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Is The World Getting Freer?

April 6, 2009

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) [1].

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.

[1] 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.

  1. April 7, 2009 3:15 am

    Why are you assuming that a switch to democratization results in any increase in freedom? You seem to indicate that there is a short term gain, but the historical evidence is not on your side.

    Britain, the U.S., Germany, Austria, France, Canada, Australia, China, Japan, Korea, Taiwan, Singapore, Hong Kong – these countries all either developed their freedom oriented legal systems as authoritarian states or they inherited their system from a colonial ruler.

    I can think of numerous examples of democracies ( or failed attempts at democracy) moving in a less market supportive direction. Compare Britain 1884 ( the year of the Reform Act granting universal male suffrage ) to Britain 1950. Germany 1871 to Germany 1938. Russia under monarchy to Russia under the populist Bolshevik revolutionary government. Or Argentina in the first half of the 20th century to Argentina in the second half the century. France under any of the monarchies to France under any of the succeeding republics. India under the Raj to India under the Permit Raj. Zimbabwe pre-universal suffrage, to Zimbabwe after universal suffrage. Guatemala under the rule of United Fruit to Guatemala the past few decades. Mexico during the Porfiriato to Mexico today. Rome during the 100 years before Augustus, to the 200 years after Augustus.

    The only counter examples I can think of are the former Soviet republics. However, that is not really fair, since 1) it would be impossible to be more anti-liberty than the Soviet system and 2) the Bolsheviks arose out of parliamentary politics, and 3) I bet Russia would have be more free now it if had gotten a Deng Xiaoping instead of a Yeltsin ( I cannot prove that though). Ireland might be another example, though I haven’t studied its history enough.

    but we must never forget that it is currently the best system, and almost always a big improvement over dictatorship.

    The root of this common misconception is odd lumping populist revolutionaries like Hitler and Stalin in with legitimist rulers like the Hasburgs. If you put them in the same category, then yeah, the whole category of autocracy looks awful. But they simply are not in the same category. The evil autocrats were all the result of democratic politics gone awry, while the good autocrats were a result of keeping the lid on democracy entirely and having fully non-populist succession.

    Democracy itself only looks good because a collapsed democracy is the very worst of all governments. The worst tyrants of history came out of party politics ( Sulla, Cromwell, Robespierre, the Bolsheviks, Hitler, Napolean, Mugabe). Given that outside the Anglo countries, the typical shelf life of a democracy in its natural state ( ie, without a U.S. military base in the country) is ridiculously short, and the dictator or civil war that follows is usually worse than any monarch, I’d have to rank democracy as the second worst form of all governments. If B is awful, and A turns into B nine times out of ten, then A must be avoided.

    Look at the history of authoritarian governments that are not the result of revolutionary moments ( ie monarchies). All the monarchies from 1720-1870 were both much more stable and free than the democracies that sprout up after 1870.

    And if you really find monarchy too distasteful, what about aristocratic republic? Do really think democracy is a better government than aristocratic republic?

    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.

    Do you really want to see a democratic China? How long before a Chinese nationalist party sprouts up? Do you want to see the Chinese equivalent of FoxNews? Jingoism is an incredibly effective way to get elected. It’s always a superior strategy to blame the other rather than the self.

  2. April 7, 2009 4:30 pm

    King Devin, is it? Your majesty, even monarchies and aristocratic governments rule by the consent of the governed, regardless of what their noble minds may believe.

    As soon as you can demonstrate your competence at praxis — as opposed to the mere use of rhetoric — you may attract a much larger following, your majesty. Good kings must be able to provide for their subjects, not merely talk them to sleep.

    Perhaps it is too fine a point. We live in the age of talk. Governments appear to fear competent actors and engineer educational systems that prevent the emergence of competent thought and action. Expecting more than talk from those who are politically or legally inclined may be somewhat extreme these days.

    What is your competence, your majesty?

  3. dclayh permalink
    April 8, 2009 5:36 pm

    Did you really just use “decadent” as a pejorative? Really?

  4. April 9, 2009 6:53 pm

    Free Zones as an Additional Option for the Cambrian Explosion in Government

    I completely agree with Patri’s bleak analysis for the prospects of direct libertarian reform through the typical democratic electoral process (I’m open to the possibility of slightly more optimistic outcomes through rule changes, such as Clark Durant’s vote-saving proposal).

    Historically, the fact of Hong Kong and the other Asian Tigers were among the most important bits of evidence on behalf of markets in the 1970s and 80s. In the absence of such examples, the arguments of Milton Friedman and others would have been far weaker and would have had less of an impact.

