This is a guest post by Philip Booth, Professor of Finance, Public Policy and Ethics, St. Mary’s University, Twickenham; Academic and Research Director, Institute of Economic Affairs. Booth will be speaking in London on Dec. 1 at Acton Institute’s The Crisis of Liberty in the West conference (register here). This post is based on remarks prepared for delivery at the United Kingdom Government Foreign and Commonwealth Office conference on Preventing Violent Extremism by Building Inclusive and Plural Societies, Oct. 19-20.
Economic freedom and economic harmony
By Phillip Booth
In a free society, persons participate in economic exchange and civil society freely, without interference as long as they do not harm others. Of course, actions such as inciting violence and so on need to be dealt with and possibly prosecuted. But, individuals and families, often working as communities and through civil society organisations are able to go about their life without undue impediment. In such a situation, the government does not have positive powers as such – or at least not many of them – it exists to promote justice, provide for the needy who cannot be provided for in other ways, ensure that there is peace and civil order, and so on. Such a society should be one in which parents can send their children to religious schools of the parents’ choice and where people can worship freely – again, assuming that such schools or religious groupings are not inciting violence and threatening peace.
When thinking about economic freedom, perhaps we focus too much on the economic efficiency benefits of a free society and do not talk enough about how such a society also promotes peace and harmony.
Business is especially important here. This cannot be stressed enough. There are relatively thick ties within families and within churches and mosques, for example. However, there are often very thin ties between churches, mosques other religious groupings. Business makes those thin ties thicker. It requires people of different faiths to co-operate. People encounter a much greater variety of persons who are different from them in the business world – as customers, employers or suppliers – than they do in any other area of their life. Indeed, in the business world, discrimination is expensive. If I don’t want to be served by a Pole, a Muslim, an Italian or a Chinese person in a restaurant in London, I would probably end up at a very bad restaurant! If I did not want to be driven by a Muslim taxi driver, in some cities I would literally never get a taxi. Business is a mutually enriching activity and so encountering others different from ourselves through business co-operation is very important.
This is a not a relativist position. It is not an attempt to suggest that all religions are equally true. However, co-operation through business is an essential part of a free and tolerant society.
The word “competition” often used in business means “to strive together for”. Business is about finding the best forms of economic co-operation between those who work in the business, its owners, its suppliers and its customers. Business freedom can nurture co-operation amongst people who would otherwise never know each other.
So, my first contention is that business freedom matters not just for prosperity – I shall come to that – but for peace and harmony within society. Civil freedoms (for example, the freedom to educate one’s children as one would wish) and freedom of association matter too of course.
Economic freedom and prosperity
There is also no question that there is a very strong relationship between economic and business freedom and prosperity. The pre-conditions for a thriving business economy are well known. They are peace, good governance (including respect of private property), freedom of contract, the effective enforcement of contracts through the courts, the rule of law, the absence of corruption, a regime in which businesses can establish freely and reasonably free trade. This list is not exhaustive and the different factors are linked. By and large, if these preconditions are present, there will be development and growth if they are not, there will not be.
There are lots of different indicators of economic and business freedom and related issues. Research has been undertaken using the data from the Fraser Institute Index, which is probably the most used by academics. This research found, for example, that, between 1980 and 2000, which was the crucial period when the development of previously poor countries really took off, the top twenty-four countries ranked by the quality of their legal systems had an average GDP per capita of $25,700 at the end of the period and average economic growth of 2.5 percent. The bottom twenty-one countries had an average income of $3,000 per capita and average economic growth of 0.33 percent.
Development and a thriving business sector is impossible without the basic legal structures necessary for free economic activity. We have no idea in the West what life is like, for example, in a country such as Haiti, where it takes 97 days to establish a business and 312 days to register property. This means that unregistered businesses cannot enforce contracts except by violence; corruption is routine; employees of unregistered businesses do not have proper contracts; and so on. In general, when the preconditions for a free business economy do not exist, there is no only poverty, but conflict replaces co-operation.
It can also be argued that the prosperity that comes from business freedom also makes violent conflict less likely. If the youth of a country are unemployed or if people are desperately poor, they may feel they have not a lot to lose from a life of violence – and something to gain. If they have the potential for prosperity, they have much to lose from turning to violence.
The alternative to a free economy is one that is centrally controlled to some degree or other and where the state is responsible for the allocation of resources and determines on what terms people can participate in economic life. Then, the state becomes the main power centre and it uses its resources to coerce rather than to promote freedom. Furthermore, if the state is the source of economic power and largesse then this, in turn, sows the seeds of conflict as rival groups try to get hold of the levers of the state. The conflict over oil resources in some countries is a good example here.
It is often argued that religious freedom tends to promote prosperity. However, business and general economic freedom has a tendency to promote harmony, including harmony between religions. Indeed, there can therefore be a virtuous circle of religious and business freedom promoting prosperity which then reduces violence. A reduction in violence then creates a better environment for business, which, in turn, provides an even better environment for peace, co-operation and prosperity.