An Essay by Mousa Ghaninejad: “Political Freedom, Economic Freedom, and Democracy”

The problem with most intellectuals, Iranian and otherwise, is that they lack the necessary knowledge of the rudiments of economics and its foundations, and consequently overlook the crucial fact that economic and political freedom are inseparable and have a single source. The principles of freedom in modern thought are based on the inherent or natural rights of man, namely the right to life and the right to property as a necessary extension of the right to life. Freedom, in truth, expresses how these rights are used within a framework of rules that prevent the violation of the rights of other human beings. Freedom is the opposite concept of slavery. A slave is a being who has been dispossessed and whose existence is owned by others. Therefore, a person's ownership of their own being and ownership of what is necessary to preserve this being is a prerequisite for freedom. In other words, freedom cannot be logically conceived without recognizing the right to individual or personal property. This definition of freedom and its intertwining with the concept of property was put forward by John Locke in the seventeenth century and thereafter became the principal basis of modern economic and political thought. The declarations of human rights upon which modern Western democracies were founded are largely rooted in Locke's liberal ideas. On the other hand, modern economic thought, whose external and historical symbol is Adam Smith's book The Wealth of Nations, is fundamentally inspired by Locke's theory of individual property.

How can one speak of the precedence or subsequence of political freedom and economic freedom? Posing such a question essentially means ignoring the fundamental realities of these two concepts. Recognizing the right to individual property and the freedom to use it within the framework of universal rules (the rule of law) signifies both political freedom and economic freedom. These two concepts are two sides of the same coin, and separating them and setting them against each other is a contradictory and impossible undertaking, both theoretically and practically.

The great virtue of economics lies in demonstrating the fact that if people's property rights are respected and they can freely cooperate with one another and engage in voluntary exchanges, a complex and efficient order emerges, the result of which is an increase in the wealth and welfare of all. Of course, freedom does not mean being permitted to do anything, and such a conception of freedom leads to anarchy and ultimately the domination of the strong over the weak, and freedom perishes. Preserving freedom requires its use within the framework of general, universal rules, such that no one's freedom leads to the violation of another's freedom. Absolute and unconditional freedom is nothing but the freedom of one person at the cost of negating the freedom of the rest of society's members. The existence of freedom for all necessitates the observance of certain general and universal limitations. In other words, the freedom of all individuals in society is only possible under the shadow of the rule of law and the observance of the limitations arising from it. But the problem that arises is that compelling people to obey the law inevitably requires the formation of a government and the exercise of political power. That is, to compel people to obey the laws and prevent abuse by violators, one must inevitably resort to the judiciary and the police.

According to John Locke's theory, human beings, in order to preserve their freedom, must inevitably form a government—a government that, by protecting the property rights of all members of society and obliging them to observe general, universal rules, establishes peace and security among them. But one must be careful that this very government, given its monopoly on the exercise of power, may become the most serious threat to human freedom. Hence, theorists of freedom like Locke have described the state as a necessary evil.

In fact, the greatest dilemma posed for modern political thought from its very inception has been devising measures to prevent the state from turning into an autocratic power. Some of these measures, which gradually took shape in modern societies, were political and social mechanisms such as party-based democracy (the opposition versus the ruling party) and a free press; however, what was most important of all was the necessary economic foundation for the formation of these institutions. The emergence and strengthening of an economic sector independent of political power—that is, the market system—provided the necessary and suitable foundation for the formation of all civic institutions, including political parties and a free press. If we call the totality of institutions independent of the state civil society, we must logically accept that without a free economy, which is a necessary condition for its formation, the existence and survival of these institutions is inconceivable. Institutions that subsist on state resources naturally cannot limit the power of the state and prevent its abuse.

