Economic freedom
A description of the ideology of free market capitalism and it's influence on the Washington Consensus and Singapore's economic development strategy.
General Secretary Gorbachev, if you seek peace, if you seek prosperity for the Soviet Union and Eastern Europe, if you seek liberalization: Come here to this gate! Mr. Gorbachev, open this gate! Mr. Gorbachev, tear down this wall! US President Ronald Reagan, 1987 Speech at Brandenburg gate “Mr Gorbachev tear down this wall!”
This Appendix on free market capitalism starts by introducing the concept as an economic strategy and its historical development. This broader global and ideological perspective is then connected to Singapore's development history and modern context. The standard ideology and policy agenda is assessed for the overlap and divergence with Singapore’s strategy from testimony, econometric outcomes and policy measures.
Free market ideology
In this section
Economic freedom
Economic freedom is a concept for promoting free market policies which has influenced the “Washington Consensus” economic development guide for Latin America. The Consensus was inspired by the Asian Tigers and described by World Bank economist John Williamson in his 1991 book “Latin America Adjustment : How much has happened?” (Williamson, 2004). The strategy was formalized into a set of measures in the Economic Freedom Index by the Heritage Foundation (Miller, Heritage Foundation, 2020). The latest report for 2020 reports Singapore as the #1 highest ranked country in the world and in past years together with Hong Kong it routinely is either #1 or #2 or at least in the top 10 (Miller, Heritage Foundation, 2020).
Free markets and free people have worked hand in hand to increase prosperity and the quality of life for people. - Kay C James, President of the Heritage Foundation, Economic Freedom Index report 2020
The prominence of the ideology of economic freedom on international organizations - World Bank, IMF continued from the 1980’s and remained dominant until the 2008 financial crisis. It espouses ideas and values of deregulation, individualism, empowerment of capital markets. It can be observed in the wording of economic strategy in and outside of Singapore in defense of economic policy decisions. The process of implementing free market reforms is known as "Liberalization". Liberalization may be a useful approximation to characterize Singapore’s contemporary and historical economic strategy, and for that reason this report uses that framework as a basis to analyze Singapore’s policy in historical and contemporary context and objective reference on which to present an argument for reform and alternative.
In a 2010 World Bank report, Birdsall defined the “Washington Consensus” as
A robust intellectual and ideological current of the times which emphasized the virtuous combination of political democracy and free markets. Williamson’s article rode on a global wave that transformed the conventional wisdom in favor of free market economics, which included the rise of neoclassical economics and the rational expectations revolution among academic macroeconomists. It is not a coincidence then that the appearance in 1989 of the Washington Consensus coincided with fall of the Berlin Wall, which symbolically marked the burial of centrally planned economies. - Birdsall, 2010 The Washington Consensus Assessing a Damaged Brand
While liberalization draws on a number of credible observations and theory from economics, its “magic bullet” message about the size of government or “freedom” may be a simplistic, ambitious and naive attempt to connect these together as implying a common moral or empirical truth. The sweeping, unqualified claims of “prosperity” and “quality of life” may overstate the potential outcomes of certain economic policies when other factors of how societies are organized and their available resources may be equally if not more important. On the other hand it would also be naive to wholly reject all of the elements of liberalization and benefits of free markets, strong governance institutions. A complete policy guide that considers for the benefits and drawbacks may be more nuanced than this simple ideological shortcut logic. As a complete ideology it comes with a narrow definition of success - GDP income growth - and this strength is also a shortcoming. Liberalization performance reports measure success as GDP growth and leave other metrics such as equity or sustainability on faith rather than intentional policy design. The aim of economics is to provide equitable prosperity for the whole society and not only those who are the most successful in the present day. Well functioning markets do not self-perpetuate in isolation but instead require strong government institutional support and are known to be inadequate to improve certain society-wide goals to reduce inequality, control systemic risk, volatility and safeguard the environment for future generations.
Influential figures
Liberalization ideas can be attributed to several organizations such as the Mont Pelerin Society, Heritage Foundation, Cato Institute, Brookings Institute and influential economists, politicians
Influencer | Publication, position |
Friedrich Von Hayek | The Road to Serfdom, 1944 |
Ayn Rand | Atlas Shrugged, 1957 |
James Buchannan | The Calculus of Consent, 1962 |
Milton Friedman | Free to Choose, 1980 |
Alan Greenspan | Age of Turbulence, 2007 |
Margaret Thatcher | UK Prime Minister, 1975 - 1990 |
Ronald Reagan | US President, 1980 - 1988 |
Beliefs and assertions
Liberalization is a pure interpretation of capitalism connected by assertions related to the idea of intellectual, economic freedom for individuals, in particular as capital owners and their relation to the state and the rest of society. The policies aim to empower capital markets, rule of law, limited size of government, enforcement of privacy, property rights, limits on collective bargaining and open trade.
First principles assertions
An inductive, ideological consistency and robust first principles methodological approach to research is preferred to a deductive approach based on pure empirical observations
The best social welfare outcomes occur when individuals are free to act out of rational self-interest through free markets
Capital markets are better than elected state officials as decision makers for solving problems of economics, resource allocation and optimal public welfare
The limited role of the state is to empower capital owners by enforcing their property rights and removing barriers and freedom to operate in their relation to labor, interest groups in the communities they operate in and trade with other states
Policy agenda
Policy aims
Market determined interest rates, terms of credit and labor
Open borders to free trade and capital flows
Scale down size and limited scope of government
Strengthen the rights and freedoms of private capital owners
Rule of law and stable inflation
Limited role of collective bargaining in favor of bilaterally negotiated terms of labor
The liberalization strategy was synthesized into the Economic Freedom Index published by the Heritage Foundation (Miller, 2020) and influenced the Ten Commandments of the Washington Consensus (Williamson, 2004) presented in Table 1 and 2.
The Freedom Index, Washington Consensus, influential figures - Von Hayek, Friedman and the Singapore government each have their own unique features with some overlap and some differences. These are imperfect relationships and do not equate Singapore’s economic strategy as the Washington Consensus or as copied from the Heritage Foundation. The value of using a single framework is the ability to generalize the conclusions and apply to other cases and to have a complete reference point for analysis. The analysis can help to fill in missing gaps from sparse, concise political communications. Not all policy communicated from government leaders is explained and defended exhaustively with a coherent theory and empirical evidence and some statements are either implicitly assumed or stated as fact without explanation.
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