Does stakeholder capitalism contribute to human flourishing?

 

Many people reading this are likely to view the use of stakeholder terminology by business leaders as little more than a public relations tool. That is certainly how I have viewed it in the past. If you are a business owner, or executive, who wants to encourage employees, suppliers, customers, and community members to feel loyalty to your business, it makes sense to acknowledge that they may also have a stake in seeing it prosper. And it does no harm to remind governments of their stake in the prosperity of your business via its contributions to tax revenue.

However, I have recently come to associate stakeholder terminology with stakeholder capitalism. That ideology has close links to the concept of corporate social responsibility (CSR) and the increased tendency of businesses to seek rewards from governments for pursuit of environmental and social goals (ESG). Reading about stakeholder capitalism has added to my previously expressed concerns that such interactions between business and governments are leading liberal democracies more deeply into a corporatist quagmire.

Stakeholder capitalism

Michael Rectenwald’s book, The Great Reset and the Struggle for Liberty, has persuaded me that in advocating stakeholder capitalism, Klaus Schwab, the founder of the World Economic Forum (WEF), has in mind a corpus of ideas and policies that are fundamentally opposed to free markets and classical liberalism. Moreover, the WEF may have sufficient influence among powerful elites to eliminate the already dwindling influence that classical liberalism has been having on public policy.

Rectenwald’s book was written in response to a book by Klaus Schwab and Thierry Malleret entitled Covid-19: The Great Reset, which was published in 2020. Rectenwald draws attention to the open espousal of policies opposed to free markets in that book. Schwab and Malleret welcomed the possibility that governments might take advantage of the pandemic “to permanently increase their role”, and eliminate classical liberalism, which they refer to as neoliberalism. They write:

“COVID-19 is likely to sound the death knell of neoliberalism, a corpus of ideas and policies that can loosely be defined as favouring competition over solidarity, creative destruction over government intervention and economic growth over social welfare. For a number of years, the neoliberal doctrine has been on the wane, with many commentators, business leaders and policy-makers increasingly denouncing its “market fetishism”, but COVID-19 brought the coup de grâce.”

They go on to predict:

“Shareholder value will become a secondary consideration, bringing to the fore the primacy of stakeholder capitalism.”

Klaus Schwab has been advocating stakeholder capitalism for over 50 years, and has been influential in having that concept endorsed at international meetings of powerful people from business and government. The first Davos Manifesto, signed in 1973 states:

“The purpose of professional management is to serve clients, shareholders, workers and employees, as well as societies, and to harmonize the different interests of the stakeholders.”

The 2020 Davos Manifesto is titled: “The Universal Purpose of a Company in the Fourth Industrial Revolution”. It includes similar sentiments to the 1973 Manifesto, but goes on to state, among other things:

“B. A company is more than an economic unit generating wealth. It fulfils human and societal objectives as part of the broader social system. Performance must be measured not only on the return to shareholders, but also on how it achieves its environmental, social and good governance objectives. Executive remuneration should reflect stakeholder responsibility.”

Some CEOs would welcome a long muddled list of performance objectives because it offers them the opportunity to “do their own thing” and provide ready-made excuses for poor performance. Others would prefer to see governments pursue social and environmental objectives by more efficient mechanisms, and to have their own performance judged according to more tangible benefits to shareholders. How does the WEF propose to encourage compliance with its Manifesto?

The WEF’s ESG Index

The WEF published a report in 2020 setting out metrics for measuring company performance with regard to ESG goals. The title of the report is  Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation.

A mechanism for grading companies in terms of their environmental, social, and governance practices and plans might be thought to offer useful information to investors and consumers who concerned about the environmental and social impacts of their decisions. However, Rectenwald points out that it also has potential implications for interactions between business and government:

“Woke planners wield the Environmental, Social, and Governance (ESG) Index to reward the in-group and to squeeze non-woke players out of business.”

Ideological reach

In a recent Newsweek article, Jon Schweppe asks, Why did corporations go ‘woke’? His response, in brief, is that “this is part ideology, part price of admittance to an elite club, and part protection racket – doing everything one can to avoid upsetting the mob”.

Rectenwald’s book suggests to me that the WEF should come to mind following any mention of “ideology” and “an elite club” in this context. The corporate partners of the WEF include over 1000 of the world's largest business organisations. The annual meeting of the WEF in Davos is an invitation-only event but is widely reported in the media. Many notable political leaders, journalists etc. have been members of the Forum of Young Global Leaders, which is reserved for people under 40 years of age who show promise of global leadership. In addition, the WEF’s Global Shapers movement, a training camp for young change-makers (under 30 years old) has over 10, 000 active members.

Implications

Rectenwald points out that because ESG is “an impressionistic, qualitative, metric” it exposes business leaders and companies to the whims of woke arbiters. He cites the recent experience of Elon Musk who has been unfairly besmirched because he may have benefited from an emerald mine owned by his father in South Africa during the apartheid era. He sums up:

“In today’s political economy, satisfying shareholders, employees, and customers to earn profits has become less important for corporations than ingratiating the woke cartel and the governments that support it.”

Rectenwald’s book goes on to discuss possible implications for individual liberty of potential innovations such as an individual carbon footprint tracker, but in this essay I want to stick with the implications of stakeholder capitalism.

The Hayek quote at the beginning of the essay suggests another important implication of stakeholder capitalism. The quoted passage is from Law, Legislation, and Liberty (v3, p 82). The context of the quote is a paragraph in which Hayek is responding to the idea that large corporations should be required to consider the public or social interest. He suggests that “as long as the large corporation has the one overriding duty of administering the resources under its control as trustee for its shareholders its hands are largely tied; and it will have no arbitrary power to benefit this or that particular interest”. The paragraph ends by suggesting that obliging large corporations to consider the public interest gives them uncontrollable power that “would inevitably be made the subject of increasing public control”.

