If good governance has become the dominant tune of those looking for immediate solutions to development problems, its closest rival is surely economic freedom. Once again, a basically correct insight- that market economies outperform centrally planned economies- has been taken to the extreme, and then used as a substitute for analysis.
If good governance has become the dominant tune of those looking for immediate solutions to development problems, its closest rival is surely economic freedom. Once again, a basically correct insight- that market economies outperform centrally planned economies- has been taken to the extreme, and then used as a substitute for analysis.
When communism fell and free-market reforms swept Eastern Europe, the former Soviet Union, and China, free markets were hailed as the victor in the long-running battle between free markets and state planning.
But the ideology of the free market economy took the argument to the extremes, utterly unsupportable by evidence or good economic reasoning.
First they maintained that markets should rule every nook and cranny of the economy, not just the basic productive sectors of farms, factories, and service trades, but also health, education, social security and core infrastructure like water, energy, transmission, roads, and rail.
Secondly, the proponents of the free market maintained that all shortfalls in growth could be accounted for by the absence of free markets. Aid, they say, becomes superfluous, even dangerous, because it delays market reforms. All that is needed is the will to liberalize and privatize.
The Heritage Foundation and Wall Street journal puts this way:
Achieving economic freedom is like building a car. What is the most important component of the car: the powerful engine, the transmission, the seats, the steering wheel, the brakes, or the tires?
The question defies an answer, because without any one of these components, the car is unlikely to reach the desired destination.
The common belief is that countries moving in the direction of a free market economy have higher growth rates. And once these countries decide to stop going down this road, growth plummets.
So the key message to the countries of the world is that they can help themselves just by starting to opening their markets and pushing the state, and its interventions, to the side.
The free market economy proponents believe that there is only one direction to travel and the only question is "how fast one should travel”.
Nevertheless, there many are cases where the free market is ignored but yet economic growth is rather high, China being an example. On other hand, there numerous cases where free market reforms are good, but however economic growth is low, like Switzerland. What does this mean?
This means that there isn’t a ‘one size fits all’ approach to the issue of economic freedom? It is not about ideology but rather cold hard facts- what works and what doesn’t.
Festo Ngamije is a journalist with The New Times