sentence from Wealth of Nations being interpreted as implying that butchers, brewers, bakers and other people engaged in business activities pursue only selfish interests.  In The Theory of Moral Sentiments, Smith wrote:

‘How selfish soever man may be supposed, there are evidently some principles in his nature which interest him in the fortune of others and render their happiness necessary to him though he derives nothing from it except the pleasure of seeing it’.

Smith also made a major contribution in explaining that the visible hand of government is often far from benign. I particularly like a passage in The Theory of Moral Sentiments about the consequences of being governed by ‘the man of system’ – a political leader who is ‘apt to be very wise in his own conceit’. Smith suggests that the ‘man of system’ imagines that ‘he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chess board’. He fails to consider that ‘in the great chess board of human society, every single piece has a principle of motion of its own, altogether different from that which the legislature might chuse to impress upon it’. Smith points out that when the visible hand of government is attempting to regulate the individual members of society, it is likely that ‘the game will go on miserably, and the society must be at all times in the highest degree of disorder’. (See: TMS, VI.ii.2.17).

I think Smith’s greatest contribution was in promoting the idea that a ‘system of natural liberty’ can establish itself ‘of its own accord’, when the role of government is confined to duties of ‘great importance’ that could not otherwise be performed. We should never lose sight of Smith’s vision of natural liberty:

‘Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest in his own way, and to bring forth both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty [for which] no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society’. (See: WN, IV.ix.51).

Is there no nook of English ground secure from rash assault?

The question is from the first lines of a poem by William Wordsworth, written in 1841 in protest against plans for construction of the Kendall to Windermere railway in the Lakes District of England.

Wordsworth was not impressed by the view that the railway would place the beauty of the Lakes District within easier reach of these who would not otherwise have access to it. He described such arguments as: ‘Utilitarianism, serving as a mask for cupidity and gambling speculations’. Environmentalists sometimes advance similar arguments these days, but few are as rash as Wordsworth. The famous poet suggested that an appreciation of the beauty of romantic scenery was beyond the capability of ordinary people:

‘Rocks and mountains, torrents and widespread waters, and all those features of nature which go to the composition of such scenes as this part of England is distinguished for, cannot, in their finer relations, to the human mind be comprehended, even very imperfectly conceived, without processes of culture or opportunities of observation in some degree habitual’.

Our rash assault on Lake Windermere took place late in August, via the steam train from Haverthwaite to Lakeside.

It is hard to imagine that any reader of this blog would have difficulty in appreciating the beauty of Lake Windermere, but I will nevertheless add some of Wordsworth’s poetry below my photos.

Standing alone, as from a rampart’s edge,

I overlooked the bed of Windermere,

Like a vast river, stretching in the sun.

With exultation, at my feet I saw

Lake, islands, promontories, gleaming bays,

A universe of Nature’s fairest forms

Proudly revealed with instantaneous burst,

Magnificent, and beautiful, and gay.

(William Wordsworth, The Prelude Book IV)

After our cruise on Lake Windermere we visited Grasmere.

Rest in peace, William Wordsworth. I hope our visit did not disturb you too much. We were only in your beautiful Lakes District for one day. 

John Stuart Mill, one of the most famous advocates of utilitarianism, walked all over your Lakes District for the best part of a month in July-August 1831 and even spent about 4 days walking and talking with you.

After visiting Wordsworth, Mill told a good friend, John Sterling:

 ‘all my differences with him [Wordsworth], or any other philosophic Tory, would be differences of matter-of-fact or detail, while my differences with the radicals and utilitarians are differences of principle’. (See: Richard Reeves, John Stuart Mill, 2007, p 74.)

The best explanation of Mill’s views at that time seems to be that he was somewhat confused after setting out to expose himself to a variety of different views opposed to radical utilitarianism - the secular religion of his youth. Mill did this following a mental crisis which he attributed to realization that even if all his (radical utilitarian) objectives were realized, he would not be filled with ‘great joy and happiness’. In addition to the views of Wordsworth, Mill became strongly influenced at that time by French secular messiahs, Saint-Simon and Auguste Compte. (Mill’s involvement in that brand of secular religion has been examined by Linda Reader in her book, John Stuart Mill and the Religion of Humanity, 2002.)

Mill embraced the poetry of Wordsworth because it helped him to achieve a more tranquil mental state. I expect that vast numbers of people have been similarly helped by the imagery of the Lakes District conveyed by Wordsworth’s poetry.