Is The World Getting Freer?
I was listening to an EconTalk podcast with Milton Friedman and Russ Roberts. They discussed the idea that, for all the problems with politics, the twentieth century saw a large trend towards increased freedom and wealth due to the spread of democracy. On the wealth part, I agree unreservedly, even in these dark economic times. But pointing out that the world is getting freer because of the replacement of dictatorship with democracy glosses over a very important point.
Specifically, as Milton Friedman himself often pointed out, political freedom seems in practice to decrease economic freedom. As we get more political freedom, special interests co-opt it for themselves. The result is better than life under explicit totalitarianism, but it is less than ideal. Unfortunately, it seems to be a problem that gets worse over time. Mancur Olson’s work demonstrates this idea that democracies accumulate an encrustation of special interests which harm growth and hurt the economy. In the United States today, we are currently watching a transformation in a number of industries, such as car and banking, where the current incumbents are solidifying control (or perhaps demonstrating that they already have control) of regulators and lawmakers.
And while the general peacefulness of first-world country interactions these days is certainly a major positive, it makes this accumulation of special interests worse. As Olson demonstrated, losing the war was good for subsequent economic growth in Japan and Germany. This is not a broken-window fallacy, he isn’t claiming the war was on net good merely that it has one good effect. This positive effect of war on progress is a good example of one of our fundamental beliefs on this blog, which is that institutional “resets” are extremely important for clearing away all the cruft of entrenched power structures. And the downside of modern stability (and the lack of a frontier) is that such resets are increasingly rare.
Hence, a more accurate view of the world is that we have two countervailing trends for freedom, set against the backdrop of increasing wealth. One trend is the conversion of entire states to western liberal democracy, and that is of huge positive impact – such as the unification of Germany, the collapse of the USSR and democratization of many of its former republics (although not, it seems, Russia itself) .
But the other trend is what we are worried about – the long-term effect of the ratchet of policy, where we keep adding laws but rarely subtract them, keep creating departments and rarely shutting them down, keep seeing industries get addicted to intravenous subsidies, and so rarely see them kick the habit. While there are good long-term trends in democracy, such as the equal treatment of minorities (blacks, gays), what I see in the history of the US and the rise of the EU is exactly this Olsonian accumulation of special interests and regulation, slowly transforming these countries from innovative economies into centers for transfer from taxpayers to favored corporations, slowing the progress of technology and business, and the growth of wealth. This latest financial crisis and the misguided regulatory response are unusual in their rapidity, but fit right into this ongoing trend.
Now, the gains from democratization are certainly not over – China & Africa, for example, have a substantial part of the world’s population and are not yet democracies. But this increase in freedom is inherently limited – there are only so many countries that can become become democracies. The bad trend, unfortunately, has no such limitations. Democracies can keep on getting more captured, regulated, and decadent – unless we do something about it.
Our current favored solution is to open a new frontier, since new societies function as an institutional reset, and we’ll write more about that later. But we are also totally open to other ways to increase competition among governments, and we hope to generate and hear more such options.
To summarize: The world is getting on net freer because of the the large improvements as countries become democracies, but we should not let this trend, or the trend towards increased material wealth, mask the countervailing trend towards the capture of democracies by special interests at the expense of the full population. There is no contradiction between gains from switching to democracy while democracy itself decays. Things are getting better, but they are also getting worse – and the latter trend is more relevant to those of us who already live in democracy, and has much more potential for harm in the long term.
 I expect to spend a lot of time here dissing democracy, but we must never forget that it is currently the best system, and almost always a big improvement over dictatorship. At least when it arises naturally – I don’t want to claim that wiping away the power structures of a dictator and then forcing a democracy, as happened in Iraq, is necessarily an improvement for a country.