In a fascinating debate hosted by Reason Magazine, development economists William Easterly and Joseph Stiglitz discuss how to best fight global poverty, responding to a simple question: “Which is a better approach, freer markets or increased government action?”
Easterly, a professor at New York University and author of the popular book, The White Man’s Burden, highlights the importance of freer markets, arguing they provide better incentives, better mechanisms for sharing knowledge, and, most importantly, better rights.
Stiglitz, a Nobel laureate and professor at Columbia University, pushes for increased government action and control, arguing that the potential for market failures makes it necessary to heavily regulate exchange and investment to ensure fairness across our activities.
After their opening remarks, the arguments quickly come alive as a debate ensues on the particulars of real-world examples.
Whereas Stiglitz sees China’s rapid rise out of poverty as the fruit of a wise and well-managed state, Easterly uses the same example to highlight the power and promise of markets to accomplish what many deemed impossible.
Similarly, around the 30-minute mark, Easterly and Stiglitz debate the economic history of Ethiopa’s deadly famine in 1984. Stiglitz points to the positive influence of foreign aid and infrastructure funding, but Easterly dismisses each as either secondary factors or outright counterproductive, reminding us of the core cause of the famine in the first place: abuse of government power. What actually changed the trajectory, Easterly argues, was the subsequent improvements that bubbled up from Ethiopian civil society. Without everyday Ethiopians resisting and demanding changes in their government, the problems would likely have gotten worse, not better.
One of the more striking and recurring themes is the role of markets in defending human rights—either in their promotion of certain virtues and social norms, or in the way they offer built-in mechanisms and incentives to protect and empower everyday people.
As Easterly explains:
Markets promote rights…State-dominated societies will see an elite capture the state and be able to oppress the rest of the population through state-sanctioned coercion. Market systems are inherently based on some degree of legal equality of property and contract rights among all the participants, including the poorest and richest. The reason that is is because market transactions will not happen at all unless a minimum level of contract and property rights are recognized on both sides. Otherwise one party would simply cheat or steal or oppress the other and there were would be no markets. There’d just be cheating, stealing, and oppressions.
For markets to exist at all, these kinds of rights need to be accepted by all participants of markets.
…In our own generation, this prophecy of Adam Smith [about markets as a mechanism for equality] has partially, to some degree, come true…Markets are the main way, historically and in our generation, that different races, peoples, nations have peacefully co-existed and cooperated for their mutual benefit. That is, to me, the final and most beautiful benefit of markets.