In his recent op-ed on the upcoming G-20 meeting in London,
President Obama stated that "now is the time to work together to
restore the sustained growth that can only come from open and
stable markets that harness innovation, support entrepreneurship
and advance opportunity."[1]
In light of the ongoing worldwide economic turmoil, there may be
no distinct formula through which to quickly reinstate the
unrelenting growth. However, President Obama and other leaders of
the G-20 should be reminded that as a fundamental linking element
between economic opportunity and lasting prosperity, economic
freedom is indispensable in amplifying and cascading the benefits
of any plans that may come out of the summit.
The Continuing Struggle between the
State and the Free Market
As G-20 leaders prepare to meet in London on April 2, they face
an unprecedented challenge: The global economy is likely to shrink
this year for the first time since the Second World War. The World
Bank predicts that during 2009 world trade is likely to record its
largest decline since the Great Depression.[2]
In light of this challenge, the current state of the world
economy is a vivid reminder of the continuing struggle between the
state and the free market. There is little global demand for a
shift to central planning or extensive state ownership of private
businesses in the name of recovery and stability. Rather, states'
interventionist measures have been inching up at an increasing
pace, thereby eroding economic freedom--the backbone of the world
economy.
In a time of economic calamity, it is expected that people look
to their governments for answers. However, plausible solutions to
the current economic crisis do not lie in more direct government
intervention, which will prolong the crisis by adding more risk and
uncertainty. Furthermore, governments' stimulus packages should not
be based on handing out cash or shortsighted populism. Nor they
should target one group or industry: Such packages should benefit
the whole economy. To achieve maximum impact, the state should
guarantee market rules and reassure market confidence.
In doing so, as President of the European Central Bank
Jean-Claude Trichet pointed out, governments will have to "reassure
[their] own people that [they] have an exit strategy, to reassure
households that [they] are not putting in jeopardy the situation of
the children, and to reassure businesses that what is done today is
not done to the detriment of their own taxation in the years to
come."[3]
No More Lip Service
For many decades, the world has reaped the economic benefits of
gradual liberalization in trade and investment. Today, however, the
place of free trade in policymaking is far from secure. Despite
repeated pledges by world leaders not to disrupt the international
flow of goods and services with more barriers, protectionism is on
the march, undermining efforts to lay out a coordinated and
credible response to the current global economic downturn. As in
all trade wars, the collateral damage is too costly.
The Declaration of the Summit on Financial Markets and the World
Economy issued by the G-20 in November 2008, stated that within the
next 12 months, "we will refrain from raising new barriers to
investment or to trade in goods and services, imposing new export
restrictions, or implementing World Trade Organization inconsistent
measures to stimulate exports."[4] However, this pledge has been
broken. According to a recent study by the World Bank, since G-20
leaders signed the declaration to avoid protectionism, 17 of them
have implemented measures that restrict trade at the expense of
other countries.[5]
Cynicism Driving Protectionism: A
Perilous Recipe for the World Economy
A key driver of economic prosperity is a high level of
flexibility and resilience founded on economic freedom. This has
been continuously protected by keeping levels of regulation and
government intervention low while emphasizing great transparency
and strongly protected property rights. The powerful force of
economic freedom has fostered the spirit of entrepreneurship and
innovation that creates new products and more jobs, spreading the
benefits of a dynamic economy around the globe.
Indeed, today's economic development and lasting prosperity
depend on maintaining and improving an environment in which
entrepreneurial activities and innovation can flourish. Investment
capital and entrepreneurial talent flow toward economies with lower
taxes, secure property rights, sound money, and sensible regulatory
policies. Countries with higher degrees of openness and flexibility
benefit from the free exchange of commerce and ideas--and,
consequently, citizens of those countries--enjoy more opportunities
and greater prosperity.
Yet economic freedom, like other freedoms, is always vulnerable.
History demonstrates that this is never more so than when
politicians espouse populist rhetoric, playing to people's fears
and calling for more government interventions that promise a quick
fix to whatever is deemed faulty in a complex economy. Politicians
and leaders increasingly disparage free markets and push for
counterproductive regulatory rules, increase costs on investment,
or, worse, pursue protectionist policies that curtail global
economic growth.
Sustaining Economic Freedom: Key to
Economic Recovery
Today's cynicism and doubts about the benefits of globalization
and free market system should not abruptly halt America's
long-standing commitment to openness and economic freedom.[6]
Economic freedom is not a dogmatic ideology. It is not the only
way--nor a perfect way--to put an economy in order. However, it is
a far better way than other systems that have been tested. As the
direct opposite of government interference and control, economic
freedom is a threat only to those who want special privileges by
pressuring societies to expand the size and weight of government
intervention.
The world must not be discouraged from pursuing greater economic
freedom. The G-20 should take this week's summit as an opportunity
to renew their commitment to economic freedom.
Anthony B. Kim is Policy Analyst in the Center
for International Trade and Economics at The Heritage
Foundation.