I. Introduction
Development theory should get back to its roots by incorporating ideas espoused by classical liberal thinkers. Development arguments found in the works of Adam Smith, Ludwig von Mises, Friedrich Hayek, Peter Bauer, and William Easterly emphasize personal liberty, including personal autonomy and choice. Personal autonomy is a core proposition for those following in the tradition of Smith.Footnote 1 I am not arguing that conventional development theory and mainstream economists do not believe in personal liberty. My position is more nuanced in that current development policymakers do not fully carry through with the implications of personal liberty for development policy.
To contrast current development theory with one that puts personal choice front and center, consider Catfish Man of the Woods theory of development.Footnote 2 Clarence “Catfish” Gray was a fifth-generation herb doctor who lived in Mason County, West Virginia selling wildflowers and herbs and offering medicinal advice. After a workplace accident, Catfish turned to herb doctoring in the 1950s. By the 1970s, his medical advice was often covered by newspapers and television shows. Customers also consulted Catfish on other topics, such as diet, religion, lifestyle, and astrology.Footnote 3 In addition, he was featured in the 1974 Appalshop documentary, Catfish: Man of the Woods. Footnote 4 As covered in the documentary, in his daily life, Catfish would read letters from people all around the world seeking health advice, gather herbs and roots from the woods around his house, receive visitors, and relax by skinny-dipping in a nearby stream.
Many individuals today would observe Catfish’s life and conclude that he lived in poverty. He lived off the land, had no running water, little or no electricity, no phone, no indoor plumbing, no central heat, no air conditioning, and no formal education. He was barely understandable and did not have all his teeth. Catfish did not have or take advantage of Western health care or educational systems.Footnote 5 By many development standards Catfish was a candidate for “development.”
Many individuals would also conclude that Catfish was happy. Catfish is well remembered by friends and customers for his honesty, cheerfulness, and love of plants and people.Footnote 6 The mixed responses to the example of Catfish illustrates the tension between current development thinking and a classical liberal development approach. The proposition that personal freedom and autonomy are to be valued runs throughout classical liberal theory and its policy implications, whereas personal liberty is often overlooked in favor of expediency or political concerns in current development policy.
In this essay, I discuss the role of individual choice and self-determination in the development process and how economic systems organized around principles of economic freedom facilitate personal autonomy. Individual self-determination depends on the perception of how effort translates into success. Individual drive depends on the level of autonomy individuals believe they have over their life choices.
The purpose of this essay is twofold. First, I show how self-determination is an important part of the development process and that economic freedom leads to an individual feeling a stronger sense of control over his or her life. My conjecture is that economic freedom promotes self-determination and feelings of autonomy because personal choice is a foundational principle underpinning free societies. Thus, autonomy plays an important role in the development process, partially explaining why economically free countries outperform centrally planned ones.
Second, I argue that current development theory needs to be revised to include respect for rights of the poor, which includes respecting their personal choice and self-determination. All individuals, including ones living in poorer countries, should be allowed to decide their own life goals, including economic and material desires. Because knowledge is decentralized, as Hayek discusses in the context of the price system, individuals are in a better position to decide the best means to achieve their goals. Some might argue that individuals know what is best for themselves. The deeper argument, though, concerns whether there is something morally better about individuals making their own decisions regardless of whether anyone knows that doing so is best for them. Hayek’s contribution is an insight that individual choice guided by knowledge of prices allows for use of personal, decentralized knowledge, which is essential for development.
My conjecture accords with that of Tauhider Rahman’s twofold contention elsewhere in this volume that not only does poverty impede the exercise of agency, but a person also can be functionally poor if his or her agency is impeded.Footnote 7 Whereas I focus on the role of economic freedom in facilitating agency and choice, Rahman emphasizes how agency is central to simultaneously understanding both poverty and the development process. Instead of viewing development as a technocratic exercise, I call for a revised theory that focuses on personal choice, namely, the Catfish Man of the Woods theory of development.
