Is Economic Freedom the Hidden Path to Social Justice?

Author:Horpedahl, Jeremy
 
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  1. Introduction

    The social justice movement attempts to address some of the most pressing social, political, and economic issues of our time. But as with any social movement, there is often a large gap between identifying problems and finding solutions. Sometimes the solutions are found in unexpected places. Could the solution to many social justice issues be found in a most unexpected place: expanding economic freedom? In this paper, we suggest that, in many cases, economic freedom contributes to social justice goals, which may be surprising since the social justice movement is often seen as being opposed to markets.

    The first story Cowen and Tabarrok (2018) tell in their principles of microeconomics textbook involves a social justice problem that was solved in an unexpected way: by changing the incentives. The transportation of British convicts to the penal colony of Australia in the eighteenth century caused a scandal: on some ships, up to one-third of the convicts were dying before reaching Australia. Though the passengers were criminals, citizens of a civilized society such as Great Britain knew that a society is measured by how its people treat all humans, even those convicted of crimes. The solution to the problem: pay ship captains for the number of prisoners that survive the journey rather than the number that board the ship.

    Today, human trafficking and slavery are a major focus of the social justice movement. Millions of people are trapped in these circumstances (International Labour Organization 2017). What is the solution? Is this the dark side of globalization and economic freedom, as increasingly connected rich and poor countries interact with one another?

    Researchers have addressed this exact question. Heller et al. (2018) use data from the Fraser Institute's Economic Freedom of the World index to bring scientific rigor to the question. They reach two important conclusions. First, there is no statistical relationship between economic freedom and human trafficking. In other words, countries with more economic freedom do not have more trafficking. There is no dark side of economic freedom in this case. But this finding suggests that economic freedom does not reduce trafficking, either. Depending on one's prior beliefs, this result may or may not be surprising.

    The paper's second conclusion may be just as important: countries with greater economic freedom are more likely to institute and enforce policies designed to combat human trafficking. Enactment of credible policies is one of the social justice movement's main intermediate goals for achieving its ultimate ends.

    The human-trafficking example illustrates how empirical research and measures of economic freedom can help advance social justice. This way of thinking is how this paper approaches the question, "Can economic freedom be a tool for advancing social justice?" Before we address this question more directly, however, we need to more clearly define the term "social justice."

  2. Defining Social Justice and Economic Freedom

    Both "social justice" and "economic freedom" are loaded terms with multiple meanings. To carefully review the literatures connecting the two, it is important to precisely define the two concepts.

    1. Social Justice

      While Hayek (1976) argued that the concept of social justice was a "mirage," at least in terms of distributive justice or income equality, many scholars since have tried to more precisely define the term. For a concise definition of social justice, we turn to the introduction of Tomasi (2012). Tomasi states that "[social] justice requires that institutions be designed so that the benefits they help produce are enjoyed by all citizens, including the least fortunate" (Tomasi 2012, xiv). Much like Tomasi (2012), we contend that social justice and market liberalism need not be in opposition. While Tomasi gives a philosophical defense of the system of "market democracy," we instead focus on the empirical outcomes associated with the system--more specifically, economic freedom--that are also associated with the social justice movement's goals.

      While Tomasi's definition is to be credited for its brevity, some scholars more closely aligned with the social justice movement might object to its lack of nuance. Bell (2016, p. 3) offers a definition of social justice that is less concise but shows the term's breadth:

      Social justice is both a goal and a process. The goal of social justice is full and equitable participation of people from all social identity groups in a society that is mutually shaped to meet their needs. The process for attaining the goal of social justice should also be democratic and participatory, respectful of human diversity and group differences, and inclusive and affirming of human agency and capacity for working with others to create change. Domination cannot be ended through coercive tactics that recreate domination in new forms.... Forming coalitions and working collaboratively with diverse others is an essential part of social justice.... Our vision for social justice is a world in which the distribution of resources is equitable and ecologically sustainable, and all members are physically and psychologically safe and secure, recognized, and treated with respect. We envision a world in which individuals are both self-determining (able to develop their full capacities) and interdependent (capable of interacting democratically with others). Social justice is also closely related to the capabilities approach of Sen (1989) and Nussbaum (2000). Stiglitz, Sen, and Fitoussi (2009) argue that the capabilities approach "has strong roots in philosophical notions of social justice" (p. 42). This broader approach to measuring human progress above and beyond GDP leads us to a better understanding of social justice objectives.

      First, institutions should be oriented so all members of a society--including the least fortunate and most marginalized members, and regardless of social identity group--are included and respected and have their human agency affirmed. A society that pursues social justice will tolerate diverse viewpoints, and individuals will trust each other as they work together to achieve a common end. Second, social justice requires voluntary (as opposed to coercive) democratic participation and processes. Political cronyism and corruption propagate the power differentials social justice seeks to undo.

      Last, social justice is dedicated to the equitable distribution of resources. Chief among societal resources are income and wealth. To answer the question of whether economic freedom can further social justice, we examine the three broad groups of social justice objectives: tolerance and protection of minority rights; democracy and political freedom; and income equality. For each of these three groups of goals, we find that economic freedom may help to advance them. We caution that this is not always the case and that sometimes the relationship is complicated. The most challenging area to assess is income inequality. The literature is very mixed on this question, with much of it suggesting that economic freedom increases income inequality, though this finding is not universal. Causation is also difficult to establish in many cases.

      Even with the mixed results for income inequality, a clear lesson for social justice policy can be drawn: while some areas of economic freedom may increase inequality, others may reduce it. For example, highly progressive income taxes reduce a country's economic freedom score while potentially reducing inequality. However, other areas of economic freedom, such as the freedom to trade internationally, appear to reduce inequality in some cases. If specific policy changes are important goals of the social justice movement, understanding this relationship in detail is crucial. Convincing countries to move policy in the wrong direction could backfire and lead to less social justice.

    2. Economic Freedom

      Before proceeding to our survey of the research, a brief discussion of economic freedom and its measurement is important. Any interpretation of the empirics of economic freedom must be based on its assigned definition. Here we borrow the definition provided by Gwartney et al. (2018):

      The cornerstones of economic freedom are personal choice, voluntary exchange, open markets, and clearly defined and enforced property rights. Individuals are economically free when they are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. When economic freedom is present, the choices of individuals will decide what and how goods and services are produced. Put another way, economically free individuals will be permitted to decide for themselves rather than having options imposed on them by the political process or the use of violence, theft, or fraud by others. (Gwartney et al. 2018, pp. 1-2) The Fraser Institute's Economic Freedom of the World index (Gwartney et al. 2018) measures, for 162 countries and territories, the consistency of the institutions within a country with the ideals of economic freedom. Higher scores indicate greater economic freedom. While competing indexes of economic freedom have been published, the EFW index is the most heavily cited in the academic literature and is the one used by most of the studies we cite. Its methodology is data driven, with no subjective valuations, and is based on data in five areas of economic freedom: (1) size of government, (2) legal system and property rights, (3) sound money, (4) freedom to trade internationally, and (5) regulation of credit, labor, and business.

      The size of government component uses data on government consumption, transfers and subsidies; government enterprises and investment; and top marginal tax rates to measure the degree to which a country allows freedom of personal choice through markets versus centralized decision making. The legal...

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