By Patrick Kilbride and Terri O’Connor, Coalition for the Rule of Law in Global Markets, U.S. Chamber of Commerce
It’s a brave, new, global world for business. Plenty of opportunity; plenty of risk. As e-commerce, free trade agreements, and modern infrastructure have opened the world’s markets, many companies have found that on the frontiers of trade there are not always a lot of rules. And where rules exist, they are not always enforced.
In markets where transparency and accountability have been scarce and investors have feared to tread, the U.S. Chamber’s Coalition for the Rule of Law in Global Markets is striding in, spotlight blazing.
This new tool for business is featured in the 2013 Index of Economic Freedom released by The Heritage Foundation and the Wall Street Journal. Myron Brilliant writes for the U.S. Chamber of Commerce, “Companies look to invest in markets where they have confidence in the integrity of public and private institutions and where there is fairness, enforcement, and proper adjudication of the law.”
This is #1,000 post on the CIPE Development Blog. We thought that this small anniversary is a good reason for some reflection.
Since we launched the blog four years ago in December 2005, the online environment has changed significantly. Blogging for democracy and economic freedom is spreading, especially in places where traditional media is tightly controlled. What was a novelty four years ago – such as blogging in Iran or Cuba – has become accepted as a given.
Dambisa Moyo, a renowned Zambian economist has just launched her new book, Dead Aid. As the title suggests, she is not a big fan of foreign aid, at least not in the format in which it has been predominantly disbursed to African countries over the last several decades (to be exact, a trillion dollars over the past 60 years). She is especially critical of celebrities who, however well-intentioned in their aid efforts, ultimately perpetuate negative stereotypes about Africa. She says:
“Taking a picture with a starving African child—that doesn’t help me raise an African child to believe she can be an engineer or a doctor.” Instead of aid, Moyo recommends other paths to financial and democratic independence: bond issues, trade, foreign investment. (…) She recommends shutting off all foreign aid to Africa within 10 years.
Not everyone agrees and the book has spurred intense debates. Yet undeniably it makes several very good points. Moyo concludes: “The African issue should be championed by the African leaders charged with delivering long-term growth for their people. Anyone else offering opinions is pretty much moot.” And many Africans second that – among them James Shikwati, the founder and Director of the Inter Region Economic Network (IREN), an independent Kenyan think tank promoting economic freedom as the driving solution to poverty in Africa. You can watch his CIPE Development Institute presentation on this subject here (free registration required).
Major systemic transformations in the post-Soviet states are over. Yet the outcome in most cases is not a full-fledged democratic market economy but rather an unsatisfactory compromise between socialism and free markets. Transition countries by and large focused their energies on creating a “social market economy” à la Western European welfare states. Thus, socialism as a system of completely centralized decision-making has been replaced by interventionism, a system with various degrees of state involvement in economic affairs. This “third way”-ism took the place of Marxism as an ideological pillar of the new post-communist world; however, it failed to produce a viable alternative to how the goal of greater social well-being can be accomplished.
In this Feature Service article, Jaroslav Romanchuk, Executive Director of the Analytical Center “Strategy” in Minsk, Belarus, talks about the persistence of the old redistributive, state-focused, and government-inspired way of thinking about achieving prosperity in most post-communist countries. Romanchuk criticizes insufficient attention paid to the uniqueness of country conditions and the consequences of the communist legacy in the design of transition reforms. He says, “Development strategies for many emerging economies often uncritically incorporated Western laws into domestic legislation regardless of the fact that these laws were crafted in different cultural and historical environments. As a result, transition governments faced many unintended consequences that increased the economic and social costs of transition.”
But it is not too late for transition countries to refocus on the essence of prosperity-generating reforms: economic freedom. It is economic freedom that delivers better social outcomes such as job creation, income growth, access to basic social infrastructure, education, and healthcare. Coupled with strong democratic institutions, values of hard work, and achievement, economic freedom is the best known vehicle for achieving robust economic growth and improved social well-being.
Article at a Glance
- Transition governments in post-communist countries have been held back by a failure to understand and implement the essentials of democratic and market institutions.
- The sudden shift from socialist to market systems exposed the weaknesses of many policy prescriptions indiscriminately adopted from the West.
- State interventionism, which failed to generate greater social well-being, can no longer be an alternative to full-fledged democracy and free markets in the region.