Some leftist intellectuals and critics of the market system claim the primacy of democracy over the market system and economic development. This claim is weak and baseless, as it can be defended neither theoretically, nor has such a phenomenon occurred historically. As noted, democracy, meaning a mechanism that prevents the emergence of an autocratic state through political competition (party politics), a free press, and independent civic institutions in general, is conceivable only if people's livelihoods are not dependent on the state, that is, if a free-market economic system governs society. Hence, as long as a free economy does not take shape and does not secure the financial needs of independent civic institutions, democracy and a free press will be nothing more than hollow slogans. Historically, too, one cannot find any society that has managed to create a sustainable democracy without establishing organized competitive markets and independent civic institutions. Therefore, it can be claimed that in the relationship between the market or economic freedom and democracy or the political mechanism for confronting autocratic power, logical and historical primacy belongs to the former. A very important point that should not be overlooked here is that economic freedom is, in its essence, identical to political freedom, albeit in its minimal sense. Or, as previously stated, they are two sides of the same coin. Economic freedom means recognizing the right to personal property and voluntary exchange among human beings, which in its essence is nothing but political freedom (the concept opposed to slavery). But to preserve freedom, both economic and political, humans need an institution called the state, which can rightly be considered a necessary evil. Democracy is, in fact, a measure to prevent this necessary evil from turning into an autocratic power that threatens/restricts human freedoms. Firstly, democracy should not be confused with (minimal) political freedom; democracy is a means for preserving freedoms, whether economic-political or social. Secondly, democracy is not merely summed up in reliance on the majority vote; it is a measure far beyond that for reining in autocratic power. Confining democracy to the majority vote and interpreting it as popular sovereignty—which in our country has been translated as 'mardomsalari'—is a grave mistake often fueled by leftist intellectuals. The majority vote in itself is neither an end nor the source of legitimacy for the ruling political power, because the majority is prone to error and may make decisions that lack legitimacy.

Many fascist governments in Europe and Latin America over the past hundred years came to power through the majority vote but committed crimes that indicate their lack of legitimacy from the perspective of respecting human rights. Democracy is a set of measures, of which the majority vote as a peaceful means of resolving political disputes is one. The majority vote must be placed alongside the system of party competition, a free press, and an independent judiciary to form the ensemble called democracy. The absence of any one of these components ultimately renders the measure of democracy ineffective. Here again, it must be emphasized that the necessary condition for the existence of the other components of democracy is a free economy and a private sector independent of political power.

In light of the foregoing, it is natural that any step toward creating a free economy and expanding the competitive market system should be regarded as a step toward creating political freedom and democracy. Thus, what has happened in communist China over the past few decades has increasingly paved the way for the establishment of democracy in that country. However, it must be noted that there is a long road ahead before democracy is achieved in China. The state economy still holds the upper hand there; civil institutions, despite their considerable growth, remain very weak and fragile; and, more importantly, there is no sign of a free press independent of the ruling power. Certainly, the more the free economy expands in this country, the greater the demand will be for the guarantee of property rights and other civil institutions that underpin it, and proportionately, willy-nilly, the growth

Some leftist intellectuals and their economist comrades, who lay claim to institutionalism, blow the trumpet from its wide end and assert that political development and democracy came first, and then the market took shape. They say that property rights, as a necessary condition for the formation of the market, are a gift of democracy; that is, democracy came first, bringing property rights with it, and then markets were formed. In fairness, it must be acknowledged that these comrades have made remarkable progress in their theoretical discussions. Previously, they sought to eliminate the market and property rights, but now they have concluded that a competitive market is not a bad thing and have even endorsed its necessity. Yet, because they still believe in centralized state planning and benevolent political rulers to guide the masses toward the abode of happiness, they insist that the state must create this competitive market and, of course, "regulate" it so it does not get out of "control." But despite the admirable progress of these comrades, it must be said that they still have not grasped the crux of the matter. They still do not understand the concept of the state as a necessary evil in modern political thought and imagine that those holding political power will, out of benevolence, consent to limiting their own power. They do not realize that the expansion of a free economy and competitive markets is the greatest challenge to the excessive demands of ruling statesmen, and consequently, they will by no means willingly consent to this and will resist it by any means possible.

