The Big Bang of Economic Freedom

Why is it so difficult to implement the deregulation needed to make an economy more competitive? Why do so many governments try to achieve this end, and why do almost all of them fail? All citizens stand to benefit from competitive markets for products and services, but more often than not, the broad coalition required to sustain pro-competitive policies never materializes; political support simply isn't there. Why?

This question is important not only in transition economies and other emerging market countries, but in rich countries as well--in fact almost everywhere, except possibly the US and the UK, which long ago embarked on a process of radical and far-reaching economic liberalization. New Zealand and Ireland followed suit and their economies have been booming ever since.

Lack of competition is typically due to over-regulation. Taxicabs in European cities are expensive because the number of licenses is strictly controlled. With market entry blocked, license owners face little pressure to hold down fares, and the officials who allocate licenses are well placed to collect votes or bribes. In short, regulation tends to distort incentives, stimulating what economists call rent-seeking behavior: the taxi driver and the license official collect unearned premiums (rents) solely because they can exploit their position as insiders, not because they are more productive.

To continue reading, please log in or enter your email address.

Registration is quick and easy and requires only your email address. If you already have an account with us, please log in. Or subscribe now for unlimited access.

required

Log in

http://prosyn.org/8mfWkej;
  1. An employee works at a chemical fiber weaving company VCG/Getty Images

    China in the Lead?

    For four decades, China has achieved unprecedented economic growth under a centralized, authoritarian political system, far outpacing growth in the Western liberal democracies. So, is Chinese President Xi Jinping right to double down on authoritarianism, and is the “China model” truly a viable rival to Western-style democratic capitalism?

  2. The assembly line at Ford Bill Pugliano/Getty Images

    Whither the Multilateral Trading System?

    The global economy today is dominated by three major players – China, the EU, and the US – with roughly equal trading volumes and limited incentive to fight for the rules-based global trading system. With cooperation unlikely, the world should prepare itself for the erosion of the World Trade Organization.

  3. Donald Trump Saul Loeb/Getty Images

    The Globalization of Our Discontent

    Globalization, which was supposed to benefit developed and developing countries alike, is now reviled almost everywhere, as the political backlash in Europe and the US has shown. The challenge is to minimize the risk that the backlash will intensify, and that starts by understanding – and avoiding – past mistakes.

  4. A general view of the Corn Market in the City of Manchester Christopher Furlong/Getty Images

    A Better British Story

    Despite all of the doom and gloom over the United Kingdom's impending withdrawal from the European Union, key manufacturing indicators are at their highest levels in four years, and the mood for investment may be improving. While parts of the UK are certainly weakening economically, others may finally be overcoming longstanding challenges.

  5. UK supermarket Waring Abbott/Getty Images

    The UK’s Multilateral Trade Future

    With Brexit looming, the UK has no choice but to redesign its future trading relationships. As a major producer of sophisticated components, its long-term trade strategy should focus on gaining deep and unfettered access to integrated cross-border supply chains – and that means adopting a multilateral approach.

  6. The Year Ahead 2018

    The world’s leading thinkers and policymakers examine what’s come apart in the past year, and anticipate what will define the year ahead.

    Order now