How can desirable economic reforms be pursued more effectively in Australia?

Soon after the Abbott government was elected, I speculated on this blog that it could end up looking quite similar to the Fraser government which held power in Australia from November 1975 to March 1983. It seemed likely that there would be plenty of tough talk without much economic reform.

Perhaps I should apologize to Tony Abbott and Joe Hockey. The government has made some tough decisions in its first budget. I don't endorse everything they have proposed, but it is good to see a government proposing action to deal with a looming problem before a more painful adjustment becomes unavoidable.

Nevertheless, it still seems quite likely that the end result will be tough talk and not much action. These days the budget speech is just the starting point of a political negotiation. The final outcome is likely to be strongly influenced by minor parties in the Senate, which are seeking to increase their popularity by fanning the flames of interest group opposition to spending cuts.

The minor parties only pose a problem because the government does not at this stage have strong public support for its policies. Minor parties do not like to be seen to be obstructing popular government initiatives.

In an article in the Australian Financial Review a few weeks ago (May 28, 2014: ungated version here) Ian Marsh suggested that adverse public reaction to the budget reflects a more fundamental problem which afflicts any government trying make bold reform. He gives several examples: 

“The Resource Super Profits Tax was released in May 2010, and was followed by a public opinion firestorm which unseated Kevin Rudd. WorkChoices led to the downfall of John Howard’s government. Refugees and climate change destroyed Julia Gillard. Earlier, John Hewson was undone by Fightback and sponsorship of indigenous reconciliation and a republic contributed much to Paul Keating’s defeat. In all cases, an unprepared public opinion delivered a populist verdict.”

My problem with that list of examples is that I think public opposition was justified in some instances.

Nevertheless, I think Professor Marsh is on the right track when he suggests:

“There is no infrastructure through which more complex political narratives can be aired or debated. Political leaders have almost no capacity to build a supportive public opinion for significant policy change.

There is only one recent exception: John Howard’s sponsorship of the GST. He won the ensuing election but lost the popular vote. It was a dangerously close call.”

If we had adequate institutional infrastructure in place it might help to ensure that governments propose policies that deserve public support, as well as helping to promote broader public understanding of the need for policy changes.

Marsh seems to be correct in claiming that big policy change requires a solid base in public opinion, or bipartisan agreement. He noted that the big parties broadly adopted the same economic rationalist program during a short period of “acknowledged crisis” between 1983 and 1993. But bipartisan agreement evaporated after the crisis receded:  

“After 1993 the crisis receded, and normal politics resumed. But differences between the parties had narrowed. So how were they to distinguish themselves? Opportunism and manufactured difference were the new currencies of debate.”

Ian Marsh endorses proposals for a change in the role of the Senate to create the public conversation needed to build a support for significant policy change:

“The late Liberal senator David Hamer suggested converting the Senate to a committee house with ministers no longer appointed from that chamber. The Australian Senate would be more like its American progenitor. At present this seems the most likely path for the needed reform”.

However, I find it hard to see how that proposal would promote better outcomes. Despite its admirable Senate, the US seems to have even greater problems in pursuing desirable economic reforms than we do in Australia.

More radical change is required if we want Senators who are capable of getting beyond party political opportunism and the representation of narrow interest groups (including wealthy individuals). In my view we should consider a system of selecting Senators that has less political party and 'big money' involvement. For example, Senators could be chosen using a two stage process:

• Sortition (random selection) could be used to select candidates from volunteers who have the written endorsement of a minimum number of voters (e.g. 100). 
• Approval voting’ could be used to weed out those whom the electorate considers to be least likely to make a useful contribution. 

Even if the Senate played a more constructive role, however, we would still need political leaders who are willing to take unpopular decisions.

Postscript 1:

I have been asked whether the change proposed in selection of Senators would require a constitutional amendment. I don't think it would, although I do not pretend to be an expert in such matters. The Constitution provides:

"The Parliament of the Commonwealth may make laws prescribing the method of choosing senators, but so that the method shall be uniform for all the States" (Section 9).