    Seasteading is an interesting and important option, but with real challenges. There was an attempt at seasteading in the south Pacific in the 1970s or 80s in which military force was used to shut it down. There was another well-funded attempt at seasteading in the Caribbean which was eventually abandoned because of cost of overcoming technical issues was far larger than anticipated. (Mark Frazier knows the details of these stories better than do I; I also know the engineer who set up the Caribbean operation, I’ll put him in touch with you Patri). But the fact that these and other attempts have failed does not mean that seasteading is not a good idea; many successful innovations were preceded by a long line of attempts that failed.

    Another direction that I’ve been encouraging libertarians to consider is the option of a global free zone industry in which private corporations specialize not only in supplying physical infrastructure, but also in supplying legal infrastructure. At present “free zones” and “special economic zones” range widely in terms of structure. In some cases they are merely crony capitalist arrangements in which a developer gets a tax concession from government buddies. At the other extreme is the Dubai International Financial Centre (DIFC), in which Dubai has hired a retired British judge to administer British common law within the 110 acres of the DIFC. What is most distinctive about this arrangement is the precedent set by having a distinct legal system within the boundaries of a nation-state. Moreover, this was explicitly done in order to attract investors – Dubai wants to become a financial center that can compete with London, NYC, Hong Kong, and Singapore, all of which run a version of the British common law OS. They are running it very much as a business – pro-actively selling the quality of their legal system to prospective investors and developers, including making public commitments regarding the boundaries between UAE sharia law and DIFC common law, because they know that ambiguity regarding this boundary makes investors more reluctant to invest and businesses reluctant to locate there. The result is that the DIFC has attracted about as much investment capital into 110 acres in the past five years as all of sub-Saharan Africa, exempting South Africa, combined during the same period. (I have co-authored an article on this coming out in Economic Affairs in June).

    Meanwhile, India is allowing for the creation of potentially hundreds of special economic zones across the country, deliberately modeling their approach on the success of the Chinese SEZs. Again, there have been various challenges with the implementation of these SEZs, especially with regard to eminent domain abuses, that have forced the Indians to slow down the SEZ creation process. Although there are leftist articles claiming that the SEZs in India amount to private governments, from our side I think there is not nearly enough autonomy. That said, the vision of a large nation-state such as India deliberately opening up a market in SEZs would, if combined with serious legal autonomy in the creation of such SEZs, approximate the Cambrian explosion we desire. In addition to commercial entities creating SEZs in India, Georgia Tech has created a research park SEZ, an Indian co-op has created one for their operations, etc. It is useful for the branding and experimental nature of the SEZ project in India to have diverse operators creating SEZs there.

    Both of these developments, the DIFC and the Indian SEZ law, are legal innovations that have taken place in the past five years or so. Strikingly, both U.S. academics and U.S. journalists have largely ignored these phenomena. But in a world with some 200 existing legal regimes, many of which would like to improve their relative position in the global economy, power structure, and public prestige, it strikes me as plausible that we may see considerable growth in and experimentation with SEZs and free zones in the coming years.

    This is a circumstance in which articulating a vision is useful; as more and more people understand that:

    1. Legal systems are the primary cause of poverty in the developing world.

    2. Turn-key legal systems that improve investment climate are readily available.

    Then one can imagine a larger movement in the developing world in which more and more governments create SEZs with greater legal autonomy in order to attract investment and jump start their economies.

    Moreover, as Bob Haywood, the ED of the World Economic Processing Zones Association points out, this strategy gets around the Northian problem of the “natural state.” Although earlier I complained about crony capitalist free zones, the fact is that the wealth creation opportunities of a free zone, especially a well designed zone with high quality physical and legal infrastructure, provides revenue streams which may be strategically divided up among not only the core investors/developers, but also among key stakeholders in government and the power structure that may need to be persuaded (i.e. paid off) to provide permission to create the zones.

    Land values in Dubai and Shenzhen are between ten to a hundred times greater than they were prior to designation as a free zone. Just as mundane zoning changes in U.S. cities, such as from residential to commercial, often result in a doubling or trepling of land values, a “zoning change” that moves land out of worthless land under Chinese communist law or standard 1980s era UAE law, into Hong Kong quality business environment, results in significant increase in value that grows as more investment is attracted and low value barren land becomes a world class metropolis with real estate values approaching those of other world class business cities. This process creates gobs of wealth which can be used in various creative ways.

    Mark Frazier has created Build-Operate-Transfer schemes in which the incentives are aligned such that powerful parties not only permit the creation of the zone, but have a long-term vested interest in its ever-growing financial success because they earn a larger percentage of the revenues (though still always a minority share) the longer the free zone is operating. The ideal is to structure an incentive system in which it is more valuable to support the long-term autonomy of the zone than it is to undermine it. Jobs and wealth creation in the region surrounding the zone, combined with revenue streams going to key elements of government at various levels, might do this.

