Economic ‘freedom’ isn’t way to prosperity

PAUL AND JANA WILHELM Published:

How would Consumer Reports evaluate political parties? We believe that they would ask what economic philosophies, associated with each party, predict sustainable economic development. Are the underlying economic/political philosophies of the two parties testable? We have shown that they are and that the media could do well to investigate this. It could well explain why most of the nation thinks we are on the wrong track.

Federal law mandates that tests, used to select people for positions, are to be job-related and not just based only upon opinion or vague theory. Yet we do not require that the economic and political dimensions that politicians preach be validated in the same fashion, even though it could easily be done. The benefit to the nation would be immense. We wish to stimulate productive debate on testable and strategic issues, predicting wealth rather than stagnating in the pettiness and gridlock voters are now being subjected to.

There are three international databases which essentially form a political continuum from liberal to conservative. These are the Legatum Prosperity Index, The Global Competitiveness Report and the Index of Economic Freedom. Most political scientists believe that our nation is currently more right of center than just about any other developed nation. The Democrats apparently subscribe to the strategies underlying prosperity and global competitiveness, which average over 100 strategically selected variables. The Republicans have moved away from center-right ideology and are espousing the ultraconservative, less comprehensive strategies of economic freedom, which is based on a summation of only 50 variables related to conservative economic theory.

A generation ago, both the Republicans and the Democrats apparently espoused fairly close variations of the moderately conservative global competitiveness philosophy. Global competitiveness integrates a wider range of economic theory with the newer and extensively validated field of strategic management. Before ultraconservative theory took over the Republican Party, there was much less gridlock, much greater bipartisan debate, civility and legislative progress. Inequality was half what it is now and a more progressive tax system allowed the development of dimensions that the Global Competitiveness Report and the Prosperity Index validly predicts leads to entrepreneurship (such as infrastructure, technological readiness and the prevention of corruption). We therefore decided to test which of the three databases better predicted the wealth of nations across the globe.

We found that the more moderate databases of the Prosperity Index and the Global Competitiveness Report were clearly more comprehensive and better than the Index of Economic Freedom in predicting economic development. However, the conservative Economic Freedom measure is far more influential than the other two databases in this country. It has two dimensions, (less government and lower taxes) favored by Republicans, which negatively predict the wealth of nations. This essentially undermines the validity of their measure. We have emailed them a summary of our findings and they have never replied. We argue that the nation is being misled and this is contributing to stalled upward mobility. Less government and lower taxes, which often result in deregulation, ultimately higher corruption and diminished economic development, is one fifth of the Index of Economic Freedom. These two variables predict the lower wealth of nations, and their own data consistently shows this over the years. The Heritage Foundation and the Wall Street Journal may be deceiving the nation. Unfortunately the U.S. Chamber of Commerce and corporations tend to subscribe to their substantially invalid database. They are now disproportionately empowered by the Citizens United Supreme Court decision, and are in turn misleading our nation and helping our inequality to worsen. Some inequality is good for motivation, but too much is very bad for sustainable economic development. Too much power in too few hands tends to both corrupt and ultimately impoverish nations.

Our relentlessly increasing inequality, doubling in the last 30 years, is predictive of authoritarianism, according to research by Frederick Solt, published this year. The dogmatic, narrow-minded authoritarian syndrome is highly correlated with intolerance of ethnic, sexual, religious and political minorities. Generally severe right-wing political adherents are receptive to these ideas. Authoritarians tend to think less strategically and are much more likely to endorse illegal and undemocratic government behavior. Authoritarian nations tend to be both poorer and more corrupt. This can lead to economically counterproductive gridlock and the passage of blatant voter suppression laws. Fortunately these are now being reversed by the courts.

The reason why much of the nation thinks we are on the wrong track is traceable to the increasing usage of the substantially invalid database of Economic Freedom rather than the validated, more comprehensive and strategically oriented databases of Prosperity and Global Competitiveness. Hence, we need economic and political philosophy validators as well as fact checkers.

Paul Wilhelm is associate professor of management and Sam M. Walton Free Enterprise Fellow at Kentucky State University. Jana Wilhelm is with Sullivan University and Bluegrass Community and Technical College.

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