Freedom for who?
This is the first article introduction in a series of articles on a critique of free-market capitalism. To find out more about the series visit the website at
https://aseangreennewdeal.wixsite.com/home/capitalism
In February 2020 in response to the question “what is Singapore’s economic strategy?” Minister for Trade and Industry, Chan Chun Sing, outlined the logic of Singapore’s free market ideology. Singapore is often heralded for its achievements in economic development “From Third World to First’’ as one of the successful Asian Tigers of the late 20th century. The rapid economic development of the free-market export oriented Asian Tigers relative to the more controlled import substitution models in Latin America from the 1960s to the 1980s inspired a set of free market reform principles known as the “Washington Consensus” (Birdsall, 2010). From the late 1980’s until 2008 the influence of the free market ideology and the Consensus would spread beyond the Asian Tigers and Latin America to influence economic policy around the world. Since the 1980s globally policy makers have adopted these reforms by lowering corporate taxes, trade tariffs and deregulating financial markets in the hopes of replicating the Asian Tiger miracle at home. The sustained success in Asia is used as a living testimony evidence of the ideology’s legitimacy. In 2020 Singapore ranks #1 on the Heritage Foundation global ranking of Economic Freedom report (Miller, 2020). Prior to the COVID-19 pandemic Singapore’s economy has consistently realized real GDP income growth from 1960 and extended into recent years (MAS, 2011). It survived the test of economic resilience through a strong recovery response to three economic recessions in 1985, 1997 and 2008. So what is Singapore’s economic strategy?
In his response the Minister anchored first on the mandate to provide quality jobs and wages. According to him these jobs come “from quality investments” and he lays out the political economic framework that connects policy to these investment outcomes. He starts with the rhetoric of scarcity “without natural resources, we strive hard to create our own competitive advantages” and then lists 6 policy themes that characterize the Singapore economic strategy — rule of law, policy consistency, business-friendly environment, tripartite alliance, skilled worker and connectivity (Chan Chun Sing, 2020). In short, he affirmed capitalism’s role in the government’s social contract. This affirmation comes just one month prior to when the global COVID-19 pandemic would pause the world economy and slash two years of GDP growth from Singapore. Five months later in July in the heat of the global pandemic the ruling party PAP lost a record of 2 GRCs to the opposition Workers Party and realized a decline to 61%, the lowest level since the tense 2011 election. The top issues in April prior to the election that divided supporters of the ruling party from the opposition were sentiment of antagonism to free market policies — pessimism on economic outlook, social mobility, inequality and support for social safety nets (Quad Research, 2020). While not captured in the survey another concern weighing on Singaporean minds was the integrity of democratic institutions. This sentiment was captured in a popular quote by one of the new figures of the opposition, Janus Lim, in a televised debate.
What we are trying to deny the PAP is not a mandate, what we are trying to deny the PAP is a blank cheque
Janus Lim, 1 July 2020
For Singapore this narrow definition of “economic freedom” is applied selectively. The country scores among the lowest on the list on measures of democratic pluralism, civil liberties and freedom of the press (Social Progress Imperative, 2020). While free market ideology may have originated from Western democracies which are perceived to have an abundance of individual freedoms in the political and economic sphere, this coincidence is not built-in to the core aims of the ideology. Pinning down an exact definition of this ideology for any particular government strategy is not straightforward as even the most free market governments also have regulations and restraints on market operations as well as redistributive taxes and transfers. The following excerpt from the Center for Global Markets and Freedom is a concise summary of the ethos of free market capitalism.
We owe our high living standards to economic freedom, with its reliance on market incentives that encourage us to work, save, invest, innovate, start businesses and take risks. Our free enterprise system favors production over taxes and handouts, responsibility over dependence and opportunity over equality. The rewards have been progress instead of decline, wealth instead of poverty.
Michael Cox, 2011 Annual report : William J O’Neill Center for Global Markets and Freedom, Southern Methodist University
In 2008, in the wake of the subprime mortgage crisis in the United States Alan Greenspan testified before the US Congress on the causes of the crisis and specifically the institutions and liberal financial deregulation that he promoted during his time as Chairman of the Federal Reserve. In a rare moment of humility he admitted that he had found “a flaw” in his ideology that had shocked him (Greenspan, 2008). While this economic strategy may have worked well in Singapore’s past, it is an imperfect simplification with side-effects social costs of mental and physical health, wealth inequality and externalities transferred outside Singapore’s borders. Furthermore there is evidence that the basic driving forces of labor productivity growth and global trade growth that the strategy depends on may not be as reliable as in the past. There are valuable lessons to be learned from Singapore’s post independence successes in human development and economic growth and the failures of experimentation with alternatives must be understood. The ideology of Greenspan, Thatcher and Reagan has inspired many and even some within Singapore’s political leadership history, however this ideology may need some refinement in order to prepare the city state to be well positioned for prosperity in the 21st century.