There is also reason for concern that obliging corporate managers to adhere to ESG will make them less accountable for productivity performance of enterprises because it will be difficult for company boards to assess the veracity of claims that performance has been adversely affected by ESG. Wokeness can be expected to provide a cover for inefficiency.

I acknowledge that stakeholder capitalism may have some positive implications for human flourishing, that should be offset against the negative implications discussed above. For example, in my book Freedom, Progress, and HumanFlourishing, I note that the difficulty that governments have been experiencing in agreeing upon concerted international action to combat climate change was ameliorated by the actions of business organisations in planning for a carbon free future.

Nevertheless, as I also argue in that book, there is more reason to be concerned about the implications of declining productivity growth than about climate change. By further reducing productivity growth, stakeholder capitalism seems likely to cause a great deal of economic misery.

Unfortunately, major economic crises will probably need to be endured before political leaders inspired by classical liberalism emerge once again to implement the public policy reforms that are needed to restore free markets.

Where have the supporters of capitalism gone?

 

Cartoon by Peter Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au

Some erstwhile supporters of capitalism probably don’t realize that they have gone missing. They still support private ownership of property and businesses, and may claim to see merit in the profit motive. However, they overlook that capitalism also involves “prices, production, and the distribution of goods that are determined mainly by competition in a free market”.

The quoted words are from the Merriam-Webster definition of capitalism. Use of a definition from an American dictionary seems appropriate because the supporters of capitalism who have gone missing seem to me to be mainly Americans. That is unfortunate because Americans were once the world’s strongest supporters of capitalism.

In Australia, most of the people I hear talking about capitalism seem to use it as a term of disparagement. The people who support capitalism talk about free enterprise and economic freedom.

I have the impression that it is fairly common outside of America for supporters of capitalism to avoid using the word because it is commonly viewed as a term of disparagement. That may stem from the word’s origins. When I was growing up, someone told me that Karl Marx had invented the word. That is not correct. Marx rarely used the word. He preferred to describe capitalism as “the capitalist mode of production”. Nevertheless, even in America the term was apparently considered to be a socialist expression until well into the 20^th century.

In the latter half of the 20^th century, the strongest supporters of capitalism had no qualms about using the word. Milton Friedman used the word in the title of a book, Capitalism and Freedom. Friedman made it clear that he was writing about “competitive capitalism – the organisation of the bulk of economic activity through private enterprise operating in a free market”. Ayn Rand used the word in the title of a book, Capitalism: The Unknown Ideal. She defined capitalism as “a social system based on the recognition of individual rights, including property rights, in which all property is privately owned”.

Where have America’s supporters of capitalism gone? Johan Norberg prompted me to think about that question as I was reading his latest book, The Capitalist Manifesto: Why the Global Free Market Will Save the World. This book is a follow-up to In Defence of Global Capitalism, which Norberg wrote about 20 years ago. Globalization has now become a dirty word to many erstwhile supporters of capitalism, but Norberg remains a strong defender of global capitalism.

Who opposes the free market?

One of the most interesting contributions of Norberg’s new book is his account of the changing opposition to the ideal of a global free market. Norberg wrote In Defence of Global Capitalism to counter the arguments of left-wing activists who mistakenly believed that free trade, foreign investment, and multinational corporations were making the world’s poor even poorer. George Monbiot, Oxfam, Bono etc. eventually began to see some merit in free trade, but opposition then migrated to economic nationalists on the conservative side of the political spectrum.

Norberg suggests that the opponents of globalization share an underlying misconception that it is a zero-sum game – someone’s gain is another one’s loss:

“The worldview is the same, the roles are just reversed – twenty years ago free trade was considered bad because we exploited them, now it is considered bad because they exploit us.”

Norberg seems to assume that most readers will already understand why free trade is a positive-sum game – beneficial to both importers and exporters. He uses colourful illustrations to reinforce the point:

“Free trade allows the farmer to grow a new mobile phone in his wheat field, the textile worker can sew a new motorbike and the author can (if lucky) write a holiday trip to Tuscany.”

The author argues that free enterprise is primarily about “opening the dams of human creativity – to let everyone participate and test their ideas and see if they work”.

The opposition of economic nationalists to free trade is associated with the narrative that during the early years of the 21^st century, cheap imports from China caused deindustrialization and wage stagnation in the United States.  Norberg’s most important contribution seems to me to be in challenging that narrative. He makes the point that the loss of jobs in manufacturing is attributable largely to automation rather than import competition. He suggests that the slow-down in wages growth in the US dates from the mid-1970s, reflecting a necessary correction of cost levels because wages had previous been growing faster than productivity. The Rust Belt apparently lost more jobs in the decades before globalization reached the US, than it has in recent decades. The share of manufacturing jobs in the US declined more rapidly prior to 2001, when China was admitted to the World Trade Organisation (WTO), than it has in the decades since then.

 Fear of China

Economic nationalists suggest that the involvement of China in international supply chains has been particularly problematic because of the theft of technology. Norberg points out that China has been by no means unique in that respect. The US itself apparently once had a policy of smuggling inventions and bribing European artisans to reveal their secrets. There is evidence that the Chinese government has a relatively good track record in following WTO rulings relating to disputes about intellectual property and government subsidies.

Norberg acknowledges the potential for Chinese investment in digital and physical infrastructure to pose a security threat because the Chinese government views Chinese companies as its agents. He points out that this does not mean that the US and its allies were wrong to encourage China to open up to the outside world. He suggests that if China had not opened up, it is much more likely that the Chinese people would have generally perceived Westerners as irreconcilable opponents. He fears that use of trade barriers to isolate China could strengthen the most reactionary and nationalist forces in China.    

Leviathan’s helpers

Where have the capitalists gone? Many business owners and executives now seem to spend less time on conventional entrepreneurial activities than on seeking to ingratiate themselves with politicians and bureaucrats who are engaged in active industrial policy.  

