Conservative party conferences used to have a core theme of economic freedom.
Alas no more. Despite Theresa May mentioning the need to defend capitalism in her speech yesterday, nowadays the lip service to free markets harks back to New Labour – free markets are stated, but not understood.
This is a missed opportunity on an epic scale. Freedom and free markets are being sidelined at the very moment in history when their benefits are most evident. The academic evidence is consistently showing that advanced economies could experience a surge in growth and vitality from shrinking the state, while the gains to subjective wellbeing and happiness from economic freedom are also substantial.
Over the past 20 years, the economic literature on the relationship between government size and growth has become more sophisticated. Generally speaking, the more recent the study, the more sophisticated the methodology and the more robust the finding of a negative relationship between government size and growth.
There is an increasing consensus in the literature on the scale of the trade-off. An increase of 10 percentage points in the size of the state as a proportion of GDP is associated with a 0.5 to 1.0 percentage point reduction in the GDP growth rate.
The positive relationship between economic freedom (in terms of a smaller state as measured by indices such as the Heritage Index of Economic Freedom and the Fraser Institute’s Economic Freedom of the World Index) and material prosperity is overwhelming in the literature.
And the measured and actual negative impact could become even greater in the future.
This is due to both methodological improvements overcoming econometric modelling difficulties, and the potential for workers to become more sensitive to tax disincentives in the twenty-first century than in the twentieth century, thanks to increases in the proportion of self-employed.
Historically, the happiness literature has tended towards an interventionist stance and has been used for that purpose. Even though economic freedom and material prosperity are seen to go hand in hand, the non-material aspects of prosperity, and the consequences of the exercise of free choice, have been largely overlooked.
But in recent years, the research has shown a powerful positive effect of economic freedom on subjective wellbeing. The direct implication of the wellbeing research is that we’re hardwired for freedom.
What’s more, it may come as a surprise to some readers, but more equal societies are not happier societies. Greater government intervention isn’t associated with greater happiness.
Research shows that autonomy to choose is a particularly important direct channel on subjective well-being, because it establishes this element of freedom as an end in itself.
In other words the positive impact of economic freedom on wellbeing is not confined to the material wealth it confers – the indirect channel. This has powerful implications for the provision of choice in public services such as health and education.
Economic freedom is a fundamental prerequisite for both forms of prosperity – material and immaterial. But perhaps most importantly, economic freedom has to be seen as an end in itself. This is what the American philosopher John Tomasi has described as “a much thicker concept of economic liberty… on a par with natural rights”.
The battle for freedom is a battle of worldviews, which must be fought by every generation.
The Athenian historian Thucydides is quoted as saying: “The secret of happiness is freedom. The secret of freedom is courage.” Politicians need to rediscover the courage to fight for freedom orientated economic policies.