The proposed change would, of course, require the support of the major parties, but that is not impossible.

Postscript 2:

Ian Marsh has responded as follows:

"I accept what you say about the US. Our political world is different. The argument is developed at much more length in my 2012 book Democratic Decline and Democratic Renewal. In an earlier study (1995) I had a detailed account of how a similar system worked prior to the emergence of the two party system in 1909 (Chapter 10). That first decade of federation is my template. I am not opposed to random selection etc. I just think its so far from the norms of representative democracy that it won't happen - at least short of some major crisis and/or decades of the development of public opinion. Deliberative democracy (on which this idea is based) is to my mind an invention of the US where the structure of power is frozen by the constitution. In Australia (and Britain and NZ) these things are governed by convention. Thus there is a possibility of peaceful change from within. That's what happened in 1909. Regards, Ian."

Will we continue to allow economic development to provide better opportunities for people to have happy lives?

Some friends who have visited my blog have told me that they have had some difficulty in understanding the purpose of my recent series of posts related to emancipative values. This post is dedicated to those people.

Recent posts on my blog have been concerned with the future of human flourishing in wealthy countries. Is the future likely to bring greater and more widespread opportunities for people to live happy lives in wealthy countries?

 Before attempting to summarise my answer that question I need to show how economic development produced better opportunities.

My story begins a few centuries ago when it was normal for the vast majority of people in all parts of the world to be preoccupied with obtaining adequate food and shelter. The threat of famine was never far away, even though there were seasons when food was bountiful and some centuries when the pressure of population on food supplies was reduced in the aftermath of plagues.  For the most part, people lived in small communities isolated from the outside world. They often lived under the threat of being robbed by their own rulers as well as by people in neighbouring communities. It was common for people who did not share the religious beliefs of their rulers to be persecuted and to be deprived of property and even their lives. Violence was rife despite widespread religious observance.

Everyone should be aware that the process of economic development began in earnest a couple of centuries ago with the industrial revolution in north-eastern Europe. Important technological innovations had previously occurred in various parts of the world, but this was the first time that technological advances led eventually to a sustained improvement in material living standards for large numbers of people.

A range of factors help to explain why the industrial revolution occurred when and where it did, but values and beliefs that became more approving of markets, experimentation, innovation and entrepreneurship were of crucial importance. Market exchange promoted more trustworthy behaviour, which reduced the cost of doing business and encouraged innovative investment activities. The new values and beliefs favoured greater economic freedom, including by removing regulatory barriers that had been protecting traditional patterns of production from competition. Firms were free to use new technology that enabled them to produce at lower cost and they were free to sell those goods to consumers.

Over the following couple of centuries, economic development provided greater economic opportunities to vast masses of people, first in Europe and then in many other parts of the world. As people satisfied their basic material needs to a greater extent they gave higher priority to such matters as having freedom to choose what kind of work to do, where to live and who to live with, having a say in community decisions and ensuring equal rights for women and members of ethnic minorities. That is what we mean by the growth of emancipative values.

So, will economic development continue to produce better opportunities for people to live happier lives in wealthy countries? There are several aspects to this question, but the one that concerns me most is that prevailing values in high income countries might take us further towards an ‘entitlement culture’ that will threaten economic freedom and further economic development.  

It is not hard to find evidence of the emergence of an entitlement culture in wealthy countries. Interest groups that might have had their origins in removal of discrimination or providing minimal opportunities to needy groups now often make a lot of noise in seeking additional entitlements for the people they represent. That tends to result in more government regulation of business, higher government spending and higher taxes i.e. a decline in economic freedom.

However, the results of my research provide some optimism that the entitlement culture can be prevented from taking over and bringing economic development to an end, along with the emancipation that has accompanied it. While economic freedom has fallen in some wealthy countries (e.g. US and Japan) it has risen in others (e.g. Sweden and Norway). There is evidence that the priority that people give to economic growth has risen in some wealthy countries in response to economic crises (e.g. Sweden) and that when this has occurred, economic freedom has tended to rise.