The Greek origins of the word “economics” translates to “household management”. The purpose of economics is to understand how humans behave socially and to apply that knowledge to manage that common house that is society. The aim of policy makers and leaders in society is to design institutions that result in efficient use of limited resources and create the conditions for humans to flourish and reach their full potential. Economics textbooks are transparent about the limitations of markets and the realities of externalities — costs and benefits that spill-over from the two parties of a transaction to unaffiliated 3rd parties. In 2010 the office of the Chief Economist of the World Bank issued a report looking back at the successes and failures of the Washington Consensus. One of the criticisms of the Consensus and the free market ideology in general was the agenda’s narrow focus which failed to account for known market failures such as volatility, inequality and climate change (Birdsall, 2010).
The report “Freedom for who?” analyzes the economic ideology and policy strategy of “economic freedom”. There are three broad learning objectives — characterization, analysis and design. The general challenge is to define and measure a universal shared meaning for equitable and sustainable prosperity. The next goal is to apply that definition to the knowledge of the science for the design of institutions and political economy optimized to realize that prosperity in the context of the current challenges of 21st century globalized society.
One way of getting to that common understanding is through a series of questioning — definition, analysis, reflection and design. First, a description of the ideology of “economic freedom”. This description includes the microfoundations, macroview, policy agenda and models that logically connect the foundations to the policy prescriptions. Each of the components can then be systematically assessed on their merits based on the weight of evidence. That analysis determines the weight of evidence to segregate between the strong and the weak claims. The insights from the strongest supported claims then becomes the foundation for policy reform. This analysis also provides a basis for reflection on uncertainties and choices. The sources of these uncertainties can be either gaps of information about the future, imperfect knowledge of how the world operates, or differences of perspectives to be negotiated through the compromise of political discourse.
Definition : What is the ideology of “economic freedom”?
- What are the microfoundations of the ideology of moral values and worldview theory of human motivation, behavior and social interaction?
- How does it define and measure macroeconomic success and how does it model cause and effect to predict these outcomes?
- Which policies and institutions does it prescribe for the state and what evidence does it use to support these policy recommendations?
- What are the differences between the Reagan-Thatcher free market political ideology and the 1990 Washington Consensus for Latin America that extolled the Asian Tigers development model and to what extent does it characterize Singapore’s current economic strategy?
Analysis : Which claims are supported the strongest, weakest by evidence?
- What is a shared meaning of equitable and sustainable prosperity which could be used to measure the performance of the free market ideology against?
- Which is the conclusion of the debate on free market capitalism supporters and critics have reached a consensus in the academic literature in fields of economics and sociology, and what are the remaining open questions to be resolved either as?
Reflection : What is left for the space of choice to be decided through political discourse after accounting for open uncertainty and the constraints established by the body of evidence?
- Fundamental choices of values resolved through a political process of deliberation and compromise
- Differences of opinion about the future and unknowable uncertainties
- Knowledge and information gaps which could be resolved through further research
Design : What are the policy implications of the analysis?
- What are the policy reforms with strong support from evidence?
- What form of political economy and institutions are optimized to realize meaningful prosperity in the context of the current challenges of 21st century globalized society?
The report is intended for an open minded audience with basic familiarity of economics and politics who is interested in a deep dive into the evidence from both sides. The report considers multiple perspectives to analyze the claims with evidence from various economists and direct analysis of statistical outcomes. The conclusions from the report set the basic background research for a revised economic strategy. To be sustainable in the long run, a new economic strategy is needed that is designed for the knowledge based service economy, deals directly with wealth inequality, maintains stable employment, moderate inflation, control of cross-border externalities, strengthens democratic institutions, includes citizen participation in policy design, strengthens ties to the region and less exposure to global volatility.
The report is organized around the strengths and weaknesses of free-market capitalism with a continuity between the analysis of a basis set of sources used throughout the report and supplemented in each section with sections-specific sources. The report is divided into 13 sections and 4 Appendixes. Four appendices are added at the end to provide background introduction to free-market ideology and detailed analysis on subtopics of sociology and statistical analysis.
References
Birdsall, 2010 The Washington Consensus Assessing a Damaged Brand
http://documents1.worldbank.org/curated/en/848411468156560921/pdf/WPS5316.pdf
Chua Chun Sing, Minister for Trade and Industry 2020 Response to Parliamentary Question on Singapore’s economic strategy
https://www.mti.gov.sg/Newsroom/Parliamentary-Replies/2020/02/Oral-reply-to-PQ-on-economic-strategy
Greenspan, Alan 2008 Written testimony to the Committee of Government Oversight and Reform
https://oversight.house.gov/sites/democrats.oversight.house.gov/files/migrated/20081023100438.pdf
Monetary Authority of Singapore (MAS), BIS, 2011 Papers No 57 : recent developments in Singapore economy
https://www.bis.org/publ/bppdf/bispap57w.pdf
Miller, Heritage Foundation, 2020 Economic Freedom Index
https://www.heritage.org/index/pdf/2020/book/index_2020.pdf
Quad Research, April 2020 survey of Singaporeans before the GE 2020 electionhttps://www.quad.sg/2020
Social Progress Imperative, last accessed 2020https://www.socialprogress.org/