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Katalatto Guest: Economic liberalism – freedom for everyone?

Katalatto Guest: Economic liberalism – freedom for everyone?

Katalatto guests Paul Thiessen –  Law Student of University of Göttingen – Georg-August-Universität Göttingen.

What is liberalism? – a short definition:

In Latin “liber” means “free” and “liberalis” means “concerning freedom”.

This is the shortest possible definition of liberalism. It is an ideology that prizes liberty. Everyone has the right to be free and to a free development of the individual. “Individual” is the cue: Individuality and personality are at the forefront of this ideology. Liberalism clearly convicts paternalism, as it restricts one’s personal freedom. But liberalism does not only grant freedom and many possible choices, but it also goes hand in hand with self-responsibility concerning one’s actions. Thus, it is hardly surprising that liberalism presupposes a certain degree of rationalism and of utilitarianism.

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Today one mostly distinguishes between political liberalism – which is one fundamental thing for the today’s human and civil rights that are established– and economic liberalism.
Economic liberalism grants an economical scope of action to the individual market participant which is not governmentally regulated. Thus, the market itself is not regulated by the state. It regulates itself and yields winners and losers but strengthens the economy.

The state should only provide a general framework and arrange many economical bi- and multilateral relationships but should not own economic institutions – the state should improve the economy but stay out of it at the same time. Thus, there should be many privatizations, as these benefit a competition.

Everyone should be able to own property and economically do with it whatever he wants. Everyone should be able to have property rights. Thus, to have rights of disposal and intellectual property rights which grant freedom, autonomy, and self-responsibility.

All of this can be found in a free enterprise economy which is one of the main ideas of economic liberalism.

 

What does a free enterprise economy include?

A free enterprise economy’s main idea is that the equilibrium of supply and demand will regulate prices and amount of goods. The state does not intervene and thus there will be a competition. As everyone wants to be the best, this competition will lead to innovations and developments.
To strengthen the economy there are additionally (in the best case) as much free trade agreements as possible since these lead to international competition and thus to the best international innovations.

In a free enterprise economy, there is freedom of contract and freedom of trade which both creates the possibility to realize one’s full potential and thus creates a competition, as everyone can become an entrepreneur and thus a market participant.

Additionally, there is freedom of occupation, freedom of consumer goods and the right to own property which provides the opportunity to live one’s life without paternalism by the state.

To put it in a nutshell, one can say that a free enterprise economy strives to grant a maximum of economic and personal freedom, as the state plays a tangential role and thus can neither restrict any citizens nor the economy.

A free enterprise economy – reasonable?

There are libertines who defend a free enterprise economy and think that it is the most reasonable economic system. There are socialists who fight against it and think that a free enterprise economy restricts freedom instead of creating it. In my opinion zebra thinking isn’t reasonable. This is not a black or white topic. There is something in-between:

This economic system enables individual fulfillment, as the state does not restrict you and you can decide what you want to do in your life. You can decide what you want to do in the free market and whether you invest in something or not. Which consumer goods you want to choose and which profession you want to pursue. You have all the economic choices and you are self-responsible.

Additionally, this system leads to innovations and developments as mentioned before. As there is a competition and thus success depends on an achievement principle, the economy will maximally be strengthened. In the twenty-first century innovations and developments – especially concerning digitalization and modernization of “everyday processes” – are important if you do not want to be left behind.

Moreover, an economic system like this leads to product diversity and (mostly) low prices, as companies will try to obtain the customer’s affection. Thus, a free enterprise economy is geared to be citizen-orientated (obviously also because of self-interest) and is thus benefiting the consumers.

 

However, too much economic freedom can restrict one’s individual freedom. If there are no rules (like antitrust) and the state never intervenes, monopolies will emerge. They might strengthen the national economy, but a monopoly can fix prices nearly without any consequences and could restrict any competition from other participants have neither a chance to grow nor a chance to develop their potential.

In addition to that, in a totally free enterprise economy, there are no coverages. Cases of illness are not scheduled and thus have far-reaching consequences for employees.

And because of this, a system is needed that can ensure individual and economic freedom as well as a kind of protection (accident insurance, health insurance, unemployment insurance, etc.). This kind of system is called the social market economy. And it is important that this economic system ensures insurances as much as necessary without restricting one’s personal freedom since human rights are not negotiable! But there is a thin line between insurances and too high subsidies, for needless subsidies could influence the market and the competition and thus could backfire, as they might overshoot.

 

Personal conclusion

A free enterprise economy goes, on the one hand, hand in hand with many advantages but you can’t catch a fish without its bones and thus this system comes along with some disadvantages on the other hand.

You can only grant freedom to some extent, without restricting other’s individual freedom. Thus, the Austrian or German system (social market economy) combines both, advantages of a free enterprise economy and advantages of insurances. In this system, the state monitors antitrust, banks and allocates insurances. But there should be the possibility to take out a private insurance, as this grants more freedom of choice: I can ensure my self in the way I want to.

 

 

Unfortunately, Germany’s or Austria’s economic systems aren’t prime examples, as both countries subsidize at national and European level. Additionally, both countries hold shares or act as companies itself. Furthermore, the insurance systems in both countries are complicated and non-transparent. A liberalization (actually in a social way) of these systems could help a lot. The German liberal party suggests a system called “liberalesBürgergeld” which is kind of a negative personal income tax and which would make social security systems a lot more transparent, liberal and citizen orientated.

Thus, one can state that economic liberalism – in the form of a free enterprise economy – grants individual freedom and self-responsibility as well as national freedom and responsibility for the state. The state must ensure insurances but mustn’t control citizens. Thus, resources can be focussed on future topics.

Liberalism in the twenty-first century is by now much more than “everyone cares for him-/ herself and then everyone is taken care of”. We live in a modern society in which not everyone is able to take care of himself. The state today should grant as much freedom as possible without restricting other’s freedom – of course. There are some disadvantages and that is why one should make some compromises. The state should care for its citizens. Nonetheless, I think that only liberalism can grant and create freedom for citizens, refugees, the state… – for everyone to some extent. Of course, you can overdo everything! But, no other system can do this without patronizing someone.

 

 

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