Prioritizing Economic Freedom over Social Entitlements

May 23, 2011

Freedom and entitlement are largely two different paradigms to think about the fundamentals of economic development.  Depending on the balance between free choices and more coerced decisions, individual opportunities to learn, own, work, save, invest, trade, protect and so forth could vary greatly across countries and over time, says Jean-Pierre Chauffour, lead economist in the International Trade Department at the World Bank.

For a given set of exogenous conditions, countries that favor free choice -- economic freedom and civil and political liberties -- over entitlement rights are likely to growth faster and achieve many of the distinctive proximate characteristics of success that include: leadership and governance; engagement with the global economy; high rates of investment and savings; and mobile resources, especially labor.  In contrast, pursuing entitlement rights through greater state coercion may be deceptive and even self-defeating in the long run.

These findings, which tend to support earlier results from the empirical literature, provide potentially important policy lessons for all countries:

  • For developed countries, they suggest that prioritizing economic freedom over social entitlements could be an effective way to reform the welfare state and make it more sustainable and equitable in the long run.
  • For middle income countries, such as countries in the midst of the Arab Spring but also countries in Asia and Latin America, they indicate that the quest for civil and political rights but also economic freedom implies the reduction of existing privileges and entitlements to create new social contracts.
  • For low-income countries (as well as the international community), they provide an opportunity to reflect upon the achievement under the Millennium Development Goals and the potential role of economic freedom, along with other fundamental freedoms.

Source: Jean-Pierre Chauffour, "On the Relevance of Freedom and Entitlement in Development," World Bank, May 2011.

For text:

http://www-wds.worldbank.org/external/default/WDSContentServer/IW3P/IB/2011/05/16/000158349_20110516090121/Rendered/PDF/WPS5660.pdf

 

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