Most importantly, it is a mistake to think that there is some kind of battleground in society with people with high emancipative values on one side pushing for an entitlement culture and materialistic people on the other side pushing for higher economic growth. I could not find much evidence of a tendency for people with high emancipative values to give lower priority to economic growth – even after I went looking for it!

If you want more information on the  research that lies behind this post you will find relevant links in my last post. 

Can the people in wealthy countries continue to climb the emancipation ladder?

This article is my attempt to provide an overview of the series of posts I have been writing about emancipative values.

A good place to start is by explaining what I mean by an emancipation ladder. The basic idea is that the opportunities for individuals to live happy lives are constrained by the circumstances in which they live. The opportunities available to people on the bottom rung of the ladder are heavily constrained. They are likely to be illiterate, to live in small communities with poor communication with the outside world and to be preoccupied with satisfying basic material needs. As these constraints are lifted, more people are able to climb to higher rungs of the ladder, where opportunities are greater. Climbing the ladder may not make our lives blissful, but it emancipates us from the constraints imposed by predation, persecution and poverty.

The concept of emancipation that I am using here owes a great deal to Christian Welzel’s book Freedom Rising, which I reviewed on this blog a few weeks ago. Professor Welzel’s research suggests that as a consequence of economic development people have tended to adopt emancipative values - showing more concern about such matters as personal autonomy, freedom of choice, having a say in community decisions and equality of opportunity. In an increasing number of societies, larger numbers of people have come to recognize the value of civic entitlements - such as the right to vote - and have used their growing material resources, intellectual skills and opportunities to connect with others to take collective action to achieve such entitlements. The process is ongoing, with greater concern being shown for opportunities available to ethnic minorities, gender equality, entitlements of the disabled etc. as material living standards have risen and emancipative values have strengthened.

However, the people in wealthy countries can expect to experience great difficulty climbing further up the emancipation ladder if social norms and ideologies turn against economic development. As societies become wealthier, economic development becomes less dependent on factories belching smoke and does not necessarily involve vast property developments that destroy the natural beauty of the landscape, but it still requires ongoing advances in technology, innovation and productivity growth. If economic development ceases we can expect our societies to become meaner, with greater disputation over whether different groups in the community are getting a fair share of the national economic cake. (Benjamin Friedman made some valid points about such matters in his book, The Moral Consequences of Economic Growth, which I discussed here a few years ago.)

My understanding of the economic development process suggests strongly that the chances of economic development are greatly improved when prevailing social norms and ideologies support economic freedom i.e. the rights of individuals to use their resources for purposes they choose, including endeavours involving the voluntary cooperation of others. As I see it, the most plausible explanations of why the process of economic development began when and where it did - in north-eastern Europe a couple of centuries ago - are those which emphasize changes in norms and ideologies that legitimised systematic experimentation in the realm of technology as well as in science, and became more approving of innovation and markets. (For example, the views of Joel Mokyr and Deidre McCloskey, which I wrote about here.) Research explaining current differences in per capita incomes in different countries (including some referred to in another post ) suggests that a strong economic culture – with emphasis on interpersonal trust, respect for others, individual self-determination and individualism – is complementary to economic freedom in fostering economic development.

The relationship between economic freedom, average incomes levels and emancipative values is summarised in the chart below for 54 countries for which comparable data is available.

The question of whether people in wealthy countries will continue to be able to climb the emancipation ladder hinges on whether their values will remain sufficiently supportive of economic freedom. Are emancipative values developing in ways that increasingly emphasize personal freedom and individual responsibility, or are they morphing into an ‘entitlement culture’ that will threaten economic freedom and further economic development?

The main points that have emerged from my research are as follows:

• 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: Do emancipative values support economic freedom?
• 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?
• 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: Can we identify the characteristics of national ideologies that promote economic freedom?
• There is evidence that the priority given to economic growth has risen in some wealthy countries (Sweden and the US) in response to economic crises. See: How have attitudes towards economic growth changed since the1990s?
• There is not a consistent tendency for people with high emancipative values to give lower priority to economic growth than do other people in high income countries. See: Do people with strong emancipative values give lower priority to economic growth?

