INDIVIDUAL FREEDOM IN AN ECONOMY

QUESTION

1. Does a free market promote individual freedom? Discuss at least the neoliberal and one critical position (eg social liberal, social democratic, Marxist).

SOLUTION

Introduction

Great the Pulitzer Prize winning economist Milton Friedman gave a salient view to define and understand the determinants of individual freedom. He said, “Economic freedom is by definition part of freedom”. A mix of several conservative and liberal thinkers accepted the view as an important direction to define and establish individual freedom. Friedman’s view has become a popular part of America’s mainstream conservative thinking. After Friedman argued that economic policy is by itself a part of freedom, there came his central argument that claimed that free economic policies is a core factor that leads to a free society.(Friedman, M., and Friedman, R.D., 1982).

Besides, according to L.T. Hobhouse, the unfettered actions of the individual are the mainspring of all progress, where economic freedom is the starting-point. Hobhouse is known to be one of the leading political thinkers of British new liberalism. Earlier, the term new liberalism as proposed by Liberal politicians, meant to move away from the doctrine of laisser-faire and follow collectivist oriented social reform to deal with social problems of poverty and unemployment. Hobhouse based his liberal theory after analysing the social problems and gave a view to reconcile collectivist policy like progressive taxation, minimum wage, municipal socialism with individual freedom and private property, which are part of liberal principles. Friedman view about liberty, economic policy and individual freedom had a substantial influence on President Ronald Regan’s policy. President Regan himself identified Friedman as one of the six thinkers who had influenced his philosophy. Friedman was the President’s Economic Policy Advisory Board member in 1981 (Wood, J.C., and Woods, R.N., 1990)

In this essay we will try to analyse the arguments made by both Friedman and Hobhouse regarding the nature of freedom. Friedman assumed that in a free society all of the individual choices are left up to the market, and that government is there only to monitor the market forces. However, this essay, using evidences, argues that Friedman’s view may be instrumental in framing policies that protect individual freedom, but there may be points, which are misconstruing the nature of freedom. Furthermore, the essay also analyzes Hobhouse’s take on individual freedom and society with substantial evidences (Collini, S., 1979).

Does Political Freedom Depend On Economic Freedom?

Friedman argues that political freedom can only be attained after economic freedom is established.  Friedman has quoted as stating, “I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity” (Friedman, M., and Friedman, R.D., 1982). Friedman, while concluding this statement had contradicted to a long accepted conception that political freedom comes prior to economic freedom.

The view somehow leads to scenario in which, if one does not endorse economic freedom, the one is abandoning values of liberty. Researchers commend Friedman for concluding this view that if you one is against economic freedom then one is against freedom in general. However, delving deep into the view researchers find that it is pretty loosely proved and connected to establish the relationship of economic freedom with general freedom. It is important that first we define “freedom” and “economic freedom” as two different individual terms. For the matter fact, in his study, Friedman had not examined freedom as a concept in great detail.

Friedman had considered freedom as a self-evident term, which it is not. Leaving freedom unexamined, Friedman’s argument had lead to many unanswered questions (Schwartz, H., 2007)

The empirical account of the relationship between economic freedom–political does not completely support this argument of Friedman. The relationship has been evaluated applying the econometric methods. It shows that economic freedom and civil freedom go hand in hand and can complement one another in development and growth. The econometric methods further test that whether higher economic freedom also leads to higher level of other kinds of freedom.

In this regard, Dawson, J. W., 1998, finds that it is quite true that political freedom enhances economic freedom, and that economic freedom also works to promote political freedom. However, Farr, W. K. et al. 1998 has put another angle to the argument giving it a different dimension. The study conducted the Granger-causality test on sample of 78 industrial and non-industrial countries between the period of 1971 and 1995. The conclusion thus drawn suggested that increase in GDP per capita resulted in higher political freedom, while higher economic freedom does not.

Vanssay, X.D, Hilderbrand V., and Spindler, Z. A. 2005 finds out that country with more economic freedom is usually one which has a parliamentary system and its chief executive is not a military chief. Greater economic freedom is also known to be greatly associated with lesser political concentration, which means higher federalism.