II. The Development Consequences of Economic Freedom
As of 2017, 9.3 percent of the world’s population—750 million individuals—live in extreme poverty, defined as surviving on less than $1.90 per day (2011 purchasing power parity-adjusted international dollar).Footnote 8 This may appear as a shocking statistic, but extreme poverty is at an all-time historic low. Extreme poverty rates have trended downward since 1981, when more than 42 percent of the world survived on less than $1.90 per day (2011 purchasing power parity-adjusted international dollar).Footnote 9
Steadily, over the past forty years, extreme poverty rates have declined by over 78 percent. Simultaneously, another trend has occurred, namely, economic freedom has risen around the world. Economic freedom is measured by the Fraser Institute’s Economic Freedom of the World index,Footnote 10 which assigns points to countries based on five equally weighted categories related to government’s size and control over the economy. The five categories are size of government; legal structure and property rights; access to sound money; international trade; and regulation of credit, business, and labor.Footnote 11
Together, these categories create a composite measure of economic organization that ranges from zero (completely unfree) to ten (completely free). It is worth noting that this index is not measuring ideal market conditions derived from theoretical constructs such as the perfectly competitive model with complete economic efficiency. Instead, economic freedom captures the ability to freely engage in economic exchange within a country and across borders without government overreach. Essentially, the economic freedom index quantifies the type of economic system within countries and over time based on hard data and observables, a task previously thought impossible to accomplish.
From 1980 to 2018, the world’s economic organization has moved toward economic freedom and away from central planning, relying more on markets and less on government control over the economy. Economic freedom has grown by over 30 percent worldwide. This growth is remarkable in its consistency and magnitude. Moreover, according to recent academic literature, economic freedom is robustly associated with “good” economic outcomes, such as faster growth, better living standards, superior firm performance, higher investment rates, higher productivity, more happiness, and greater levels of income per capita.Footnote 12 This is not my biased assessment of the empirical literature. This is a conclusion drawn from Joshua Hall and Robert Lawson, who provide a metalevel summary of the economic freedom literature to date. They conclude:
Of 402 articles citing the EFW index, 198 used the index as an independent variable in an empirical study. Over two-thirds of these studies found economic freedom to correspond to a “good” outcome such as faster growth, better living standards, more happiness, etc. … The balance of evidence is overwhelming that economic freedom corresponds with a wide variety of positive outcomes with almost no negative tradeoffs.Footnote 13
The list of “positive outcomes” that Hall and Lawson refer to includes reductions in extreme poverty. Figure 1 examines the association between extreme poverty rates and economic freedom in the cross section (averaged from 1980–2018). As shown, more economic freedom translates to less extreme poverty. Countries that have higher levels of economic freedom also have proportionally fewer individuals living on less than $1.90 a day. While this examination of the data is cursory and not causal, it does highlight an important correlation between economic freedom and poverty rates across countries.
Economic Freedom and Extreme Poverty Rates across Countries.Footnote 14
Overall, economic freedom is associated with not only the “hard” development measures, such as income and growth, but also “softer” measures, such as human rights, life expectancy, infant mortality, and poverty rates. This indicates that economic freedom not only helps those at the top of the income distribution, but also those least well off in society.
If one is concerned with figuring out how to lift individuals living on less than $1.90 per day out of extreme poverty, how to promote human rights, or how to decrease infant mortality, then one should also be interested in understanding the effects of economic freedom. The development consequences of organizing an economy based on the tenets of economic freedom should be taken seriously and create a call from the development community to understand whether these correlations are indeed causal.
It may be tempting to dismiss as an ideological exercise the above conclusion that economic freedom strongly supports economic progress. I encourage the reader not to do so, in large part because of the sound theoretical arguments in favor of the empirical evidence. Why is economic freedom correlated with increases in income, life expectancy, and human and political rights? Does this make intuitive economic sense? Yes, it does. Over 200 years ago, Smith articulated that “[l]ittle else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice; all the rest being brought about by the natural course of thing.”Footnote 15 Since then, many social scientists have followed in the footsteps of Smith, arguing that economic freedom is the foundation for wealth creation.Footnote 16
III. Importance of Choice, Individual Self-Determination, and Economic Freedom
A. Individual self-determination
Individuals make choices. A subset of the economics literature recognizes that individuals choose within a context.Footnote 17 Highly motivated individuals require fewer rules to be persuaded to work hard to improve their welfare, however welfare is defined. But a “lazy” individual may require nudges or a different set of formal rules to be motivated. This implies that self-determination cannot be fully understood without understanding the context behind choices.Footnote 18
How hard individuals choose to work depends on the return. If it is more profitable to seek opportunities in the marketplace, then individuals will do so, thereby promoting economic advancement. Conversely, if individuals view success as due to external events, random luck, or chance, they are more likely to have a passive attitude toward economic production. For example, Edward Banfield contrasts a rural village in Southern Italy with rural communities in the United States. He finds that the Italian peasants had developed a sense of helplessness, while the rural Americans seemed individually motivated.Footnote 19
The more one views economic success as being determined by one’s own will, the more likely one will engage in productive, future-oriented activities. These activities include working hard, investing in human capital, and undertaking entrepreneurial actions. However, if individuals view the likelihood of succeeding as a product of luck or political connections, they will tend not to engage in productive economic and social activities. Instead, they may choose to channel their activities toward unproductive activities such as rent-seeking. This attitude toward economic activity will surely impact economic development in a country.
