Tag Archives: free markets

Property Rights and Philanthropy: Bill Gates Speaks with AEI about the Free Market and Innovation

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As part of the American Enterprise Institute’s Philanthropic Freedom Project, AEI President Arthur Brooks recently interviewed Microsoft co-founder and philanthropist Bill Gates about the intersection between the exceptional entrepreneurial success of Microsoft and the extensive charitable contributions of the Bill and Melinda Gates Foundation.

When asked about how a free market supports philanthropy, Gates explained that effective governments have the capacity to implement social services and deliver necessary support to citizens, but lack the resources to improve upon goods and delivery mechanisms. Taking on the expensive risk of such innovation therefore falls to the private sector, which has a financial incentive to invest in what would otherwise become a market failure.

However, sometimes needed goods are not lucrative for private enterprise to invest in, either. Gates offered the example of anti-malarial medicine research, which proves to be an undesirable field for pharmaceutical companies to invest in due to the inability of most people in malaria-affected countries to afford these medicines at the costs required to support such an expensive research effort. This is the space in a free market where philanthropic efforts, such as those of the Bill and Melinda Gates Foundation, step in to provide research and development assistance that will hopefully produce a cheaper and more effective product.

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Free Enterprise & Democracy: Engaging the Private Sector on Global Democratic Discourse

FEDN members share ideas with MENA reformers at a meeting in Jordan. (Photo: Staff)

Every year, September 15 marks the passing of the International Day of Democracy. This year, organizations celebrating the Day of Democracy are encouraged to address issues of civic education by teaching citizens about democratic institutions such as constitutional rights, political representation, and how to participate past election day. UN Secretary-General Ban Ki-moon has stated, “In marking this year’s International Day of Democracy, let us… work to bring democracy education to all, and in particular, to those societies in transition that need it most.”

Civic understanding and involvement is no doubt critical to establishing and consolidating democracy. However, democracy education should not be limited to voters, especially when addressing countries in transition. Leaders and policy makers responsible for drafting and instituting democratic reforms also require an understanding of the forces that contribute to a functioning, sustainable democracy. As we have seen recently in many countries transitioning to democracy, a key question facing newly elected leaders is how to provide for the economic well being of citizens and the development of a country. If new governments fail in this, the consolidation of democracy cannot be assured.

Though this is a pressing issue, the sector most responsible for long-term economic prosperity has been largely absent from global fora on democracy. The absence of the private sector from these debates has resulted in a limited understanding among democratic reformers of the important links between the free market and democracy. Seeking to contribute to this understanding, the newly created Free Enterprise and Democracy Network (FEDN) brings together democratic reformers, champions of the private sector, and members of civil society to advocate for a positive business environment and strengthen democracy.

FEDN believes that in addition to political and labor representatives, the private sector acts as a third pillar of democracy. Chief among the network principles is the belief that a free market economy and democracy are mutually supportive systems. Rule of law, for example, protects the fundamental rights of all citizens while also guaranteeing contracts and commercial commitments that are vital for the operation of business. Similarly, property rights create a framework for prosperity by providing a mechanism to access capital, but they also bolster civil rights and place constraints on government action. Essentially, FEDN members understand that the components of a free market also help generate the necessary institutions to sustain effective democratic governance.

Benefits flow in the other direction as well. As the FEDN principles state, “Democracy brings long-run benefits to sustainable growth and human development.” In addition to possessing intrinsic value, democracy is also a means to a better business environment as it provides checks on the abuse of authority and creates channels to improve economic policy. When the private sector is able to participate in policy discourse, independent voices contribute to effective policymaking, the result of which is sustainable economic growth.

In addition to expressing the linkages between democracy and the free market, FEDN aims to act as a forum for the exchange of ideas and mutual support among members. Earlier this year, Dr. Boris Begovic, president of the Center for Liberal Democratic Studies and FEDN steering committee member, traveled to Jordan to share the Serbian transition experience with a group of reformers from the Middle East and North Africa. Dr. Begovic’s remarks were complimented by a discussion with Dr. Jesus P. Estanislao, chairman of the Philippines’ Institute for Corporate Directors. Gaining invaluable insight, attendees from Yemen and Syria immediately drafted visions for reform and established organizations to gather input from the private sector and present recommendations to their respective governments.

The Syrian Economic Forum and Yemeni Economic Vision Task Force are two examples of the benefits mutual support through FEDN can provide. With the objectives and principles formally released, CIPE and the steering committee are now working to engage business leaders, activists, representatives of civil society, and reformers to share experiences and ideas. While attending the World Movement for Democracy next month, steering committee members will begin outreach in earnest.

State Capitalism Takes Center Stage

As the world continues to muddle through the current economic crisis the state has intervened into markets in the interest of stability and lessening the human toll of any deep recession.  The governments of developed nations have given assurances that their economic stewardship is a temporary measure and that they will exit the markets as quickly as the global credit system can be repaired.  However, the silence on the issue of governmental interventionism on the behalf of the developing world has become deafening.

With the increasing role and importance of developing economies decisions made by the government to play market-distorting roles can have serious economic consequences for the rest of the world.  The role of the state (and the financial investments of the state in the case of Sovereign Wealth Funds) in many developing nations was already large in many instances – the financial crisis and the ensuing worldwide economic slump have given these governments more reason to justify their increased role.  Massive state owned or quasi-private companies from Russia’s Gazprom to China’s Industrial and Commercial Bank of China now dominate the world’s financial pages.

In this month’s Foreign Affairs Ian Bremmer, President of Eurasia group writes:

During the Cold War, the decisions taken by the managers of the Soviet and Chinese command economies had little impact on Western markets.  Today’s emerging markets had yet to emerge.  But now, state officials in Abu Dhabi, Beijing, Brasilia, Mexico City, Moscow, and New Delhi make economic decisions – about strategic investments, state ownership, regulation – that resonate across global markets.

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