It is astonishing that they do not regard the events related to privatization in our country over the past two decades as a lesson. The ideological statesmen and, of course, certain beneficiaries in our country ensured that divestments were made to the so-called semi-state sector instead of the private sector, so that the reach of political power over the national economy would not be diminished. If the state is supposed to create a competitive market, a private sector, and democracy, the result will be no better than this. Moreover, these comrades do not realize that, neither theoretically nor empirically and historically, is the market an institution born from the heart of democracy; on the contrary, it is with the development of the market and the necessity of safeguarding property rights and political-economic freedoms that a measure called democracy has been devised. Speaking of the precedence of democracy over property rights and the market is a futile and illogical claim. If there is no necessity to safeguard the right to property and individual freedom against the threat of autocratic political power, what justification does democracy have?

Another claim made by intellectuals unfamiliar with modern economic thought concerns the experience of so-called social democracy in Northern European countries like Sweden. They say the Swedish model is a kind of moderate socialism or social democracy that serves as an alternative to the market model or unbridled capitalism. Therefore, they recommend the Swedish model for Iran, which they believe is a third way between capitalism and harsh socialism. This claim stems from an incomplete and distorted understanding of the reality of the economic system governing a country like Sweden. Sweden's economic system, in terms of the business environment and economic activity, is one of the freest of its kind in the world. What distinguishes this country is its system of wealth redistribution and the social security based upon it. The ratio of government tax revenues to gross national product in this country is high, to the extent that in some periods it has become problematic for economic growth and forced the government to revise tax rates. In any case, the Swedish economic model has a free and competitive structure in terms of production, but the tax levied on income and wealth is relatively high. Several very important points regarding this country and its economic model must be emphasized. First, Sweden is a small country in terms of population, and perhaps for this reason it can have an efficient and relatively sound tax collection system. Second, the culture of the Swedish people, for historical and other reasons, is conducive to high taxation in exchange for the provision of public social services. Nevertheless, whenever tax rates have risen to a level prohibitive for investment and caused capital flight from the country, officials have revised the tax rates and brought them to a level of equilibrium acceptable to Swedish culture.

In short, the Swedish model works for a country like Sweden, and more importantly, this model is not something different from a free competitive economy or an alternative to it. Every country has its own specific historical, social, economic, and cultural conditions; therefore, no particular country's model can be generalized to other countries. What ultimately plays a decisive role in the fate of societies are the dominant values and ideas governing the people of those societies, or in other words, their culture. It is these beliefs and values that provide the groundwork for the formation of institutions suitable for development or detrimental to it. It is clear that Swedish culture, or that of any other society, cannot be imported into another society and expected to be easily accepted.

The claim that political institutions create economic institutions (for example, the market system) is incorrect, and of course, the opposite claim—the primacy of economic institutions over political institutions—cannot be defended either. Institutions are formed based on the values and beliefs governing societies and do not exist independently of them. As mentioned earlier, when the subject of human rights—namely the right to life, the right to property, and freedom—was raised in modern thought, the economic and political institutions commensurate with them, including democratic political systems, were also gradually formed and consolidated based on them. The notion that governments create political or economic institutions is a mistaken notion. Governments themselves arise from institutions, and these are the ultimate product of the beliefs and values prevailing among the general public and the elites of society. Without attention to this logical hierarchy, a correct analysis of how societal transformations occur cannot be provided.

The dominant thinking among intellectuals, sociologists, and many economists is exactly the opposite of this logical procedure. They explicitly or implicitly believe in a material or materialist explanation of social transformations, meaning they hold the view that the material and objective conditions of life determine modes of thinking and do not grant independence or priority to ideas. Hence, they emphasize external and objective change and say that beliefs, values, and ideas will consequently change as well. A clear and obvious example of this approach can be seen in the strategy of exporting development or democracy, which has been on the agenda of international institutions such as the United Nations and some influential major countries since after the Second World War.

The latest and perhaps most catastrophic examples of acting on this strategy are the military occupation and regime change in Afghanistan and Iraq in the early years of the third millennium, intended to create democracy and an open society. Americans imagined that by building bridges, roads, schools, and other economic infrastructure, along with the top-down establishment of institutions such as parliaments and modern governmental organizations, a democratic and modern society could be created in Afghanistan or Iraq. But the experience of the past fifteen years has yielded disappointing results. This is not to deny that ideas and thoughts are influenced by material and objective conditions of life, but rather to emphasize the crucial point that, in the final analysis, ideas are decisive, and their transformation occurs through a complex and more or less autonomous process that cannot be entirely explained by material conditions of life.

