Hypothesis #3—The Universal Economic Solution: Democratic capitalism can be universal because it has demonstrated the capacity to raise the standard of living and improve the quality of lives under both democratic and authoritarian governments.
Economic freedom works best within a democratic structure because freedoms are complementary: Economic freedom contributes to and enhances political and social freedoms; social and political freedoms contribute to and enhance economic freedom. Economic freedom has been demonstrated to work, nonetheless, under authoritarian governments so long as the government’s true mission is the welfare of the people. Economic freedom cannot work in a totalitarian structure, but in our increasingly interdependent world, people recognize the failure of totalitarian governments to improve lives; therefore, younger generations in most societies are applying long-term political pressure to move their governance towards economic freedom.
Both Adam Smith and the Marquis de Condorcet recognized that the new American republic would have the best chance for economic freedom to work because democracy and capitalism are inherently synergistic. Despite the impediments of concentrated wealth and collectivism, economic freedom in America did improve the lives of many millions, thus confirming Smith’s theory and Condorcet’s optimism.
In the late-twentieth century, Lee Kuan Yew demonstrated in Singapore that economic freedom can also improve lives under an authoritarian government. Singapore ’s transition from being a third-world to a first-world economy was used as the title of Lee’s book. Even more impressive was the improvement in the standard of living and quality of life in authoritarian Indonesia , the world’s largest Muslim country, with a total population of over 220 million people (see chapter 7, DC Vol I).
Authoritarian China is a work-in-progress, but it has already improved the lives of more people through the introduction of economic freedom than any other country in history has done. All of these efforts under authoritarian governments have included serious imperfections, as also do efforts at economic freedom in democratic cultures, but if the criterion of success is the improvement in the quality of millions of lives, then they succeeded.
Many believe that economic freedom should be paralleled by political liberties, such as the freedoms of the press, assembly, religion, civil rights, due process, and democratic elections. This perception that economic freedom and democratic rights go hand-in-hand is correct in the long term. Short-term, however, economic freedom is so powerful that it can work under conditions of limited political freedom; indeed, it becomes a compelling force towards greater political freedoms. This assumption is based on the belief that once the freedom genie is out of the bottle, once people are more economically comfortable and better educated, then political freedoms will follow. Some political activists give priority to political freedoms over economic freedom, but it has been demonstrated that this sequence does not work well. Many American politicians seek political gain by criticizing other country’s human-rights violations, but they fail to place the complex management of change from tyranny to economic freedom in the context of a long process that must begin with economic improvement.
Jean-François Revel, a former editor of L’Express and winner of many European honors, proposed that “economic freedom sooner or later leads to political liberty.” Revel then made this distinction:
What is needed is less state and more government. The democratic renewal stems from nothing so much as the practical necessity of diminishing statist omnipotence and impunity while enhancing governmental competence and responsibility—for humanity cannot persist in self-destruction.
This sensitive relationship between liberty and democracy, including the dangers in rushing to democratic elections before economic momentum has been gained, has been well examined by reporter Fareed Zakaria in The Future of Freedom. Zakaria points out that a rush toward democracy can be counterproductive unless a structure of law is in place.
The proposal that economic freedom will eventually lead to political freedoms is particularly convincing in the Information Age because the profile of the educated, independent-thinking employee is the same as the profile of the citizen who will demand political freedoms.
In the later part of the twentieth century, the universal system of economic freedom was improving lives throughout the world. The American government, however, reversed this momentum by making mistakes that escalated the traditional impediment of concentrated wealth into destructive ultra-capitalism. Hypothesis #4 describes this impediment.