This sentiment is echoed by Peter Boettke and Christopher Coyne who argue that entrepreneurship is not the cause of economic development, but it is instead a consequence of development.Footnote 20 They take historical case studies to show that development is caused by the adoption of certain institutions, which in turn channels and encourages the entrepreneurial aspect of human action in a direction that spurs economic growth. When development is absent, it is due to the absence of institutions that encourage entrepreneurship.
A direct application of this argument can be found in William Baumol’s work.Footnote 21 He hypothesizes that individuals channel their effort in different directions depending on the type of existing legal, economic, and political institutions. The institutional environment determines the relative payoff to investing in either market, wealth-creating activities or investing entrepreneurial energies into wealth redistribution through unproductive political and legal activities. The incentives provided by the prevailing institutions will determine how individuals engage in entrepreneurship and whether those activities will support high rates of economic growth. Baumol’s theory is empirically supported by Russell Sobel’s work.Footnote 22
To demonstrate the importance of personal choice and self-determination, Figure 2 empirically illustrates that feeling in control of one’s life leads to economic prosperity. To measure feelings of control over one’s life, cross-country data are collected from the Integrated Values Surveys (IVS), which are joint time-series data from the European Values Study (EVS) and the World Values Survey (WVS) from 1981 to 2021.Footnote 23 The surveys ask respondents to use a scale from one (none at all) to ten (a great deal) to indicate how much freedom of choice and control you feel you have over the way your life turns out. Data are averaged across years by country.
Control over Life and Income Per Capita.
Figure 2 shows a positive correlation between a greater sense of control and income per capita across countries, suggesting that control over one’s life incentivizes individuals to engage in productive economic exchange.Footnote 24 This scatterplot, while not illustrating a causal association, demonstrates correlations previously undocumented between autonomy and per capita income across countries.
If self-determination and autonomy are important, what governs their development? Here is a hypothesis: Individual self-determination is influenced by whether individuals reap the benefits or consequences of their actions. This in large part will depend on the institutional environment in which the individual exists; specifically, the level of economic freedom will influence an individual’s belief that he or she controls the outcome of his or her life.
B. Economic freedom and self-determination
According to the Fraser Institute’s website, which publishes an economic freedom index,
the cornerstones of economic freedom are (1) personal choice, (2) voluntary exchange coordinated by markets, (3) freedom to enter and compete in markets, and (4) protection of persons and their property from aggression by others. Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. Individuals are free to choose, trade, and cooperate with others, and compete as they see fit.Footnote 25
In economically free countries, individuals are free to choose how they live their lives, how they use or do not use their property, and whether they participate in certain markets while refraining from participating in other markets. Economic freedom is not about unfettered markets or exploitation of the least-well-off in society. Economic freedom is about personal choice and self-determination. “Laissez-faire” translates to “leave alone,” promoting respect for personal decision-making and allowing others to decide how to live their lives. Thus, economically free countries promote a belief of control over one’s life, establishing a stronger sense of autonomy.
Figure 3 presents evidence, although not causal, that economic freedom is linked to a belief in control over one’s life.Footnote 26 The results in the figure suggest that living in a country where markets are free also leads to individuals believing they have greater control over what happens in their life. Having the option to engage in market transactions increases a sense of empowerment and autonomy. Combined with prior evidence, these collective findings suggest that not only are there positive economic returns from economic freedom, but also positive personal benefits, even if the latter are more difficult to define, measure, and show empirically. The positive personal benefits may be understated, as conventional development indicators do not fully capture personal benefits from free and open markets.
Economic Freedom and Control over One’s Life.