What happened in China was not the creation of favorable economic institutions like free markets by state will and decree, but the removal of obstacles to their development and the recognition of private property rights. No one can create markets by decree; if no barrier is erected against them, they emerge and grow naturally and spontaneously. It should not be forgotten that the formation of the earliest markets in human history dates back thousands of years, to a time when no formal legal institutions, including property rights, had yet come into being. The point is that with the expansion of human societies with populations exceeding thousands, this became possible by relying on certain behavioral traditions, which later spontaneously evolved into legal and political systems. These developments occur from within societies and in accordance with their prevailing beliefs and values. Relying on imported Marxist-Leninist ideology, the Chinese Communist Party initially sought to completely shut down certain ancient Chinese values and traditions, including the market, under the pretext of their being reactionary. The catastrophe of millions of deaths from starvation stems from the imposition of this imported ideology, incompatible with human nature. Xiaoping's wisdom and intelligence lay in recognizing this great mistake and correcting it. The Chinese communist state did not establish the institution of the market; it opened the way for its growth. Naturally, with the growth of markets, other legal and political institutions that support it also necessarily emerge and develop.

Developments in Iranian society are no exception to the above rule. Belief in individual ownership and voluntary exchange is part of ancient Iranian-Islamic traditions. The institution of the market, and naturally the tradition of ownership, has a three-thousand-year history in our society. Whenever governments have upheld these traditions and established security and peace, markets have developed, the economy has flourished, and the level of wealth and welfare of the people has risen. However, because a stable and robust legal and political system based on these traditions has not taken shape in our society, periods of prosperity have depended solely on the will of the ruling political power, and for this reason have been temporary and highly fragile.

What happened in Europe in the modern era, gradually transforming the traditions supporting private property and the market system into a stable legal and political system, was the formation of a new legal philosophy following developments in religious thought that began in the early centuries of the second millennium and reached a definite culmination in the seventeenth century in the ideas of figures such as John Locke. Unfortunately, for various reasons, similar developments did not occur in Eastern societies, including Iran; as a result, economic stagnation and prosperity depended solely on the policies and will of the rulers of the time, such that whenever they opened the way for voluntary exchange and market development, temporary prosperity emerged in society, and whenever they blocked this path, stagnation and decline appeared. Serious efforts to create a modern legal and political system based on Iranian-Islamic traditions in our country began with the Constitutional Movement and, for historical reasons, experienced many ups and downs but did not reach a stable and irreversible conclusion.

Thus, the golden era of the Iranian economy's performance in the 1960s, which was largely achieved in the shadow of trust in and reliance on the logic of the free market, gave way in the following decade to a state-centric and turbulent economy. With the dominance of leftist economic ideology in the decade after the Islamic Revolution and, of course, the occurrence of the eight-year imposed war, Iran's economy became significantly more closed and state-controlled. The coming to power of the Reconstruction government (1989-1997) brought about an important turn and opened the way for the functioning of market mechanisms. During the Reform era, in the same manner as the 1960s and on a different scale, relatively stable prosperity of the national economy took shape during the years of the Third Plan (early 2000s). But this situation did not last long, and with the rise of the populist government (2005), the economy gradually fell into severe and damaging decline and turbulence. These arduous and agonizing ups and downs indicate the lack of consolidation of the legal-political institutions that underpin the system of private property and the market. In our country, the fate of economic developments is still largely in the hands of the ruling political and executive power, and economic institutions, and consequently most other civic institutions, have not attained the relative independence that exists in advanced societies. The key and crucial point here is that the ruling political power or governments cannot positively and by decree create civic institutions and democratic mechanisms. The expectation one can have is that they do not obstruct the functioning of markets and the formation of civic institutions and, as much as possible, remove the obstacles.

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Political Freedom, Economic Freedom, and Democracy

Author: Mousa Ghaninejad

Source: Mehrnameh, Issue 58

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