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So, how does your economy grow?

Stopping the swirl down the drain

Internet Security Threat Report 2014

The economy is, as is being gleefully pointed out to us, gathering speed as it swirls its way towards the U-bend. No or little economic growth, unemployment still monstrously high.

The glee comes of course from those who say we should be doing more to polish it up: not always simply a euphemism for spending more on whatever it is that the speaker finds desirable. There really are those who think that more government, more government spending, is good for the economy in and of itself.

One problem we've got it that like Frenchmen, economists are those who when seeing something working in practice wonder whether it really works in theory. Even while seeing something, like all too many Britons, not working wondering why it doesn't work in theory. A little more empiricism, references to the real world would be useful, don't you think?

Which brings us to this lovely little paper (pdf) from the World Bank. It is just that, empirical work: if we look at 100 countries over the past 30 years what can we see in common in those places that have had decent economic growth?

What can we see similarly in common in those that don't? We'll then construct our theory after we've looked at those commonalities, rather than before and trying to make reality accord with our ruminations.

Given the level of economic debate currently in the UK the results might surprise. For they support an economic and civil liberalism entirely unlike anything that any political party currently puts forward. This first result is that:

For instance, a one unit change in the initial level of economic freedom between two countries (on a scale of one to 10) is associated with an almost one percentage point differential in their average long-run economic growth rates.

This is unlikely to please those we think of as being on the political left: what, you mean people should just be allowed to get on with things without the direction of a beneficent state? But there's not that much support for the sort of One Nation Tory paternalism of the other lot either:

In the case of civil and political liberties, the long-term effect is also positive and significant with a differential of 0.3 percentage point.

Leave 'em alone!

Yes, people really should be left alone, to shag and to smoke and to live their lives as they please. And finally, it's going to absolutely appal all of those who insist that it's the positive freedoms that really produce economic growth:

In contrast, no evidence was found that the initial level of entitlement rights or their change over time had any significant effects on long-term per capita income, except for a negative effect in some specifications of the model.

Income redistribution, high (or low) unemployment pay, child care subsidies, they just don't make any positive difference to growth but might have negative ones. The conclusion of the study:

These results tend to support earlier findings that beyond core functions of government responsibility—including the protection of liberty itself—the expansion of the state to provide for various entitlements, including so-called economic, social, and cultural rights, may not make people richer in the long run and may even make them poorer.

Which, if we stopped just there, would rather mean the end of social democracy (let alone anything further left) as a socio-economic system and the glorious victory of laissez faire types like myself. However, we shouldn't stop there because economic growth isn't in fact the be all and end all of life: there is a tension between our desires.

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