Fraser Institute: External Shocks and Political Parties' Attempts to 'Buy' Votes Can Affect Levels of Economic Freedom

VANCOUVER, BRITISH COLUMBIA--(Marketwired - April 22, 2015) - The ongoing tug-of-war between political parties trying to "buy" votes with policies catering to special interest groups is a key factor in determining a country's level of economic freedom (measured by size of government, taxation, rule of law, property rights, regulation and other factors), according to a new study released today by the Fraser Institute, an independent, non-partisan, Canadian public policy think tank.

"Economic freedom is one of the main drivers of prosperity, resulting in improved wealth, health, and education for individuals and their families. A subject that has been relatively neglected, however, is how economic freedom is determined in individual countries," said Herbert Grubel, Fraser Institute senior fellow and economic professor (emeritus) at Simon Fraser University.

"Economic freedom levels can rapidly change when new political paradigms arise and governments dramatically shift their role in the economy."

The study, Determinants of Economic Freedom, finds that in any well-functioning democracy, a constant battle occurs between politicians who attempt to "buy" votes by providing interest groups with special benefits through subsidies, new regulations, or tax policies, and politicians who appeal for votes by making voters aware of the costs of the policies advocated by their opponents. When the two sides are of equal strength, the ensuing standoff prevents changes in policies that affect a country's level of economic freedom.

This equilibrium can change when external shocks (think wars and revolutions, economic depressions or recessions) prompt the public to gravitate to political parties promising change and dramatic new directions.

For example, the collapse of Russia's Czarist regime produced the Marxist revolution; the Great Depression led to American voters embracing the interventionist, big government policies of Franklin Roosevelt, while the stagflation of the 1960s and 1970s turned people to the market-oriented policies of Ronald Reagan and Margaret Thatcher.

More recently, the 2001 and 2008 recessions in the United States played a part in the willingness of American voters to accept more government intervention and regulation of the economy with its emphasis on income redistribution. That shift in public attitude is certainly a factor in the U.S. decline in economic freedom. In 2000, the United States ranked second in the Fraser Institute's annual Economic Freedom of the World study but by 2011 it had fallen to 17th.

Grubel notes that recent years have also seen the rise of powerful international organizations such as the International Monetary Fund and World Bank, whose conditions for the financial bailout of Greece in 2012 led to the Greeks electing a socialist government which vowed to oppose the required austerity measures.

"Changing public views allow progressive politicians to buy votes by creating a narrative that government is better at looking after citizens than citizens are at looking after themselves. That inevitably leads to larger government, more regulation, higher taxes, and crony capitalism," Grubel said.

"It is therefore imperative that voters be well-informed about the cost and benefits of vote buying policies as these policies can negatively influence a country's economic freedom and thus its economic prosperity."

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The Fraser Institute is an independent Canadian public policy research and educational organization with offices in Vancouver, Calgary, Toronto, and Montreal and ties to a global network of think-tanks in 87 countries. Its mission is to improve the quality of life for Canadians, their families and future generations by studying, measuring and broadly communicating the effects of government policies, entrepreneurship and choice on their well-being. To protect the Institute's independence, it does not accept grants from governments or contracts for research. Visit www.fraserinstitute.org.