    I realize that a world in which Halliburton and Dubai Port Services create thousands of British Common Law SEZs that are commercially successful around the developing world is hardly anarcho-paradise. But here again, this is where articulating a vision can change things. Once it is more widely recognized that poverty is caused by bad legal systems, why settle merely on British common law? At a minimum, vendors of commercial law will create ever more effective legal systems as they become credible vendors of such law. Moreover, as a customer base develops, they will demand new features of the legal system much as customers everywhere demand new product features. ZonAmerica, the first high tech free zone, based in Uruguay, has Tata and Intel as some of its main tenants. As ZonAmerica replicates into Central America, presumably customers on the scale of Tata and Intel will be able to request improvements. At present I know a wealthy entrepreneur who is interested in relocating his company and in investing $10-20 million in the creation of a country that has “the economic freedom of Hong Kong combined with the personal freedoms of Holland” (he is already interested in Patri’s project). He is an essence a customer looking for a credible supplier of such a region, be it seasteading or free zone. As these possibilities become more widely known, we’ll see more such customers, with diverse requests.

    Without going further, once one has a global free zone industry with vendors of legal infrastructure responding to customer requests, many of which pertain to the issue of how to attract very talented human capital to an area, one can imagine an incremental approach to something that approximates a Cambrian explosion of governments. The greatest obstacle to such a vision would be higher level governments, the U.N., trade agreements, etc. crushing the expansion of legal possibility. Already international trade agreements frown on free zones. But this is where I’m pushing for idealistic NGOs to see zones as a solution to urgent global problems in order to create a sort of Bootlegger/Baptist dynamic that moves in our direction; I’ve spoken with Jane Goodall about creating a Chimpanzee saving free zone (habitat destruction and bushmeat consumption are the primary threats to chimps, both of which could be reduced through successful economic development), Paul Rice of Transfair on creating a “Fair Trade Certified” free zone, and Mark Frazier and I have written a paper on “Women’s Empowerment Free Zones” in which the wealth is used to support women and children, which has attracted some interest from women’s groups. Mostly people think I’m crazy, but many of them gradually begin to take more of this seriously as they understand each node of the argument. Bill Easterly, to his credit, when confronted with the economic development case I sketched out above, acknowledged immediately that development economists had pretty much ignored free zones and that that was a mistake (though the recent U.N. Commission on Growth report, chaired by Michael Spence, puts in a good word for SEZs, as does Jeff Sachs’ “End of Poverty,” though neither recognize the vision sketched out here.) I understand that Paul Romer is working on a related idea, but I’m not yet clear on the details of his project.

    In any case, the more minds we have thinking and working on this path the better. In many cases, the seasteading path and the “radically autonomous” free zone path share similar needs: Both need more people who understand the need for a market in governments creating a larger, more public conversation around this possibility; leading to the possibility of scaling up considerably the market in governments on both the demand and supply sides; and a finally coalition that resists the obstacles that transnational organizations and treaties may create that would prevent a real market in governments from coming into being.

    See the last chapter of my

    Be the Solution

    the “FLOW Vision for the 21st Century,” where I insinuate this vision into a larger context that many left liberals would find appealing.

    • July 15, 2011 1:29 am

      I really like what you guys tend to be up too. Such clever work and coverage! Keep up the very good works guys I’ve included you guys to my blogroll.

  5. April 10, 2009 1:28 pm

    Overall a spectacular essay – I like a Call to action that is ambitious, more so than ideas in a room of peers or against stubborn fools.

    I like the basic assessment of folk behaviors humans seem to possess – seem being the keyword. Love that it challenges complacency, and really underscores the crisis we are in now.

    Naively, we assumed the Republicans are frugal AND fiscally conservative. But, no, they spend, frivolously invade countries, give breaks to big business, and waste time with social issues that are meaningless and hypocritical since they call back to prior eras in some way that really actually sucked. Kids were beaten, people were slaves/racist, credentialists and in-crowds held the keys to high society, and in general, people were horrible to each other as soon as 40 years ago in general. Who cares if it was safe to hitch-hike then (or supposedly so)?

    However, I have a few thoughts, some of which are critical in nature:

    * I believe we will move towards a libertarian-esque situation in the future as collaboration, wikification, and technology replaces the antiquated structures of current society. This is a version of the electronic currency guys I guess, but broader reaching: I think a version of “Star Trek” utopia is feasible, whereby by minimum standards for all are so high from technology eventually it only becomes logical that folks live free to act and with limited impediment from authority. I think this will start to come well before a Holo-deck or Universal Replicator is invented.

