2010s >> 2018 >> no-1366-june-2018

Capitalism, Counting and Economic Freedom

Hardly anyone will say they are opposed to freedom, since freedom is a concept with almost entirely positive connotations. Of course that does prompt the question of what is freedom. The Socialist Party’s Declaration of Principles refers to the slavery of capitalism being replaced by the freedom of socialism, meaning that workers will no longer be subject to the rule of the employing class, the unpredictability of the market, the exploitation of the wages system, the violence of the state and its wars, and so on. Socialism will be, in the words of the Communist Manifesto, ‘an association, in which the free development of each is the condition for the free development of all.’

On the other hand, many supporters of capitalism argue that the present wages–prices–profits system is a society of freedom, and moreover that the freer a society is, the better off those who live in it will be. Economic freedom, they say, means as little government interference as possible in the economy, resulting in greater prosperity and more secure lives. The role of the state should be limited to enforcing property rights and contracts, and it should not be regulating the economy in terms of investment, prices, wages, employment rights etc.

It is the right wing of capitalism who propagate this vision, and two organisations have gone so far as to quantify the supposed extent of economic freedom in different countries. The Fraser Institute (www.fraserinstitute.org) publishes the Economic Freedom of the World Index, while the Heritage Foundation (www.heritage.org), with the Wall Street Journal, publishes the Index of Economic Freedom. Countries are scored, to two decimal places in the case of the former, in terms of how much economic freedom they are claimed to display, and are ranked accordingly. References below are to the most recent editions of their index reports.

According to the Fraser Institute:

‘The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property.’

And the Heritage Foundation:

‘those who believe in economic freedom believe in the right of individuals to decide for themselves how to direct their lives…Economic freedom is at its heart about individual autonomy, concerned chiefly with the freedom of choice enjoyed by individuals in acquiring and using economic goods and resources.’

The Heritage Foundation recognises four broad categories of economic freedom: rule of law (such as judicial effectiveness and the enforceability of contracts), size of government, regulatory efficiency (including ‘labour freedom’) and market openness (including freedom to trade). The Fraser Foundation uses similar criteria, and also refers explicitly to sound money, with inflation under control.

On the basis of their results, the Heritage Foundation divides countries into five grades, from ‘free’ (only six countries, including Ireland but not the UK) to ‘repressed’, while the Fraser Foundation just divides the 160 countries surveyed into four equal groups. For example, the UK is eighth in the Heritage Foundation rankings: it scores highly for property rights and business freedom but relatively low for government spending and fiscal health. Germany, meanwhile, is 25th, with a high score for fiscal health offset by a low score for labour freedom.

The report of the Fraser Institute further argues that there are relationships between economic freedom and other matters. Thus the freest countries tend to have higher per capita income, faster economic growth, less moderate and extreme poverty, greater life expectancy, less gender inequality, and more political liberty. But there is no relation between economic freedom and the share of income earned by the poorest ten percent of a country’s population.

It would be easy to dismiss these efforts as transparent and self-serving justifications for capitalism and the privileges of the rich and powerful, some of who bankroll both think-tanks. But we have to do more than that: to show that their claims about economic freedom are specious and have little if anything to do with the daily lives of the majority of the populations of the countries concerned. For one thing, Hong Kong came top for economic freedom in the most recent version of both indices. That’s Hong Kong, where one-fifth of the population are below the poverty line, and tens of thousands live in what are called ‘cage homes’. Second in both was Singapore, where over a third live in poverty and inequality is extreme, and which is often described as a very authoritarian society.

Look at part of what the Heritage Foundation say about ‘labour freedom’:

‘the ability of businesses to contract freely for labor and dismiss redundant workers when they are no longer needed is essential to enhancing productivity and sustaining overall economic growth.’

This is clearly the freedom of the bosses to run their businesses in the interest of profit, and has nothing at all to do with the freedom of employees. It is not labour freedom at all, but an aspect of the rulers’ power over labour. Workers at Carillion and Toys R Us had little economic freedom when the bosses closed the companies down, forcing workers to try to find another job or get by on the dole. Moreover, topics such as the gig economy, zero-hours contracts and the existence of a precariat simply do not feature in the points studied in these reports.

The Fraser Institute report accepts that there is no necessary causal relation between economic freedom and the other criteria mentioned earlier. In general, correlation simply does not imply causation, let alone the direction of the causation, and there are many other considerations which would have to be taken into account when looking at the claims made, such as the natural resources of an area (e.g. mineral deposits, navigable rivers, quality of soil, climate, the extent of any ‘resource curse’), its history (e.g. being subject to colonial exploitation) and current situation (such as wars being fought there). It can hardly be coincidence that, as the Heritage Foundation puts it, ‘Sub-Saharan African countries trail world averages in almost every category of economic freedom.’

More generally, the picture of capitalism that these organisations present is completely unrealistic as far as the vast majority of the population are concerned. For members of the working class, capitalism of any variety has little if anything to do with ‘personal choice’ or ‘voluntary exchange’ (to use expressions cited earlier from the Fraser Institute). Having to sell your labour power in return for a wage is not a matter of personal choice but of economic necessity; it is not voluntary but unavoidable, given the way capitalism works. The Heritage Foundation refer to ‘the right of individuals to decide for themselves how to direct their lives’, but workers are in no position to do this if they are forced to work for an employer. Doing dangerous, unpleasant or badly-paid work that creates profit for your employer is not something anyone chooses to do but something that people have to do in order to survive. Homelessness, workplace stress and lack of decent health care all but destroy a person’s ‘individual autonomy’, but are part and parcel of many workers’ lives.

All the statistics and graphs put out by the think-tanks cannot disguise the nature of capitalism and its real-life effects on workers. After all, nonsense quantified is still nonsense.