The chapter in The Capitalist Manifesto entitled “Picking Losers” should be of particular interest to Jim Chalmers, Australia’s Treasurer. In his article in The Monthly (Feb 2023) Chalmers wrote:

“As the influential economist Mariana Mazzucato has explored in her work, markets built in partnership through the efforts of business, labour and government are still the best mechanism we have to efficiently and effectively direct resources.”  

Johan Norberg has quite a lot to say about Mariana Mazzucato’s naïve views. I will not attempt to provide a summary here because it might spoil the fun for readers. However, I particularly liked this sentence:

 “Governments are bad at picking winners, but losers are good at picking governments.”

That observation seems particularly relevant to Australia at present.

Concluding remarks

In focusing on reasons why support for capitalism has declined, I have failed to mention many of the virtues of capitalism discussed in The Capitalist Manifesto. For example, I was particularly interested in what Johan Norberg had to say about the relationship between capitalism and various aspects of happiness, in his chapter on “the meaning of life”.

I began by noting that many supporters of capitalism are reluctant to use the word because socialists have historically used it as a term of disparagement. I commend Johan Norberg for writing a capitalist manifesto. In doing that he is following in the footsteps of great advocates of economic freedom who had no qualms in talking about the virtues of capitalism.

In this book, Norberg has provided an interesting account of how many erstwhile supporters of capitalism have come to oppose global free markets. The most important contribution of the book, in my view, is the challenge it offers to the narrative that cheap imports from China have caused deindustrialization and wage stagnation in the United States.

What determines how much liberty people enjoy in different countries?

 An obvious answer to the question posed above is that governments determine how much liberty people enjoy. But that response may be too glib. Some argue that much restriction of liberty reflects prevailing values of people who see individual autonomy and personal choice as a threat to collective interests of groups and nations.

When I began the research which led to this article, I sought to explore the extent to which international differences in personal and economic freedom can be explained by deep-seated cultural values. My conclusion is that there is a large residual variation which is attributable to ideologies of governments that support or oppose free markets and personal liberty.

This conclusion is illustrated in the graph shown above. However, you will need more information about how the graph was constructed before you can get the picture.

• The graph shows the levels of economic and personal freedom for 85 countries using the Fraser Institute’s latest data (for 2020). There are 165 jurisdictions covered by the Fraser indexes, but relevant data on values from the latest round (2017-22) of the World Values Survey (WVS) was only available for 85.
•  The vertical axis of the graph is in reverse order – low values of personal freedom at the top, high values at the bottom. The reason stems from use of personal political compass data which is constructed in that way in an earlier article on this blog. 
• The horizontal and vertical axes are positioned at the median levels of economic and personal freedom for the 165 jurisdictions covered by the Fraser indexes. The countries not covered by the WVS tend to have lower freedom ratings than those which are covered. The median ratings for the 85 countries represented in the graph is 7.2 for economic freedom and 7.6 for personal freedom.
• I have only labelled data points that have freedom ratings that are substantially different from predictions based on deep-seated cultural values. The methods used to obtain predicted values for personal and economic freedom were explained in preceding articles on this blog (here and here). If you live in a high-income liberal democracy, that country is likely to be represented by one of the unlabelled points in the south-east quadrant - with relatively high levels of economic and personal freedom.
• The colour of the labelled points depends on whether freedom is greater than or less than predicted on the basis of values – green if greater than predicted, red if less than predicted. The size of the labelled points is larger if both personal and economic freedom are greater than or less than predicted.

 It is apparent from the graph that it is difficult to explain why countries have low personal and economic freedom ratings simply by reference to prevailing values in those countries. Most of the countries in that category have freedom ratings that are lower than predicted on the basis of values. The political ideologies followed by the governments of those countries provide an obvious explanation for their suppression of liberty.

The graph also shows that a substantial number of countries with relatively high personal and economic freedom are performing better in that regard than can readily be explained on the basis of prevailing values.

More detailed information for the countries which have freedom ratings substantially different from predicted levels is shown in the graph below.

 

Of the 34 countries with freedom ratings that are substantially different from predicted levels, Argentina is the only one to have one category of freedom greater than expected and the other category of freedom less than expected.

Questions to ponder

Are relatively high levels of human freedom less secure in countries in which freedom is greater than prevailing values seem to support? If a high proportion of the population feels that existing policy regimes are not aligned with their personal values, these regimes could be expected to be fragile, other things being equal. However, much depends on those “other things”. The growth of economic opportunities could be expected to be greater in the presence of relatively high levels of economic freedom. That could be expected to foster values that support economic freedom. The growth of economic opportunities also tends to encourage development of emancipative values which support personal freedom.

Are relatively low levels of human freedom less likely to persist where prevailing values support greater freedom? Again, policy regimes giving rise to such outcomes could be expected to be fragile, other things being equal. Unfortunately, however, the “other things” often include use of coercion to suppress opposition to existing policy regimes.

Postscript: 16 June, 2023

I have now made an effort to explore whether some of the above speculations have empirical support. This involved repeating the exercise of obtaining predictions of personal freedom - using WVS data from the 2010-14 to obtain predictions of personal freedom for 2012. It was possible to obtain matching data for only 53 countries. 

There is some evidence that personal freedom is less secure in countries in which freedom is greater than prevailing values seem to support. Of the 6 countries in which personal freedom was much greater than predicted in 2012, only one had higher personal freedom in 2020, another had unchanged personal freedom and the other 4 had lower personal freedom.

The exercise provided no support for the proposition that relatively low levels of personal freedom are less likely to persist when prevailing values support greater freedom. Of the 6 countries in which personal freedom was much less than predicted, none had higher personal freedom in 2020, and 2 experienced a further decline in personal freedom. Unfortunately, over this period none of the repressive regimes were displaced or became more responsive to prevailing values of the people.

To what extent do international differences in economic freedom reflect people's values?

 

This is a companion piece to the preceding post in which I considered the extent to which international differences in personal freedom reflect people’s values.

