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journalists. Governments controlling and using television for propaganda is a
problem in many countries. An additional disturbing tendency is for rich politicians
to purchase their own newspapers, and television stations and radio stations. While
interfering with private owners is always questionable, this is one area where sound
public policy may well require limitations.
g.
Freedom of movement, investment, and trade
The freedom of individuals to compete in business and engage in voluntary
exchange activities is a cornerstone of both economic freedom and progress. Price
controls, business and occupational entry restraints, laws restricting the exchange of
goods and services across national boundaries, and other government regulations that
restrain trade are not sound economics. Occupational licensing (which requires
government approval to engage in an occupation such as, to take an extreme but real
example, hair braiding) is a major anticompetitive
device that restricts work
opportunities, including those of many of the least well-off members of society.
When there is concern about protecting the public, certification (which provides
information about an individual’s training but leaves consumers free to evaluate the
relevance of that training) provides a superior option. With certification, buyers are
provided with the information to make sound choices without closing off the
opportunity for others to prove that they are capable providers. Predictably, licensing
will be used to restrain trade and provide existing suppliers with monopoly power.
The freedom to trade is a basic human right, just like freedom of speech and
freedom of religion. There is no reason why citizens should not be permitted to buy
from, and sell to, whoever will give them the best deal, even if the trading partner
lives in another country.
Somewhat
surprisingly, while reciprocal free trade (where both partners are
open to buying and selling from each other) is clearly advantageous, the consensus
among economists is that reciprocity is not essential. In almost all cases a country
will improve the lives of its citizens if it drops barriers to free import of goods,
no
matter what the policy of its trading partners. The logic of such “unilateral free
trade” can be seen in a quotation from Joan Robinson (1903–83), one of the most
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original and prolific economists of the twentieth century:
Even if your trading partner dumps rocks into his harbour to obstruct
arriving cargo ships, you do not make yourself better off by dumping
rocks into your own harbour.
Public discussion often tries to analyze freedom of trade,
freedom of
movement, and freedom of investment as separate topics. They are not. If workers
are paid less in one country than another, all three channels will come into play.
Workers will try to move to the higher wage area, investors will come to the lower
wage country to take advantage of cheap labor, and goods produced using this labor
will be less expensive in global markets. Blocking any one of these channels will
only increase the pressure on the others.
h.
Use of external anchors
Voters, like all economically rational people,
make decisions by comparing
costs and benefits. Politicians, as we have already discussed, often have very short
time horizons, ending at the next election. This disconnect creates difficulty in
adopting policies that may impose current costs in return for much larger long-term
benefits. This time inconsistency makes it hard for politicians to make believable
policy commitments. Leaders may also be subject to pressure from powerful vested
interests to adopt policies that favor insiders at the expense of the public at large.
One possible solution is for far-sighted leaders to limit
their ability to respond
to pressure by joining an international organization that requires good policies as a
condition of joining or continuing membership. There are many such organizations.
The European Union (E.U.) imposes requirements of a low budget deficit and a limit
to total level of government borrowing. It also requires members to adopt a set of
common legal rules (called the acquis communautaire). While some E.U. policies
(farm subsidies under the Common Agricultural Policy are an obvious example) may
not be beneficial (or are even contrary to sound economics), they are typically far
better than those that might have been adopted by many post-communist countries
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without the incentive of prospective E.U. membership. Countries with a reasonable
expectation of joining the E.U. made many painful reforms that ultimately benefited
their citizens.
(88)
Other organizations that could have a similar positive influence include
NATO, the WTO, the
European Court of Human Rights, the OECD, and the
International Centre for Settlement of Investment Disputes (ICSID). The
International Monetary Fund (IMF) is particularly important in inducing
governments to adopt growth-enhancing governmental policies. Countries tend to
turn to the IMF for assistance when excessive government spending has created
currency crises where international credit markets are no longer accessible to finance
even more government debt. An example would be the Greek crisis of 2010–2018.
Only pressure from the IMF and the European Central
Bank persuaded the Greek
government to adopt necessary reforms.
Even external rankings that do not require membership can have a positive
influence on government performance. Georgia, for example, takes great pride in
being ranked among the top 10 countries in the World Bank’s “Ease of Doing
Business” index and government ministers are held accountable for reforms that
improve this ranking.
