John T. Wenders is Professor of Economics at the’ University of Idaho.
The earthshaking events of the past few months in Eastern Europe have generated surprise, shock, hope, and applause throughout the world. The most important consequence of these events, however, is not the demise of authoritarian socialist governments, but the impetus given to an examination of the relationship between the private and public sectors in all nations.
Contrary to the media hoopla that equates democracy with freedom, the mere replacement of a Communist socialist government with a democratic socialist one, while an improvement, does not alone advance the cause of freedom very much.
Freedom and democracy are different. Democracy addresses how affairs in the public sector will be conducted. Democracy is greater when individuals vote on those matters assigned to the public sector. On the other hand, freedom is concerned with the relationships among people in the private sector. Freedom means individuals may choose how to interact on a voluntary basis outside the purview of the state.
In short, democracy means you get to vote in the public sector; freedom means you get to determine the terms of your interactions with others in the private sector.
The popular news and debates over reform in Eastern Europe have focused on the developments toward democracy in the public sector to the neglect of the more important question of how human activities are divided between the public and private sectors. One can envision a country with an authoritarian, but very small, public sector in which freedom is much greater than in a country with a democratic, but very large, public sector.
The key is a constitution that draws the line between the public and private sectors, and between democracy and freedom. More important, the role of the constitution is to protect freedom from democracy and the individual from the majority.
Some freedoms are civil, like free speech, religion, and association. The First Amendment takes the regulation of speech, including the press, out of the public sector. Left to a democratic political process, free speech would be severely restricted by lawmakers—invasions of free speech are repeatedly being struck down by the courts, and many more are prevented by these precedents. The Constitution protects free speech from democracy.
In the economic sphere, freedom means that individuals have a right to own, buy, and sell property as they choose in free markets. In the past century, there has everywhere been a steady invasion of market activity by the political process. Even in capitalist countries such as the United States, the public sector has continually expanded. Once economic activity is addressed by the political process, it immediately becomes subject to capture by those—often a tiny minority—who can effectively manipulate it to their own ends. In many ways this political invasion of the marketplace throttles free speech as well, as witnessed by the successful efforts of newspaper trade groups, normally staunch defenders of free speech, to prevent competition from telephone companies who wish to enter into electronic publishing.
The economic collapse of Communist socialism is largely responsible for the upheavals of the past year. Yet the popular notion is that this economic collapse can be repaired by a democratic reform of the political process. On the contrary, economic reform can be achieved only by removing economic matters from the political process. Unless the size and scope of the public sectors in Eastern Europe, now all-pervasive, are shrunk considerably, little will have changed. The only difference will be that people acquire the right to vote on how the public sector constrains their freedoms.
The lessons of the past are clear, if Eastern Europe chooses to look. Wherever economies are heavily regulated (as in Eastern Europe, China, North Korea, India, most of Africa and South America), socialist or not, they have been outstripped by their market-oriented counter-parts—Western Europe, Japan, South Korea, Tai wan, Hong Kong, Singapore, Chile, the United States, and the Commonwealth nations.
The constitutional bases for a market economy are very simple: property rights must be vested in individuals or voluntary associations of individuals. These rights, like our freedoms of speech and religion, must be well defined and tenaciously defended (as is free speech) against encroachment from the public sector. Titles to property and services must be freely transferable.
The objection to keeping the public sector out of private economic activity is that markets don’t always work ideally. Yet the same people who condemn the marketplace for not working ideally want to scrap it for a politically directed system that is demonstrably worse. Rational choices can be made only by weighing the benefits and costs of alternatives. Only individuals can know their alternatives, and only individuals who directly bear the consequences of their choices will weigh these properly. Filtering choices through complex political and bureaucratic processes assures that the alternatives will be neither known nor weighed. Markets are certainly not perfect, but they are much better than the alternatives, as events in Eastern Europe have shown.
There is a difference between democracy and freedom. Freedom must be protected from democracy. A good constitution will do that. Only when the countries of Eastern Europe and elsewhere adopt and enforce such constitutions will the economic progress that inevitably follows be realized.
In our own economy the dangers of public encroachments on the private sector are usually encountered more subtly. Here, we have produced a massive public sector by tolerating incremental encroachment without addressing the larger issue. If nothing else, the recent events in Eastern Europe should stimulate us to rethink the drift of piecemeal democratic encroachments on our own freedoms.