Yesterday marked the UK release of the 2008 Economic Freedom of the World Report, produced by the Fraser Institute in Canada in association with the IEA. Fraser’s motto is “if it matters, measure it”. Some of the IEA’s Austrian-economics followers might be sceptical of that motto but, nevertheless, the report has some important messages. Here, I focus on one.
African nations occupy most of the bottom spots in the index. With the exception of Venezuela, the ten nations with the lowest levels of economic freedom are extremely poor countries: Zimbabwe, Angola, Myanmar, the Republic of Congo, Niger, Guinea-Bissau, Central Africa Republic, Chad, Rwanda, and Burundi. As James Gwartney, the lead author and professor of economics at Florida State University said “Weakness in the rule of law and property rights is particularly pronounced in sub-Saharan Africa, among Islamic nations, and for many nations that were part of the former Soviet bloc.”
There is an important lesson here for the Make Poverty History Campaign and the so-called Trade Justice Campaign. The former has campaigned for more government aid for poor countries. Both groups have campaigned to try to stop the forces that lead to the liberalisation of trade in poor countries. There are many unfortunate direct economic effects of aid (it can raise real exchange rates and damage export sectors for example). But an important indirect effect is that it can give greater financial power to governments and enable government officials to benefit from financial preferment. In other words, aid has effects that lead to bad governance and can undermine the rule of law and property rights. Similarly, trade regulation, quite apart from the damaging direct economic impact it has, is well known to be a major source of corruption in under-developed countries.
Neither of these observations proves that aid or trade regulation are a bad thing (though, in my view the latter is, without doubt). However, these campaigners should just pause for thought – as should the Bishops who recently marched on Parliament to support them. They should realise that, if they are wrong, the consequences could be serious. Clergy in particular have a responsibility to think carefully about all angles of political and economic subjects before they make public comments – one wonders if they always do so.