The extent to which international differences in economic freedom reflect different values is of interest because it has bearing on the extent of popular support likely to be given to policy proposals involving expansion or restriction of economic freedom. If people feel that existing economic policy regimes are aligned with their personal values, they are less likely to support radical change.

The accompanying graph suggests the existence of a positive relationship between an index of facilitating values and economic freedom. As suggested in the label of the horizontal axis, the index of facilitating values reflects the priority that people in different countries place on autonomy, and the extent of interpersonal trust in different countries.

Indexes

I am not aware of any other index of values facilitating economic freedom similar to the one I constructed in preparing the graph, even though there has been a substantial amount of previous research undertaken on cultural values supporting economic growth and institutional change. (Nicholas Moellman and Danko Tarabar have referred to some relevant literature in their article, ‘Economic Freedom Reform: does culture matter?’, Journal of Institutional Economics (2022), 18, 139-157.)

The priority people place on autonomy seems likely to be important in facilitating economic freedom because respect for individual autonomy implies respect for individuals engaged in commerce, particularly innovators. Trust of strangers seems likely to be important in facilitating economic freedom because it reduces the tribal instinct to seek to use the powers of the state to advance the interests of group members at the expense of other groups.

I have used Christian Welzel’s autonomy index to measure autonomy. This index uses three items in the World Values Survey (WVS) which ask respondents their views about desirable child qualities. Autonomy is considered to be valued more highly by those who independence and imagination as desirable child qualities but do not consider obedience as such a quality. (See: Christian Welzel, Freedom Rising, 2013). I used an updated version of the index based on the latest round of the WVS (2017-2022).

Welzel’s generalized trust index was used to measure interpersonal trust. This index gives higher weight to trust of strangers than to trust of family. I reconstructed the index for the latest round of the WVS by combining items covering close trust (trust of family, neighbours, and people you know personally), unspecified trust (whether most people can be trusted) and remote trust (trust of people you meet for the first time, people of another religion and people of another nationality). Unspecified trust was given double the weight of close trust, and remote trust was given three times the weight of close trust.

In constructing the facilitating values index, autonomy was allocated 75% of the weight and generalized trust was allocated 25%. Those weights were chosen on the basis of regression analysis using the autonomy and generalized trust indexes as explanatory variables to explain economic freedom. (Researchers seeking further information about the methodology used in constructing this index are welcome to contact me.)

 The Fraser Institute’s economic freedom index incorporates a large number of indicators relating to size of government, legal systems and property rights, sound money, freedom of international trade and regulation.

Discussion

My focus is on the outlier data points in the accompanying graph, and particularly on those countries which have substantially lower or higher economic freedom than might be predicted on the basis of values facilitating economic freedom.

One of the first things readers may notice in the graph is that values facilitating economic freedom are shown to be higher in China than in the U.S. and Australia. That may seem surprising if Geert Hofstede’s analysis, or your knowledge of cultural heritage, has led you to expect Chinese people to be much less individualistic than Westerners. If you need to be persuaded that many Chinese people have an individualistic perception of human flourishing, you might like to read an article I wrote on that topic in 2021.

While you are thinking about China, you might like to compare economic freedom in that country with that in Singapore, Hong Kong, and Taiwan. The most obvious reason why the latter jurisdictions have greater economic freedom is because they have adopted market-friendly ideologies.

Similarly, adoption of market-friendly ideologies explains why Albania has substantially greater economic freedom than Iran and Libya, and why Chile has greater economic freedom than Argentina and Venezuela.

Conclusion

The existence of values facilitating economic freedom helps to explain why some countries have higher economic freedom than others. However, it seems that a substantial part of international differences in economic freedom can be explained more directly in terms of prevailing government ideologies which either support or oppose free markets.

Do people now have greater economic freedom in Sweden than in the U.S. and Australia?

 

When I think of Sweden, what comes to mind is a big government welfare state, with higher priority being given to economic security than to economic freedom. I was therefore surprised when I saw the Heritage Foundation data reproduced in the accompanying graph, which shows that economic freedom in Sweden is now higher in the United States and Australia. I expect that many readers would be similarly surprised.

The substantial decline which the graph shows for economic freedom in the U.S. and Australia since 2020 is presumably associated with government policies restricting freedom during the Covid19 pandemic. However, economic freedom in Sweden has apparently maintained an upward trend during that period.

In order to come to grips with this new information I thought it might be helpful to consider alternative economic freedom estimates and to take a look at the components of the Heritage Foundation’s economic freedom estimates.  

Comparison of Heritage and Fraser estimates   

 Some of those who feel uncomfortable with the idea that people may now have more economic freedom in Sweden than in the U. S. and Australia might obtain some solace from the fact that the latest economic freedom estimates of the Fraser Institute has Sweden (in 33^rd place) ranked far behind both Australia (6^th) and the U.S.  (7^th).  Some of the differences between the Heritage and Fraser estimates may be attributable to timing. The Heritage estimates for 2023 are based as far as possible on data for June 30, 2022, whereas the latest available Fraser estimates are for 2020. However, there are also differences in the aspects of economic freedom covered by the indexes. For example, the Heritage estimates incorporate Fiscal Health (deficits and debt) which is an aspect of economic management not incorporated in the Fraser estimates.

I was not surprised to see Sweden ranked first in the Fraser Institute’s index of personal freedom, well ahead of Australia (17^th) and the U.S. (33^rd). The Human Freedom index (which combines economic freedom and personal freedom) has Sweden ranked 6^th, ahead of Australia (11^th) and the U.S. (23^rd).

Comparison of scores on various aspects of economic freedom

The comparison of scores on the accompanying graph indicate that aspects in which Sweden performs relatively well, by comparison with Australia and the U.S. are fiscal health and government integrity. As might be expected from Sweden’s welfare state reputation, the aspects on which Sweden performs relatively poorly include tax burden and government spending.

