Social contract

Economic freedom and political freedom:
the links between misery and these two freedoms
The roots of human misery ALOK SHEEL
The Economic Times FRIDAY, JANUARY 28, 2005

Philosophers have long debated whether there are any patterns to be perceived at all in history, or whether history has any lessons to offer later generations. Arguably, recent history would appear to suggest that human misery can to a great extent be alleviated through a combination of economic freedom (that would ensure sustainable growth) tempered with political freedom that would pressure governments to ensure that nobody is excluded access to basic human needs. Although a case is often made out that one kind of freedom leads naturally to the other, that economic and political freedom are natural allies, so to speak, recent historical experience indicates that this relationship is contingent.

• There are societies with high per capita incomes and high degrees of economic freedom that are liberal democracies (such as in America and Europe), but there are others that remain to varying degrees politically un-free, especially in East Asia.
• At the other extreme are societies that are both economically and politically largely un-free, such as China and Vietnam.
• India seems to be in a class of its own with a high degree of political freedom combined with low per capita income and economic un-freedom. Such a social organisation can nevertheless be a stable one, as India has demonstrated for over half a century.

A common and, one might even hazard to generalise, defining feature of economically repressed societies is the high share of the public sector in economic activity. In several cases, as in Latin American countries, such activity might be nominally private, but really owned and controlled by entities close to the State and clearly gaining from public policy largesse, as the public sector typically does.

Where such economic un-freedom is combined with political repression, the State is highly unstable because there is no popular support, or implicit social contract between the government and the people. Frequent regime change, and even outright collapse, such as occurred in the former Soviet Union, can result. Realising this, most communist countries are following China’s lead of increasing economic freedom. On account of the dependence on the State for economic activity, fiscal stress is common in such countries, although lack of popular pressure might well keep fiscal crises at bay. But such fiscal discipline comes at the cost of heightened human misery.

Nobel Laureate Amartya Sen has eloquently argued that India has been better able to address famine and hunger than China, which grew much faster, because of popular pressures that resulted from greater political freedom. It is this combination of economic un-freedom and political freedom in India that has resulted in one of the biggest fiscal deficits as a percentage of national income. The ultimate trigger of the economic reforms of the ’90s was the realisation that in a democratic environment this fiscal burden could only be lightened through much greater economic freedom to attract private investment on a vast scale. This imperative remains.