Regardless of whether we think about individual liberty as the absence of obstacles, barriers or constraints (negative liberty) or we consider collective liberty as the possibility to take control of one’s life and fundamental purposes (positive liberty), there is no doubt that freedom must be defined in relation to the availability of options. However, since options may be incompatible one must frequently balance them. For instance, we have a tradeoff between privacy and safety or between individual and collective wage negotiations.
Equally, when analyzing the relationship between capitalism and freedom, one needs to consider the freedoms essential for capitalism as well as the way it contributes to the many freedoms. Indeed, capitalism is an economic system that requires two fundamental freedoms – private property and freedom of exchange – and these two types of freedom enhance further other forms of freedom, namely the freedom of association required by joint ownership and free consumer choice and the freedom of information necessary for free trading.
Overall, by promoting individual wealth, capitalism contributes to the creation of more options and individual choice thus overcoming one of the major obstacles to liberty. But, through its principles, it also promotes many other fundamental freedoms not directly related to material goods.
For instance, freedom of thought, belief, opinion and expression is promoted by the capitalist’s drive to advertise its products and services. This commercial interest can only be achieved with freedom to choose the channels to reach clients and a free media.
Freedom to contract and exchange is indispensable for competitive markets and it can only be achieved by freedom of movement, absence of coercion and access to information. Freedom of information, like the freedom of expression is crucial for commercial as well investment decisions. Since asymmetric information is a major source of market inefficiency, capitalism thrives better under free markets.
Likewise, free peaceful assembly is a requirement of capitalism so that employers, employees and consumers can discuss their relative interests both in private and in public places, such as conferences, fairs and exhibitions. This freedom extends also to the right to establish unions and peaceful union picketing to persuade other parties to a wage bargaining.
Freedom of association is crucial under capitalism not only for representation purposes, but also to pool private property into forms of joint ownership, namely joint stock companies. Moreover, by separating personal from corporate responsibility through limited liability, capitalism manages a substantial reduction in risk which is essential to foster entrepreneurship.
Most importantly, capitalism generally promotes peace because all forms of social unrest and war destroy assets, production and profits. The profit motive requires all the above mentioned liberties and, not surprisingly, all totalitarian regimes (whether pro or anti-capitalism) are usually searching for new excuses and ways to control capitalism.
To resist such attacks on freedom, it is important to understand when the fundamental freedoms that capitalism requires and promotes can be subject to some restrictions. For instance, freedom of expression does not mean that corporations are free to lie and manipulate consumers and investors. Likewise, freedom of assembly does not mean that such assemblies may be used to collude on illegal and anti-competition practices. Just like the right of association does not mean that it can be used to establish cartels or the right to information allows them to procure insider information from privileged parties.
The definition of such limits on business freedom is usually controversial and difficult to delimit. In particular, there is a widespread tendency to consider that the role of the state is to protect individual freedom against business practices. This is erroneous, because the state and capitalism should not be adversaries but allies in the promotion of freedom. To avoid this dangerous error it is important that regulators understand the differences between market capitalism and other “distorted” versions of capitalism because only the first guarantees the pursuit of liberty.
To conclude, we should not assume that people are either extremely naïve or evil. All restrictions to freedom must be carefully assessed and, if needed, the error should be on the side of liberty.
Showing posts with label free movement. Show all posts
Showing posts with label free movement. Show all posts
Wednesday, 19 August 2015
Monday, 17 August 2015
The free movement of goods, capital and labour
Capitalism confirmed and extended the benefits from free movement of goods and services, capital and labor. Initially mostly at the national level, but progressively also at the international level.
Throughout the middle ages internal trade was not only risky due to the shortage of transport infrastructure and lack of protection against robbers, but also because of the many tolls required to enter cities, navigate the rivers, use bridges or the right of way over the nobles land. For instance, in 1250 there was 12 tolling stations on the Rhine river between Mainz and Cologne, which are only 170 km apart.
By then slavery had been generally replaced by serfdom. But, about half of the population still continued tied to the lord’s land through bondage and had to provide a certain number of labor services. Serfs were forbidden to live outside the seigniorial territory, had to pay fines to marry serfs of another lord and were subject to a number of fees.
Craftsman and artists enjoyed more freedom but were progressively organized in Guilds which restricted severely their training, trade and mobility. So, the concept of free labor mobility was basically unknown.
Likewise, there was very little capital mobility because the sale of land (the main asset at the time) was severely restricted through seigniorial and inheritance laws. Financial investments were equally very limited and lending was typically provided only to royalty by Jewish merchant- bankers. So, apart from travel and trade-related payments, the transfer of financial capital was too little and mostly to pay for ransoms and tributes.
However, the advent of the commercial revolution in the XIII century and the Renaissance changed dramatically the situation in Europe. By the late XVII century international banking and trade had achieved a significant development in Northern Italy, London and Amsterdam. Yet, its driving forces were still the spices and other exotic merchandise made available through the Spanish and Portuguese sea voyages, which were necessarily limited.
It was up to capitalism, with its focus on manufacturing, to change dramatically the growth of international trade through the export of manufactured goods to the colonies and the import of the raw materials used to produce them. This process contributed to the rise of London as a major international clearing and financial center, where it became possible to borrow and invest internationally.
In turn, the financing of major railways and other ventures in the Colonies in North and South America required massive labor migration.
Of course major human migration had been around since the early days of the homo sapiens. He moved out of Africa some 80 millennia ago, and spread across Eurasia 40 millennia ago. Migration to the Americas took place about 20 to 15 millennia ago and, about one millennium ago, all the Pacific Islands were colonized. Later, significant population movements included the Neolithic revolution and the Indo-European expansion.