Conclusion

The answer to the question I posed at the outset depends on which economic freedom index one looks at. The Heritage Foundation’s index clearly has people enjoying greater economic freedom in Sweden than in the U.S. and Australia, but that finding is not confirmed by the Fraser Institute’s index. Whatever Sweden’s current ranking relative to the U.S. and Australia, it is worth pondering how Sweden has managed to maintain relatively high levels of economic and personal freedom, despite having a large welfare state. At this stage, there is not much evidence that Sweden is in grave danger of sliding down the slippery slope to serfdom. 

What is holding back the growth of economic opportunities in PNG?

 

Why should you care about the economic opportunities available to the people of Papua New Guinea?  Perhaps some readers didn’t even know the location of Papua New Guinea (PNG) before looking at the accompanying map.

There is a lot to be said for the view that the people of PNG should be left to solve their own problems for themselves. However, one of the problems the people of PNG need to solve is how to reduce their dependence on foreign aid. Another problem they need to solve is how to cope with living in a part of the world in which China and the United States are increasingly competing for influence.

Joe Biden, the president of the United States is to visit Port Moresby, the capital of PNG, on May 22 for discussions with Pacific Island Forum members, while on his way to Sydney for a Quad meeting.

My personal interest in the economic opportunities available to people in PNG stems from having worked there as a consultant on economic policy, having visited as a tourist on several occasions, and not least, from having relatives who live there. I maintain an interest in economic and social development in PNG and have written about it on this blog in the past (here, here, here, and here).

In this article I suggest that opportunities for human flourishing in PNG are less promising than recent macroeconomic indicators might suggest. After considering some macro-economic indicators, I briefly discuss population statistics, corruption and profligacy, the law and order problem, poor opportunities for young people, and lack of economic freedom.

Macro-economic indicators

The World Bank’s latest Economic Update paints a fairly rosy picture, with economic growth of 4.5 percent for 2022. Government revenue from mining and petroleum taxes surged (reflecting the impact of Russia’s invasion of Ukraine on natural gas prices). The increased revenue led to a reduction in the fiscal deficit. The magnitude of public debt remains a problem, with interest payments exceeding public spending on both health and education.

Inflation at around 6 percent per annum is not unduly high by comparison with other countries, but rising food prices have made life increasingly difficult for many people in urban areas. Foreign exchange rationing, associated with pegging of the Kina against the USD, has been a hindrance to business.

Population statistics

I mention population statistics mainly because questions that have recently been raised about the reliability of official estimates of the population illustrate the existence of deep-seated problems in public administration. The official estimate of population for 2022 is between 9 and 11 million. However, a leaked UN report has suggested that the population could be as high as 17 million. In this instance, the official estimate seems more likely to be correct. However, the last credible census took place 20 years ago, so no-one really knows the size of the PNG population.

It is widely accepted that the population of PNG has been growing rapidly and that the majority of people are relatively young, probably under 25 years old.

Corruption and profligacy

Corruption is still a major problem in PNG, although there seems to have been some reduction over the last decade. Of the 180 countries included in the Corruption Perceptions Index, only 50 were rated as more corrupt than PNG in 2022.

Profligacy in spending of public money by some government ministers is legendary. For example, in 2018, when PNG hosted the APEC summit, Justin Tkatchenko attracted controversy by purchasing 40 custom-made Maserati luxury cars. He claimed that they would sell like hot cakes after the event. Unfortunately, that didn’t happen. More recently, the same minister again attracted criticism for taking an overly large contingent of people with him, at public expense, to the coronation of King Charles III. It was his intemperate response, labelling critics as “primitive animals”, which eventually led to his resignation from the position of Foreign Minister.

The law-and-order problem

There has been a law-and-order problem is PNG for many years. In 2015 I wrote:

“It is unsafe for tourists to walk around most parts of Port Moresby alone except within the boundaries of major hotels, modern shopping malls and other locations where security is provided. The same applies to local residents. Tourists are more fortunate than most of the locals because they can afford to be transported safely from one secure area to another.”

It is particularly unsafe for women and girls to be in public places. A recent article on DEVPOLICYBLOG by Sharon Banuk, a university student, describes the nature of the problem that she has faced in staying safe.

PNG is ranked second, behind Venezuela, as the country with the highest number of reported crimes per 100,000 people. The ranking of PNG seems to have remained the same since 2017, having risen from 16^th place in 2015.

Poor economic opportunities for young people

The law-and-order problem has been linked to the increasing problem of youth unemployment in an article by Ms. Julian Melpa for the National Research Institute. A recent study found 68 per cent of people aged between 14 to 35 in Port Moresby were unemployed. Even people with tertiary qualifications often find it difficult to obtain employment.

The difficulty of finding employment is illustrated the accompanying photo of job seekers, published with a report in The National newspaper on Feb 6, 2023. The crowd were competing for a few advertised vacancies at a hotel in Port Moresby.

Lack of economic freedom

International agencies tend to label the main deficiencies in economic freedom in countries like PNG as governance problems. That labelling may make their advice more palatable to politicians who have ideological hangups about free markets but it obscures the adverse impact of lack of economic freedom on incentives to invest, innovate and create greater opportunities for human flourishing.

Only 36 of the 176 countries included in the Heritage Foundation’s index of economic freedom have a lower ranking than PNG. A similar picture emerges from the Fraser Institute’s economic freedom ratings. Only 43 of the 165 countries included in the Fraser index have a lower economic freedom rating than PNG.

PNG has particularly low ratings for rule of law (covering property rights, judicial effectiveness, and government integrity) business freedom, and investment freedom.

PNG governments have obviously been having major problems in performing the core functions of government in protecting natural rights of individuals to be safe and have opportunities to flourish. Governments face a formidable challenge in protecting economic freedom in PNG, with most of the population living in village communities and having little contact with the market economy.

However, similar challenges face governments in some other countries. Some African countries which face similar challenges now seem to be performing better than PNG in facilitating growth of economic opportunities.