The results of this research provide some grounds for optimism that wealthy countries will maintain sufficiently high levels of economic freedom to enable their citizens to continue to climb the emancipation ladder. However, as I see it, actual outcomes are likely to depend on the quality of the political institutions that have evolved in different countries.

Do people with strong emancipative values give lower priority to economic growth?

This question is worth considering because previous posts in this series (links here) have discussed how economic development has been associated with the strengthening of emancipative values and more widespread opportunities. This means that the ongoing generation of more widespread opportunities for individual human flourishing depends on a substantial proportion of the population maintaining a fairly positive attitude towards economic growth.

The measure of priority given to economic growth that I have been using comes from World Values Surveys (WVS) which asks 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 at their jobs and in their communities; and trying to make our cities and countryside more beautiful. I have used the percentage for whom economic growth is first choice as an indicator of priority given to economic growth.

The perception that non-economists have of economic growth may be a much more defensible concept than growth in per capita GDP as conventionally measured. I don’t have concrete evidence, but I suspect that when non-economists favour economic growth what they have in mind is expansion of economic opportunity, rather than a particular income concept.

Before looking at the evidence I thought that people who have strong emancipative values would tend to give relatively low priority to economic growth because “people have more say” is one of the items which Christian Welzel used in constructing his emancipative values index for his book, Freedom Rising. By definition, people who give highest priority to 'more say', give lower priority to economic growth.

My main focus is on the extent to which the priority given to economic growth by people who hold emancipative values differs from that of the population as a whole in wealthy countries. Except where indicated, I have selected indicators from the latest WVS round which correspond to components of Welzel’s index. Countries included in the analysis are those with relatively high incomes for which data is available in the latest round of surveys i.e. 2010-14. (New Zealand is excluded from the analysis because of a high non-response rate on the question relating to priority given to economic growth.)

As a preliminary exercise, Chart 1 compares the overall average priority given to economic growth in each country with that given by members of different demographic groups. There does not seem to be any consistent pattern of difference between various groups within countries, except perhaps a tendency for young people to give lower priority to economic growth.

Chart 2 compares the overall average with priority given to economic growth by people with different views on desirable attributes for children to learn at home. Independence and imagination reflect positive emancipative values, whereas obedience is considered as negative. Perhaps those who see imagination as a desirable quality may be slightly less enthusiastic about economic growth, but otherwise there does not appear to be a consistent pattern.

Chart 3 compares the overall average with those of groups expressing strong views on whether divorce, abortion and homosexuality are justifiable. Again, there does not seem to be any consistent pattern.

Chart 4 compares the overall average with the priority given to economic growth of people favouring gender equality. The chart shows some interesting facts e.g. people in Australia who strongly disagree that men make better political leaders than women are much less likely to view economic growth as having high priority than are other people in Australia. However, no consistent pattern of difference between the different groups in different countries is obvious.

Chart 5 compares the overall average with the priority given to economic growth of people who see protecting freedom of speech and giving people more say in government decisions as particularly important. In this instance a fairly clear pattern is evident – a lower percentage of those holding emancipative views give high priority to economic growth.

This chart also shows the growth priority of those who consider protecting the environment should be given priority, even if it causes slower economic growth and some loss of jobs. This item is not a component of Welzel’s emancipative values index, but it also worth considering the priorities of those who see environmental protection as having high priority. As would be expected given the wording of the question those who consider protecting the environment should have high priority are less likely to give high priority to economic growth. However, the difference is not as large as I thought it might be.

The general conclusion that I draw from this exercise is that there is not a consistent tendency for people with strong emancipative values to give lower priority to economic growth than is given by other members of the populations of wealthy countries. People who attach great importance to having “more say” seem to be less inclined than the rest of the community to see economic growth as having high priority, but that observation does not apply consistently to people who attach importance to individual autonomy, respect choices that individuals make in their personal lives and favour gender equality. As a general rule, the differences in economic growth priorities of people in different countries are more marked than the differences between different groups within countries.

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.