Freedom is good for the environment

Not only will economic freedom increase growth of African economies, but the countries will also produce fewer emissions of greenhouse gases for each unit of growth produced. I discussed this data with many of the participants at the recent Economic Freedom of the World Network Annual Conference in Cape Town. Participants from 17 countries presented many other papers, ranging from the impact of western agricultural subsidies on Africa to international trade and OECD influence on Africa.

It is a remarkable fact that the African continent, the most backward, protectionist and poor on earth should host such an event. But it’s also the most important place to discuss freedom, since there is so little of it, and so much to benefit from only a small increase in it.

Most African nations are classed as unfree and several as repressed by the Economic Freedom Index. The correlations, which universally demonstrate that less free countries are poorer, are backed up by causal relationships based on lack of respect for the rule of law, property rights and the other institutions of free societies, which are so important to development. As a result of their lack of freedom, repressed African economies, including Sudan, Angola and Guinea Bissau also have worse health, as measured by life expectancy and child mortality, and also have dirtier environments, as measured by urban air pollution and water quality measurements.

The issue of global environmental problems and local freedom, however, has never been addressed before at an Economic Freedom conference. But in a paper I recently co-authored we analysed the association between freer countries and their emissions of the greenhouse gas carbon dioxide. It is often said that rich countries produce most of the greenhouse gases around the world; historically this was the case. But as developing countries have grown they have now overtaken total emissions from established OECD countries. And since their emissions are set to increase far faster in future, any realistic international policy has to include them; current policy, the Kyoto Protocol, does not.

A strongly statistically significant result was obtained from our analysis showing that freer economies produce less carbon dioxide for each unit of growth produced than do repressed countries. The undeniable conclusion of this analysis is that increasing freedom not only leads to faster growth but also lower relative emissions of a potentially dangerous greenhouse gas.

In the paper we analyse five developing and transition economies to see how they compare in terms of freedom and emissions profiles. All the countries, China, India, Indonesia, Russia and South Africa have freedom indices at the low to mid-range of economic freedom, Russia the least free and South Africa the most. China’s low score on economic freedom indicates pervasive market distortions, based around the large state sector that is impervious to market pressures, which noticeably does not encourage energy efficiency improvements. Furthermore China’s successful enterprise zones do not encourage the diffusion of their newer technologies into the rest of the economy.

India and Indonesia have price regulations and domestic industry protection that mirrors China’s problem. In addition, Indonesia and Russia have political instability (at least in the energy sector), which puts all investments and new technologies at risk. Russia’s corruption and regulatory inconsistencies make it the least free and most energy inefficient. South Africa has promise and given its deposits of dirty coal it performs relatively well on carbon dioxide emissions. However, some political instability and government control of pricing means its technology adoption from overseas is not what it could be.

The implications from the analysis are significant. If China adopted US standard technologies in the plant it was building today, by 2012 a greater reduction in greenhouse gases would be achieved just by China than by all action by all nations who signed up for the Kyoto Protocol (and compliance towards this target is uneven at best). But to do so, foreign and domestic investment in new technology must happen, and for this to occur these economies must become freer, because only then will the best technologies be adopted. China for one looks as thought it may move in this direction.

Of course free nations produce more of everything consumers want, and total emissions may rise if repressed countries become free (a lot depends on population changes too), but there is no doubt that the world will be richer and more able to adapt to any dangerous climate changes. After all, the hurricanes that damaged Florida this year, killed more people in desperately poor, backward and unfree Haiti than in the rest of the Caribbean put together. So even if climate change leads to more extreme weather events (as is predicted by some scientists), the harms from such events will be far smaller in future if repressed Haiti gets wealthy.

Also, people in repressed nations deserve the chance to become wealthy and develop as people in the West have. If the driver for change towards freedom is intended to help combat climate change then so be it.

As the conference attendees left Cape Town they dwelt on why Africa remains the least free continent on earth; for those working in the most repressed parts of Africa change can’t come too quickly, and any excuse for that change will be welcomed.

Author: Dr Roger Bate is a visiting fellow of the American Enterprise Institute in Washington DC. AEI published the paper Beyond Kyoto which Bate co-authored with David Montgomery. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.

FMF Feature Article/2 November 2004