Postscript

Readers who are interested in a more comprehensive picture of the well-being of people in PNG should visit the relevant country site of The Legatum Prosperity Index. For the purpose of the Legatum index, prosperity is defined broadly as occurring "when all people have the opportunity to thrive by fulfilling their unique potential and playing their part in strengthening their communities and nations".

My article mentions a visit to PNG by Joe Biden, which was scheduled for May 22. Unfortunately, this  visit will not occur as planned because he has given higher priority to political negotiations over the U.S. government debt ceiling.  

How authoritarian are American political leaders?

 

A few days ago, I took the Political Compass test for a second time. The test, devised by politicalcompass.org , requires individuals to respond to questions which indicate where their views place them on scales labelled Authoritarian - Libertarian and Left - Right. My position had not changed since I last took the test 7 years ago (see below) but as I looked around the site, I noticed the chart (reproduced above) which suggests that the main contenders in the U.S. 2020 election held relatively authoritarian and right wing views (with Biden somewhat less authoritarian than Trump).

Does the political compass make sense?  The horizonal axis measures economic freedom, with people at the right end favoring more economic freedom. That corresponds, more or less, to the conventional left-right spectrum. The vertical axis measures personal freedom, with people whose views place them at the top end favoring greater restriction of personal freedom. It seems to me that the positioning of a person on a political compass incorporating a personal freedom axis is much more informative than attempting to position them on only one axis.  However, the labelling adopted is not ideal. To be considered a libertarian, in my view it is necessary to advocate economic freedom as well as personal freedom.

I was somewhat surprised by the placement of both Biden and Trump as favoring a relatively high level of restrictions on personal freedom. I don’t follow American politics closely enough to dispute how accurate that placement might be within that context.

However, by international standards, it would make little sense to view Biden or Trump as advocates of authoritarian policies. The policies they have advocated in their efforts to win votes have not been greatly different from those currently prevailing in the United States. By international standards, people in the U.S. have relatively high levels of personal and economic freedom.

The results of the latest Human Freedom Index, published by Cato and the Fraser Institute, can be used to illustrate the point. The Human Freedom Index is the result of painstaking efforts to compile a vast amount of data relating to economic freedom and personal freedom in 165 countries.

It is interesting to see the relative position of various countries in a comparable scatter diagram showing economic freedom and the x axis and personal freedom on the y axis. In the diagram below, which I have labelled “Ideological Map of the World”, the values on the personal freedom axis are in reverse order to make it comparable to the political compass. The horizontal and vertical lines drawn on the diagram are positioned at median levels of economic and personal freedom.

The position of the U.S. is clear from the chart. The levels of both personal freedom and economic freedom in the U.S. are comparable to those of other liberal democracies, and far greater than in China or Russia.

My libertarian friends in the U.S. may have good reasons to view their national political leaders as excessively authoritarian, but they are competing for the votes of people who, by international standards, enjoy relatively high levels of personal and economic freedom.

Does the "Politics of Being" support progress?

 

“Politics of Being” is title of a recently published book by Thomas Legrand. The subtitle is “Wisdom and science for a new development paradigm”. The question I ask myself is whether Legrand’s views support progress as I defined the concept in Freedom, Progress, and Human Flourishing. Would widespread adoption of Legrand’s views enhance the growth of opportunities for individuals to obtain the basic goods of flourishing humans?

Before I purchased the book, I was aware that the author had shown wisdom by including this quote from Elinor Ostrom’s Nobel Lecture:

“A core goal of public policy should be to facilitate the development of institutions that bring out the best in humans.”

That passage is actually quoted several times in the book and is sometimes accompanied by the preceding sentence in which Ostrom distances her approach from that of policy analysts who design institutions “to force (or nudge) entirely self-interested individuals to achieve better outcomes”. The passage I have quoted at the top of this article illustrates Ostrom’s optimistic view of the capacity of individuals to work together to devise solutions to collective action problems without help from governments.

The essence of Legrand’s line of argument is that the world is stuck in an obsolete development path and is in need of a new “wisdom-based approach to politics”.  I will discuss briefly what he perceives to be wrong with the current development path, before discussing some elements of the alternative path he advocates.

Perception of the problem

Legrand believes that the current development path is causing many problems. The world is on track for a climate change catastrophe. Economic development and increased life expectancy are not making people much happier in high-income countries. Many countries seem to be facing mental health crises. There has been a decline in interpersonal trust in many countries. Our current model of development is rooted in a set of values that are causing a civilization crisis. He writes:

“Our economic system not only destroys social ties and the environment but feeds on these destructions that create new market opportunities. It seeks to adapt humans to its own requirements rather than adapting itself to human needs. Based on fundamental misconceptions, this system can only perpetuate itself through ever more propaganda that feeds our disconnection from ourselves, our true needs, and ultimately, our apathy.”

I agree that all is not well with the world and share some of Legrand’s concerns. However, I am more optimistic than he is about climate change, and strongly disagree with his views on economics. Readers who are interested in my views should read Freedom, Progress, and Human Flourishing.

Being and Interbeing

Legrand argues that the new development model required is essentially spiritual. He views spiritual development as:

“the process by which we come closer to our true nature. From that connection, we naturally tend to manifest the highest qualities: wisdom, love, joy, peace etc., or simply the best or most authentic version of ourselves currently available!”

Legrand’s discussion of spiritual values includes chapters on life, happiness, love, peace, mindfulness, and light.

According to Legrand the new paradigm involves a transition from “having to being, which many believe means interbeing”. So, what is interbeing?

 “Interbeing is a term coined by Zen Master Thich Nhat Hanh, which goes beyond interconnectedness to touch on the very nature of our being. It expresses the nature of reality based on the Buddhist teachings of interdependent co-arising (“that is because this is”), non-self, and impermanence”.