    THE DANGER: We let technocrats; fascist left and right wingers run the show and delay this technological benefit. Key word: Delay. Or, the old danger of destroying ourselves and the planet… It is old, and possible. And no, it will not be via Global Warming, but more likely human error with WMDs or an unforeseen issue.

    * I think it is interesting that the punch line is that we relocate to the high seas in some capacity just because of a loophole in current international law set-up by the current system of governments and world order – and incidentally, those rules would change the second people significantly flaunt it. I find it impractical, and it requires giving up heritage, family, roots, culture, and dry land – things that deny human nature even more than semi-convincing arguments about folk behavior.

    I counter that it is a cop-out more than is “Armchair” evangelism is wasteful in any regard it is just that impractical. Put money where mouth is on it: Let me see investment of not just time and words, but action and cash. Then, maybe it can get critical mass. And sure enough, putting money where your mouth is the central to libertarian’s ideas about how worthwhile an idea is.

    * Democracy has provided the very tools by which libertarianism may truly flourish, yet libertarianism has a sour grapes attitude due to its inability to win an election. It is a curious thing, how no other system has been practical. Try and win the debate

    * Socialism in Western Nations has only flourished so long as it is subsidized by the United State’s appetite for commerce and its umbrella of protection to live in such a naive manner. It is easy if you are in Sweden or Denmark to run a system by which you have redistributionist policies if you then have tight control on immigration and your smaller scaled government, but especially if you have a aegis of a nuclear deterrent and military power of the U.S. behind you through many years of grave threats – not to mention the U.S. driving innovation, trade, and modernity to you through collaborative efforts. In isolation, you would see these guys either capitulate, or adapt. Remove, or mitigate these items as incentives and it is sink or swim.

    * Evolutionarily with Thought (a capital T), if a solution is a winning one, it will percolate and win-out for humanity. Some things are cyclical, but the advance of freedoms, societal complexity, liberty throughout the world is greater now than any other point.

    Using his analogy from the essay, a Soviet eastern bloc person visits West Berlin and knows he wants to be there despite any propaganda, well, libertarianism should hold similar appeal then – or at least somewhere on the same continuum.

    * Libertarianism has a measure of revisionist history about what in the past serves as great example of success in a “free market”. Friedman and others said we are gradually diminishing the productive portion of the economy, of which I agree. But to harkon to prior periods implicitly in that regard is not inherently correct and strong arguments can be made for regulation in other forms that were more egregious and silly.

    This country has had controls in all eras in the form of racism, slavery, crony-ism, Jim crow, collusion, immigration controls, monopolies, world wars, civil wars, Panics, Slow communication, limited transportation, and big-business favoritism – all of which even before the Depression retard any notion there was a “free-er” market than now. For example, if you have a tier of Slave or, near-slave labor in half your country that has no economic freedom through circa 1960, it is a bitter pill to swallow to admit it, but it created artificial, structural monopoly that diminished free market and liberty as a whole.

    * Lastly, they say how bad it is, but really here in the states, it is pretty good. Still better than anywhere else, for now, although autocrats are working to dismantle it as we speak. Please stop talking about democracy being gone without some other possible feasible system to point to in recorded human history. Stop talking about the challenges of democracy… How about the challenges in non-democracies by comparison? It drives me crazy.

  6. April 26, 2009 4:40 am

    Evangelists for democracy are the biggest idiots on the planet – where is the right of those who disagree to be protected against being mulcted along with those stupid enough to try and force their opinions on everyone else?

    You can pretend that “democracy = freedom”, but when the eventual government NEVER gets ‘50%+1’ of the adult population you can’t even use the old canard of ‘the will of the majority’ as the justification. (you can pretend that those who refuse to participate ‘don’t care’ – as if ‘none of the above’ is not a valid choice when you are asked to choose between species of parasite).

    If there are ten people in the room, and six vote to rape the other four, are their actions ‘right’? What if they call themselves ‘the government’?

    People under any State are slaves. There are no ‘degrees’ of freedom. One is free, or one is not.

    Friedman was a statist stooge, and the bulk of the stats in that piece of tripe he did with Schwarz are on a par with the citations in Marx. Americans don’t like to hear that, but Friedman was about as pro-markets as Greenspan.

  7. October 1, 2009 5:30 pm

    Over and over I try and see deeper into things. To be honest it is difficult not to get troubled by apparent nonsence. So this has in reality been a help to me. Thanks. 🙂


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