Dienstag, Mai 31, 2011

Finally Someone From the World Bank Makes Sense...

This is a good read. Solid research, honest work.

It's titled "On the Relevance of Freedom and Entitlement in Development, New Empirical Evidence (1975-2007)", by Jean-Pierre Chauffour.

If you are at all interested in why some countries succeed and others don't: read it.

Key quote:

These results tend to support earlier findings that beyond core functions of government responsibility—including the protection of liberty itself—the expansion of the state to provide for various entitlements, including so-called economic, social, and cultural rights, may not make people richer in the long run and may even make them poorer.

That's right: expanding functions of the state beyond core functions tends to make people poorer, rather than richer.

The reason is simple:

...the extent to which political institutions and human interactions in society are formed around the concept of freedom constitutes one key determinant of growth, perhaps the ultimate cause of why economic agents actually create and accumulate.

The emphasis is in the original. The fundamental is this: that people actually create and accumulate, generate economic growth, because left to their own devices, free to do what they want to, they can.

Finally, we do not find any robust relationship between entitlement rights and economic growth. The initial level of the entitlement right is negative and statistically significant in regression where only this variable has been included ... and not statically significant in other specifications. The change in entitlement rights seems to influence the average economic growth positively, but this relationship is not robust to the inclusion of economic freedom.

Duh. Not so much what Mr Chauffour writes, but much more: of course. There can't be any robust relationship between entitlement rights and economic growth because the former inhibits the latter: the relationship is inverse. Entitlement rights are the opposite of economic freedoms!

From the conclusion:

Freedom and entitlement are largely two different paradigms to think about the fundamentals of economic development. Depending on the balance between free choices and more coerced decisions, individual opportunities to learn, own, work, save, invest, trade, protect, and so forth could vary greatly across countries and over time. The empirical findings in this paper suggest that fundamental freedoms are paramount to explain long term economic growth. For a given set of exogenous conditions, countries that favor free choice—economic freedom and civil and political liberties—over entitlement rights are likely to growth faster and achieve many of the distinctive proximate characteristics of success identified by the Growth Commission (2008): leadership and governance; engagement with the global economy; high rates of investment and savings; mobile resources, especially labor; and inclusiveness to share the benefits of globalization, provide access to the underserved, and deal with issues of gender inclusiveness. In contrast, pursuing entitlement rights through greater state coercion may be deceptive and even self-defeating in the long run.

I've highlighted the key point: entitlements are nothing less than coerced decisions. Take free choice awaz and coerce decisions, and you run counter to the natural state of man, that of freedom. Fundamental freedoms are not some sort of old white man political constructs: they are the very foundation of long-term economic growth.

Don't take it from me: take it from the World Bank.

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