I see no problem accepting that everything is interdependent. Impermanence does seem pervasive (except in respect of fundamental values, virtues, and the highest qualities). But “non-self” poses problems. As I see it, self-awareness is a fundamental characteristic of the kind of thing (entity or system) that an individual human is.  Self-respect arises from self-awareness, and motivates respect for other people, and other living things. Respect is the foundation which makes love possible. By the way, do you know who it was who said “one should not hurt others if one loves oneself”? The answer is here.

At various points in the book Legrand recognizes that people have “higher selves” and “true selves”, so he seems to acknowledge that we should aim to purify our egos – to remove the biases, distortions, and attachments that tarnish our perceptions of our individual selves - rather than eliminate self-awareness. He provides a good summary of his view of “being” and of personal development in this passage:

“As a person, there is little chance that I get closer to my authentic being by defining a vision of who I am and trying to actualize it. On the contrary, I can discover who I am by freeing myself from predefined and limiting identities, purifying my intentions, character, and behaviors, and expressing the deepest yearning of my soul. This is a conscious, evolutionary process of emergence, informed but not bounded by the understanding I have of my essence, which is necessarily limited. The same is true for nations.”

The world would be a better place if more people adopted that as their personal development model. However, I was tempted to leave off the last sentence of the quoted passage. The idea that nations have “souls” seems to me to be collectivist nonsense.

Governance

The part of the book providing an agenda for action envisages a larger role for government than I had anticipated. For example, Legrand suggests that government efforts to promote early childhood education should start during pregnancy. He also suggests that governments should actively promote a healthy diet. Even followers of Elinor Ostrom can sometimes find it difficult to remember to avoid adopting an overly pessimistic view of what people can achieve without government guidance.

I agree with Legrand that it is naïve for people to believe that “all it takes to improve our societies is to secure a majority of voters for their ideas, especially when they engender polarization”. Political leaders have no hope of implementing lasting reforms unless they can foster broad community support for them. That usually means avoiding politicization of the issues. (As an aside, one of the inconvenient truths about politics is that Al Gore’s involvement in support of U.S. action to mitigate climate change provided a focus for Republican opposition to such policies.)

The book contains interesting proposals to enact the “politics of being” in political institutions. Legrand suggests that each nation should establish a “wisdom council” to preside over discussions about the nation’s evolution with the government and parliament. The councils would consist of equal representations of four groups: randomly selected citizens, representatives of the “outer” economic, social, and environmental life of the nation, representatives of the “inner” spiritual, cultural, and psychological life of the nation, and “representatives of non-human members of the earth community”.

Legrand also suggests that the Baha’i model of governance should be adopted for lower houses of parliament. In brief, adult community members elect representatives at the local level and are urged not to discuss with others who to vote for. The local representative vote for regional representatives, who in turn vote for national representatives.

It is difficult to envisage circumstances in which politicians would enact such radical changes to existing systems of representative government. However, if the outcomes of the existing systems become increasingly unpalatable, radical alternatives will no doubt be contemplated by an increasing number of citizens. In that context, Legrand’s proposals will have stiff competition from other proposals, including the decentralist approach discussed previously on this blog.

The main problem I see with Legrand’s governance proposals is their potential to infringe individual liberty. Most of the members of the proposed governing council would be likely to advance the interests that they represent by advocating further restriction of individual liberty. The Baha’i model is presumably more responsive to community members than religious and political governance systems in which the hierarchy is self-perpetuating, but people who are indirectly elected to peak positions still have less incentive to have regard for the wishes of members at the grassroots level than if they were directly elected, or selected randomly.

Facilitating progress?

Legrand describes his book as “a drop in the ocean”. I think it may have potential to be more than that. The part of the book dealing with spiritual development has potential to be influential if it finds its way into the hands of sufficient numbers of people who are currently rudderless and yearning for inspiration.

I think contemplation of Legrand’s views on spiritual development has potential to enhance progress, viewed as the growth of opportunities for individuals to obtain the basic goods of flourishing humans. After reading the book, some people might be more inclined to wise and well-informed self-direction, healthy living, improved inter-personal relations, living in harmony with nature, and adoption of behaviors that enhance psychological well-being.

However, Legrand’s attack on “the current development path” invites further restrictions on economic freedom which would impact negatively on growth of productivity and hence on growth of opportunities for human flourishing. As outlined in the following paragraph in Freedom, Progress, and Human Flourishing, I see declining rates of productivity growth as a major threat to growth of opportunities for human flourishing:

“This chapter has focused on the threats posed by climate change, declining productivity growth, and problems with democracy. I do not dismiss the longer-term threat posed by climate change, but in my view, there are stronger reasons for concern about the more immediate threat posed by declining productivity growth. Individuals, firms, and governments are taking action to mitigate climate change, and their efforts seems likely to accelerate before adaptation becomes excessively costly. There are fewer grounds for optimism that governments will deal with emerging economic problems (of their own making) in time to avert the widespread misery that is likely to follow from looming economic crises.”

As explained in my book, my optimism about action to mitigate climate change rests on signs that the polycentric approach, proposed by Elinor Ostrom in 2009, is now being adopted successfully.

I am not greatly troubled by the thought that some readers of Thomas Legrand’s book may be persuaded to adopt economic and political views that are inimical to productivity growth. There is an ocean full of views on public policy that are similar to those which he advocates, so I don’t think his additional drop will have a significant direct impact on policies adopted. Hopefully, his book’s endorsement of Elinor Ostrom’s approach will encourage some readers to explore her views in greater detail.

My bottom line: The net impact of “The Politics of Being” will be to support the growth of opportunities for human flourishing.

Does voting just encourage them?

 

A couple of weeks ago the thought struck me that it was about time I wrote something about the personal ethics of voting. That turned out to be more difficult than I had anticipated.

At first, I thought that I should argue that it is unethical to vote because politics is a dirty business. As a person who often espouses principles of libertarianism and decentralism (see the preceding post on this blog) I see voting as akin to online shopping with known fraudsters – you know that the package of goods they deliver will never be the same as the one you thought you were buying. You should avoid shopping with known fraudsters, and you should avoid voting because whoever you vote for a politician will be elected.