Throughout history, most major migrations were caused by the collapse of empires, slavery or religious persecution. For instance, it is estimated that before 1830 2.75 million Europeans left to settle overseas, mostly convicted and fugitives from religious persecution.
The difference under capitalism was that migration accelerated not only substantially, but its motivation also became essentially economic. For instance, between 1835 and 1935, the number of European emigrants rose to 75 million who left voluntarily to America and other continents in search of a better life. With a bit of exaggeration, one may say that with capitalism the labor market transformed from a local market into a global market.
Nevertheless, the dismantling of the barriers preventing the free movement of goods, capital and labor was a slow process. Governments had become addicted to customs tariffs as a source of revenue, wanted to force national savers to lend their money only to them or did not wish to extend their social services to immigrants.
In general, capitalists have a duplicitous approach to the freedom of movement. They support free trade as long as it opens up new markets for their products and supplies, but are against when it means direct competition with their products. Likewise, they welcome financing from foreign investors but do not appreciate it when national banks lend to foreign companies. Similarly, they welcome foreign workers as a way of keeping wages lower but do not like it when foreign companies poach their own employees.
Ultimately, the question remains one of knowing whether restrictions to the free movement should be acceptable as temporary or permanent to avoid major disruptions in the three markets. History has shown that the abolition of barriers has been faster in relation to goods and services, somewhat rapid in relation to long term capital but very slow in relation to labor movement.
In general, and especially in large countries, capitalism can live with movement restrictions, as long as they are not excessive. However, to reach its full potential restrictions must be progressively abolished. Indeed, as our analysis of business cycles has shown, programs of accelerated liberalization usually have been associated with an acceleration of economic growth.
To conclude, capitalism not only accelerates the freedom of movement but it is equally needed to keep the momentum for international free movement of goods, capital and labor.
Throughout the middle ages internal trade was not only risky due to the shortage of transport infrastructure and lack of protection against robbers, but also because of the many tolls required to enter cities, navigate the rivers, use bridges or the right of way over the nobles land. For instance, in 1250 there was 12 tolling stations on the Rhine river between Mainz and Cologne, which are only 170 km apart.
By then slavery had been generally replaced by serfdom. But, about half of the population still continued tied to the lord’s land through bondage and had to provide a certain number of labor services. Serfs were forbidden to live outside the seigniorial territory, had to pay fines to marry serfs of another lord and were subject to a number of fees.
Craftsman and artists enjoyed more freedom but were progressively organized in Guilds which restricted severely their training, trade and mobility. So, the concept of free labor mobility was basically unknown.
Likewise, there was very little capital mobility because the sale of land (the main asset at the time) was severely restricted through seigniorial and inheritance laws. Financial investments were equally very limited and lending was typically provided only to royalty by Jewish merchant- bankers. So, apart from travel and trade-related payments, the transfer of financial capital was too little and mostly to pay for ransoms and tributes.
However, the advent of the commercial revolution in the XIII century and the Renaissance changed dramatically the situation in Europe. By the late XVII century international banking and trade had achieved a significant development in Northern Italy, London and Amsterdam. Yet, its driving forces were still the spices and other exotic merchandise made available through the Spanish and Portuguese sea voyages, which were necessarily limited.
It was up to capitalism, with its focus on manufacturing, to change dramatically the growth of international trade through the export of manufactured goods to the colonies and the import of the raw materials used to produce them. This process contributed to the rise of London as a major international clearing and financial center, where it became possible to borrow and invest internationally.
In turn, the financing of major railways and other ventures in the Colonies in North and South America required massive labor migration.
Of course major human migration had been around since the early days of the homo sapiens. He moved out of Africa some 80 millennia ago, and spread across Eurasia 40 millennia ago. Migration to the Americas took place about 20 to 15 millennia ago and, about one millennium ago, all the Pacific Islands were colonized. Later, significant population movements included the Neolithic revolution and the Indo-European expansion.
Throughout history, most major migrations were caused by the collapse of empires, slavery or religious persecution. For instance, it is estimated that before 1830 2.75 million Europeans left to settle overseas, mostly convicted and fugitives from religious persecution.
The difference under capitalism was that migration accelerated not only substantially, but its motivation also became essentially economic. For instance, between 1835 and 1935, the number of European emigrants rose to 75 million who left voluntarily to America and other continents in search of a better life. With a bit of exaggeration, one may say that with capitalism the labor market transformed from a local market into a global market.
Nevertheless, the dismantling of the barriers preventing the free movement of goods, capital and labor was a slow process. Governments had become addicted to customs tariffs as a source of revenue, wanted to force national savers to lend their money only to them or did not wish to extend their social services to immigrants.
In general, capitalists have a duplicitous approach to the freedom of movement. They support free trade as long as it opens up new markets for their products and supplies, but are against when it means direct competition with their products. Likewise, they welcome financing from foreign investors but do not appreciate it when national banks lend to foreign companies. Similarly, they welcome foreign workers as a way of keeping wages lower but do not like it when foreign companies poach their own employees.
Ultimately, the question remains one of knowing whether restrictions to the free movement should be acceptable as temporary or permanent to avoid major disruptions in the three markets. History has shown that the abolition of barriers has been faster in relation to goods and services, somewhat rapid in relation to long term capital but very slow in relation to labor movement.
In general, and especially in large countries, capitalism can live with movement restrictions, as long as they are not excessive. However, to reach its full potential restrictions must be progressively abolished. Indeed, as our analysis of business cycles has shown, programs of accelerated liberalization usually have been associated with an acceleration of economic growth.
To conclude, capitalism not only accelerates the freedom of movement but it is equally needed to keep the momentum for international free movement of goods, capital and labor.
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