Hayek argues that one of the most important components in civil society is participation in markets.Footnote 27 David Hume and Smith agreed that commercial activity contributes to social cooperation.Footnote 28 My argument is an extension of Hume’s, Smith’s, and Hayek’s in holding that one does not necessarily have to participate in a market economy to gain economic and noneconomic benefits, including feeling as if one’s destiny in life is not determined by chance, luck, or government decree, but from one’s own decisions and choices. An individual only needs to live in a society where he or she is free to participate in markets if he or she so desires. This fosters a sense of autonomy that encourages pursuit of one’s goals and desires, whatever they might be.
Deirdre McCloskey contends that markets and exchange nourish and cultivate individual character, virtues, and ethics for the better. Critiques of economic freedom sometimes assume that markets alienate us from one another and destroy the communal spirit. McCloskey argues the exact opposite. Specifically, the values created from an exchange economy not only serve as a vehicle for material progress, but also as a medium for human flourishing. She explicitly argues that “participation in capitalist bourgeois virtues has civilized the world.” She notes that markets are frequently an “occasion for virtue, an expression of solidarity across gender, social class and ethnicity.”Footnote 29 In short, markets are good for the soul.
By providing alternatives, the market increases the choice set facing individuals, giving them increased control over their lives and empowering their sense of self. Thus, trade serves as an avenue to increase self-autonomy and “locus of control.” Tyler Cowen captures the essence of this view when he notes that individuals engaged in exchange “expect those transactions to make them better off, to enrich their cultural lives, and to increase their menu of choices.”Footnote 30
In addition to increases in material wealth, access to markets and economic exchange provides individuals with more control over their lives. This is an underappreciated benefit of economic freedom. Trade-offs abound in every economic structure, but economic freedom is the system best suited to allow individuals freedom to choose and create a sense of self-determination.
IV. Catfish Man of the Woods Theory of Development
Development theory needs to be revised to include recognition of and respect for personal choice, a revised development theory I call “Catfish Man of the Woods” theory of development. To promote personal choice, this revised theory calls for liberalizing markets. Inherent to economic freedom’s economic success is the promotion and acceptance of individual choice. Greater economic freedom leads to individuals feeling a stronger sense of control over their lives because personal choice is a foundational principle underpinning free societies. An individual can choose to engage with markets or not. It is the presence of markets, however, that allows for a myriad of options and the potential to engage in a variety of activities. Economic freedom not only promotes productive economic exchange, but also enhances a greater sense of self and empowers individuals to believe they can achieve their goals, whatever those goals might be. By increasing an individual’s belief that he or she controls the outcome of his or her life, economic progress will rise along with overall life satisfaction.
The difference between Catfish and most of the millions living in extreme poverty today is that he had the option to choose that life. For others, that decision is made for them. A major benefit of free markets is that it promotes the autonomy to choose the life you want to live. This important personal benefit does not show up in traditional development statistics, including several that I have used in my analysis. Just like Catfish would be viewed as living in poverty, in abstraction from the fact that he could and did choose the lifestyle that made him happy, many individuals may be classified as poor by the development community that does not treat autonomy and choice as part of human development. The benefits of markets therefore tend to be understated and social progress is overlooked when the ability to choose is absent from development analysis.
As explained by Easterly, conventional development policy is based on a technical illusion, namely, the belief that poverty is merely a social engineering problem that can be solved by applying technical expert solutions. Technical solutions, while “correct,” lack the local knowledge required to make scientific solutions effective in practice.Footnote 31 Easterly believes that when individuals have economic and political freedoms, they discover their own solutions. Thus, poverty is not a technical problem. Poverty is a (lack of) freedom problem. Why not take seriously research demonstrating the full range of development benefits when countries become more economically free?
The development community should not act like social engineers who nudge individuals living in poor countries to develop in preapproved ways. Instead, development researchers, practitioners, and policymakers should remember that life is about more than predetermined development benchmarks. These benchmarks may be useful as an initial starting point to design development policy. However, all individuals working to understand and promote development need to remember that, just like Catfish, people have a multitude of desires, preferences, and goals that may or may not align perfectly with what outsiders in the Western world consider development. Central planners do not know best. If we allow individuals the right to decide what they want in life and how best to achieve it, economic prosperity will follow. Lives must be lived by each individual, not by planners or policymakers. If we truly care about those individuals living in poverty, then we must find ways to give them more choice and autonomy over their lives.