Then I thought of some problems with that analogy. What happens if you really need the goods that the politicians are advertising? Who will mend the potholes in your road if you don’t vote for a politician who promises to get it done? Perhaps you might tell me that you and your neighbours could organise a working bee and do it yourself. Good idea!

However, if you don’t vote, who will restrain government spending? I expect that the more cynical among you will respond that no-one will restrain government spending, irrespective of whether you vote, or who you vote for.

When my reasoning took me to that point, I couldn’t immediately think of an appropriate response. That was when I decided that to bring clarity to my mind I should read again the book, “Don’t Vote – It just encourages the bastards”, by the late, great P J O’Rourke.  My discussion of the book provides only a small sample of the humor and wisdom in it. Despite having been written over 12 years ago, the book contains insightful comments about people who are still on the political stage in America, including Donald Trump. However, that is somewhat tangential to the focus of this article.

You might think that this book would make a strong case against voting, but the old saying about not judging a book by its cover does seems to apply in this instance. O’Rourke suggests that voting does have a purpose: “We vote to throw the bastards out”.  The problem, as I see it, is that when enough voters manage to persuade each other to vote to throw politicians out of office, that doesn’t establish a regime of peaceful human flourishing without any interfering politicians. Voters throw out one lot of politicians by voting another lot into office.

One of the funniest parts of the book is a listing of the personality characteristics of people who are drawn to politics. The first item on the list is “A pervasive pattern of grandiosity”. After listing 9 other characteristics, O’Rourke acknowledges that he has just quoted from the American Psychiatric Association’s diagnostic criteria for narcissistic personality disorder.

Nevertheless, O’Rourke acknowledges that “individual politicians are, after all, individuals like the rest of us and should be judged individually”:

“It would be wrong—very tempting, but wrong—to think of them all as simply bastards”.

He elaborates:

“I’ve spent some time with politicians. I like politicians. I’m friends with politicians from both sides of the aisle. Politicians are fine until they stick their noses into things they don’t understand, such as most things. Then politicians turn into rachet-jawed purveyors of monkey doodle and baked wind.”

Unfortunately, I must agree. The politicians I have met personally have all been likeable. When you meet them, they seem to be pleasant people (perhaps in the same way that the scammers who seek my friendship on Facebook often seem pleasant). A few politicians I have met even had their hearts and heads in the right places. The one who comes to mind most readily is Bert Kelly, an Australian politician whom I have written about previously.

Sometimes when I see a politician performing on TV, I wonder how a nice person like her, or him, ended up like that – I mean, like a bad actor saying things they don't believe. The fact that their future political careers are at stake is no consolation.

Is there something inherently evil about politics? O’Rourke writes:

“Maybe politics is inherently evil. Maybe politics is so evil that anything we do for it, even attempting to supply it with morality, just feeds the beast. I trust this isn’t true but I can’t say the thought doesn’t trouble me.”

That thought troubles me, too.

In his discussion of morality in politics, O’Rourke introduces (on page 88) the Venn diagram, reproduced at the top of this article. He drew the two circles to intersect, implying that there can be such a thing as moral political behavior.

It seems to me to be appropriate to maintain some optimism about democratic political processes. They don’t do much to protect our liberty and pursuit of happiness, but not many of us would freely choose to live under any of the available alternative forms of government. Many people claimed that democracy could not exist as a permanent form of government because it would not take long for citizens to learn that they could vote themselves largesse out of the public treasury. Indeed, that is largely what democratic politics has been about for as long as it has existed. Yet democracy survives! Perhaps democracy’s secret of success has been the existence of sufficient voters and politicians who have been willing to stop playing politics when crises have become imminent.

I often wish that I could be apolitical, but O’Rourke has persuaded me that is not practicable:

“The democratic political process is like the process of our children going through adolescence. There’s not much we can do to improve it and there’s nothing we can do to stop it. We cannot, however, just declare ourselves to be apolitical any more than we can declare ourselves to be “aparental.” Here are the car keys, son. Dad’s stash is in the nightstand drawer. Why don’t you take my ATM card while you’re at it? See you when you’re thirty.”

It certainly appears that there is not much that we, as individuals, can do to change the outcomes of the political process. The chance that your vote will be decisive is miniscule. But people do talk about politics and influence one another about how they will cast their votes. Paradoxically, even those of us who would like to be apolitical can make a difference if we decide that we don’t like the direction that politics is taking and choose to vote.

Before concluding, I should offer a personal explanation about the relevance of the personal ethics of voting to me, as a person who lives in a country where voting is compulsory. It is possible to choose not to vote in Australia without displaying a great deal of courage. It is possible to attend a polling place, chat with your neighbours, eat a “democracy sausage”, exchange greetings with people offering “how to vote” literature, have your name ticked off on the voting roll, be handed voting papers, and still not cast a valid vote. In a secret ballot, no-one knows what you write on the voting papers before you put them into the ballot boxes.

Conclusion

When I began writing this article, I was not sure whether I would end up persuading myself to vote, or to have nothing to do with the political process. P J O’Rourke helped me to persuade myself that there is such a thing as moral political behavior.

Democratic politics is certainly a dirty business. It doesn’t do much to protect liberty or the pursuit of happiness, but most of us would choose to put up with democratic immorality rather than to live under any of the currently available alternative forms of governance. Paradoxically, the survival of democracies may be attributable to the willingness of sufficient numbers of voters and politicians to refrain from playing politics – to stop raiding the public treasury - when crises become imminent.

Although the chances of an individual vote being decisive are miniscule, individuals do influence one another in how they cast their votes. Individuals who don’t like the way politics is heading are more likely to improve outcomes if they choose to vote and encourage other like-minded people to do likewise, rather than choosing to refrain from having anything to do with the political process.