Relationship between economic freedom and political freedom can also be understood by confirming the effect of economic freedom on economic growth. Studies of various economists have concluded that political freedom is a cause of economic freedom, contrary to Friedman’s view that economic freedom is the cause of political freedom.

Whether More Democracy Lead to More Freedom?

Lipset, 1993 addresses this view with a focus in which he analyzes the factors and processes, which influence the prospects for institutionalization of democracy.  He concludes relation between polity and economy affects the emergence of democracy. Therefore, elimination of government from the market place reduces the “nepotistic networks” and rent-seeking behavior by government authorities. Thus it reduces the chance of government using economic resources to pressurize the citizens.

Friedman, M. 1962 had concluded similar ideas as of Lipset. He in fact, expanded his research beyond economic development, in order to explore the relationship between economic freedom and democracy.

De Haan, J. and Sturm, J.E. 2003 investigated on the question whether democracy leads to more economic freedom? The study tested on samples of developing countries with robust regression methods and panel regressions. They concluded that the level of civil and political freedom along with the length of period in which a country has been a democracy, determines the change in economic freedom.

Lundström, S. 2002 conducted a study using sample of 58 developing countries during the period between 1975 and 1995. Lundström used different robustness checks and concluded that improved democracy led to increase in economic freedom.

Besides, in order to frame the problem in broader context, Giavazzi, F. and Tabellini, G. 2005 used difference-in-difference estimation to analyze of liberalization on economic performance. It concluded that economic freedom and political freedom or liberalization both work mutually to strengthen each other.  Also, the sequence in which the liberalization reforms take place will matter. Those countries which liberalize the economy first and then become democracy, perform better than those which become democracy first.

Market Defines Liberty According to Friedman

Friedman argues that more than democracy, market plays a role in creating individual freedom. According to him, market represents better proportion of society than democracy. He had based his view on the similar market view as suggested by Adam Smith. Friedman supports his argument by saying that market lets the voluntary exchange of goods without any coercion of law. However, democracy requires coercion of law to make people abide by their duties and exercise rights. He further argues that in market cooperation and coordination is achieved without coercion. According to Friedman, as long as there is effective freedom of exchange as a central feature of the market, it will prevent one person from interfering with another in market activities. However, Friedman accepts that free market cannot eliminate the need for government. He considered government as essential as a platform to develop “rules of the game” and work as a monitoring unity to interpret and enforce the rules thereby decided on.

In his argument Friedman leaves a loophole that if the rules of the game, as he puts, are few, would it affect the freedom of the market and individuals? There Friedman misses to understand the relationship between market and government. Government laws not only monitor but also shape the nature of activities that run in the market. Adding new rules does not mean that individuals will lose their freedom in the market. However, the predictability of law is the centre issue in the liberal tradition of freedom (Schwartz, H., 2007).

Hobhouse Argues Against Free Market Capitalism

Great sociologist, who is known to have contributed in defining and determining the concept of neoliberal policy, differ from Friedman’s theory of “Capitalism and Liberalism” with regard to free market capitalism. He differs, primarily because he gives more stern interpretation of conditions and logics than Friedman gives. Hobhouse is disbelieving about the free market claims that it promotes individual freedom. His concept of coercion goes beyond free market advocates. Hobhouse’s view about individual freedom goes beyond just economic freedom. He believes, “”full freedom of consent implies equality”.

Classic liberals believed that markets are based on free exchange, but this claim is highly misconstrued, as Hobhouse also understands. Many new theories and studies support argument against free market capitalism. They say that freedom does not depend on economic growth or your success in accumulating wealth. Nor does freedom necessarily lead to economic success in the market.

Hobhouse was the first professional sociologist in Britain, who was enrolled to London School of Economics, in sociology. Though, his work is largely forgotten and there are hardly any references that can be found, his contribution to sociology id crucial. His evolutionary sociology concepts are based on careful insight into reflexive relationship between individual and society. Hobhouse’s concepts of new liberalism drew its basis largely from the nineteenth century liberalism of J.S. Mill and T.H. Green (Weiler, P. 1972 and Weinstein, D. 2007). His critical inheritance of Herbert Spencer, Hobhouse strongly opposes economic individualism. Hobhouse, clearly stated that Spencer’s economic individualism concept should be discarded while examining the relationship between state’s role and their sociology.

Hobhouse regards three “ideal type” as the theoretical framework of his evolutionary sociology – principles of kinship, authority and citizenship. In the kinship setting, individual enjoy high level of equality in government and in socio-economic status, however, the organizational efficiency and production remains undeveloped. In the principle of authority, the society experiences high level of efficiency by differentiation of function through class structure, but there is high degree of inequality. Finally, when the society grows to the principle of citizenship, there is enhanced freedom and equality of its members along with development of moral sentiments of rights and duties. Under this, the structure of laws rest more on the consent of the citizens than on the authority of a ruling class.

Hobhouse assessed the modern nation as form of citizenship, as the most complete reconciliation of social cooperation with the freedom of individuals, localities and nationalities.

Hence, liberalism has to include liberty, which is implied with rule of law. Hobhouse states that a free government is one which does not take place by any arbitrary determination of the ruler, but is established by a fixed rule of law. Regarding individual freedom under a free government, there is a standing rule to live by, and which is common to all in that society.

To prove crucial role of modern liberalism, let us analyze states that operated under classic liberalism.  During mid nineteenth century there was the classic liberalism structure in England and America, and the age was known as laissez faire. It coexisted with quite a few social dislocation, bad work condition and widespread poverty. Only until the working class was given the right to vote, there began the process of reforms. The reforms eventually replaced liberal capitalism with socialism. Liberalism, earlier, used to apply coercive power of law to benefit property owners at the cost of wage earners. The reform-oriented liberal think tank then gave rise to social liberalism that proved to be near oxymoron to solve the social inequalities and economical problems (Terao, H., 2012).

Conclusion

Friedman Milton proposed a contention that “freedom in economic arrangement is itself a component of freedom broadly understood,” and that “economic freedom is an end in itself”. However self-evident his contention may be, what really lies behind the contention is that there should be a particular view of the relationship of the market and government.  Here Hobhouse’s view should be considered as instrumental in establishing social liberalism, where there is substantial governmental influence in establishing freedom with equality by imposing necessary common laws.

References:

Collini, S., 1979. Liberalism and Sociology: L. T. Hobhouse and Political Argument in England in 1880-1914. Cambridge University Press.

Dawson, J. W., 1998. Institutions, Investment, and Growth: New Cross-Country and Panel Data Evidence. Economic Inquiry 36. 4:603-619.

De Haan, J. and Sturm, J. E. 2003. Does More Democracy Lead to Greater Economic Freedom? New Evidence for Developing Countries. European Journal of Political Economy 19. 3:547-563.

Friedman, M., and Friedman, R.D., 1982. Captitalism and Freedom. University of Chicago Press.

Farr, W. K. , Lord, R. A. and Wolfenbarger, J. L. 1998. Economic Freedom, Political Freedom and Economic Well-Being: A Causality Analysis. Cato Journal 18. 2:247-262.

Giavazzi, F. and Tabellini, G. 2005. Economic and Political Liberalization. Journal of Monetary Economics 52:1297-1330.

Lundström, S. 2002. On Institutions, Economic Growth and the Environment. PhD Thesis. Department of Economics, School of Economics and Commercial Law, Göteborg University.

Schwartz, H., 2007. What Color Tie Do You Vote For? Published on Published on www.freedomandcapitalism.com.

Terao, H. 2012. Finding Idealist Sociology: L.T. Hobhouse’s Critical Inheritance from Herbert Spencer

Vanssay, X. D. , Hilderbrand V. ,and Spindler, Z. A. 2005. Constitutional Foundations of Economic Freedom: A Time-Series Cross-Section Analysis. Constitutional Political Economy 16. 4:327-346.

Weiler, P. 1972. ‘The New Liberalism of L.T. Hobhouse’, Victorian Studies, 16(2), 141-61.

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