Abstract
We suggest, in a Coase-Demsetz perspective, that the social demand for individual rights—or freedoms (whether civil, political or economic)—is derived from, because complementary to, the changing size of hierarchical organizations. The general downsizing and decentralization process observed worldwide after 1975 is itself the result of the information revolution and the resulting abundance of information. It follows that social demand for freedoms depends in turn—and inversely—on the cost of information (and thus on market imperfection) as well as on traditional determinants such as the distribution of resources and human capital. This implies that freedoms are adopted, implemented, or “produced” by various political regimes according to an objectively observable and contingent determinant. We believe this approach can shed light on the reason for the waxing and waning of freedoms in modern history.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Notes
Exact quote: “Des Grecs, jadis, demandaient au sage Solon : «Quelle est la meilleure Constitution ?» Il répondait : « Dites-moi, d’abord, pour quel peuple et à quelle époque ?» Aujourd’hui, c’est du peuple français et des peuples de l’Union française qu’il s’agit, et à une époque bien dure et bien dangereuse ! Prenons-nous tels que nous sommes. Prenons le siècle comme il est. Nous avons à mener à bien, malgré d’immenses difficultés, une rénovation profonde qui conduise chaque homme et chaque femme de chez nous à plus d’aisance, de sécurité, de joie, et qui nous fasse plus nombreux, plus puissants, plus fraternels. Nous avons à conserver la liberté sauvée avec tant et tant de peine.”
See Huntington’s 1991 analysis of the three “waves.” Imperialism and totalitarianism dominated the middle years of this period, until the defeat of the Third Reich and the Axis countries in 1945, and later of the Soviet empire in 1991. On the eve of WWII, only a handful of democracies and market economies survived in the whole world. In his book The Third Wave, Huntington claims that there have been five contrasted periods of democracy and autocracy since the first Industrial Revolution: the first wave of democratization (1828–1926), the first “reverse wave” (1922–1942), the second short wave of democratization (1943–1962), the second reverse wave (1958–1975), and the third wave of democratization (1974–.). For fundamental reasons (explained in Rosa 2006) we prefer a periodization in three eras: the first Industrial Revolution democratization (1750–1875), a reverse wave following the second Industrial Revolution (1875–1975), and the Second wave of democratization following the Information Revolution (1975–present), also characterized by the development of markets and decentralization of production, as well as political fractionalization (see also Bolton and Roland 1997; Alesina et al. 2000).
“Voters and customers are essentially the same people. Mr. Smith buys and votes; he is the same man in the supermarket and in the voting booth. There is no strong reason to believe his behaviour is radically different in the two environments. We assume that in both he will choose the product or candidate he thinks is the best bargain for him. Although it seems very modest, this indeed is a very radical—even if obvious—assumption. For decades, the bulk of political science has been based on the assumption that government aims at higher goals than individuals aim at in the market. The voter is sometimes assumed to be aiming at achieving ‘the public interest’, the man in the shop his ‘private interest’. Is this true? Is he Jekyll and Hyde?” (Tullock 1976/2006, p. 37)
Rosa and de Vanssay (2010, p. 22) show the parallel progression of Civil Liberties (CL), Political Rights (PR) and Economic Freedom (EF) for the period 1975–2003.
Where exogenous variables follow a trend, obviously a reversal of the endogenous variable needs both that some exogenous ones have a positive influence and others a negative one, and moreover, that the relative magnitudes of the former and the latter are inverted at the precise moment of the trend reversal of the endogenous variable.
Lipset (1959) attributed this idea to Aristotle. Lipset’s thesis should not be interpreted too narrowly: his concept of modernization, the key to the development of democracy in his analysis, includes the growth of income, the diffusion of human capital, and urbanization. But the last two variables are correlated with income and generally it is only the income variable that is emphasized in the literature.
Barro (1999, p. S182) writes “Given the strength of the Lipset/Aristotle hypothesis as an empirical regularity, it is surprising that convincing theoretical models of the relation do not exist.”
This analysis finds its origin in the works of Rousseau, Jefferson and de Tocqueville (and many others) and in the political history of western countries such as the United States, France, but especially England.
“Overall, the inclusion of fixed effects proxying for time-invariant country specific characteristics removes the cross-country correlation between income and democracy. These results shed considerable doubt on the conventional wisdom that income has a strong causal effect on democracy.” (AJRY, 2008, p. 820).
In countries colonized by Europeans, they argue, and where their ratio to the indigenous population was low, they adopted authoritarian forms of government which influenced all future political, economic and civil institutions, even after these countries attained independence. The stunting of economic freedom slowed economic development, hence the correlation observed between income and freedom. Comparing former colonies in the Americas, they argue that long term path dependence can result from these initial differences. This analysis can be summarized as a European colonization and path dependence theory.
In fact, the analysis of the state as a negative determinant of freedoms is only partially valid since the state is also a guarantor of freedoms (justice, police, etc); but it can be classified as a distributional system, because most state activities consist in raising costs for some groups and providing benefits to other groups.
Milton Friedman, Capitalism and Freedom (1962). See also the variables included in the Economic Freedom Index (EFI) published by the Fraser Institute.
They conclude (1997, p. 573) that: “Unfortunately, why government’s share of the transaction sector rose relative to the private sector’s is not well explained.”
Tiebout (1956) pioneered that approach of individual mobility as a factor affecting a municipal government’s taxing power. He shows that a municipality’s ability to tax will be constrained by the level of taxation in other municipalities. In a seminal article David Friedman (1977) shows that Tiebout’s result can be expanded to the national level as well.
Who, after noting that “…world democracy declined in the early 1970s and then rose in the early 1980s and again in the early 1990s.” writes: “Note that these results apply for given values of the explanatory variables, which can also generate patterns in world democracy. For example, positive trends in per capita GDP and schooling would imply an upward trend in democracy.” But the question is: Why did these positive trends not determine a democratic wave before? Were these variables weak enough, or were the other variables in the equation with a negative influence on democracy so much stronger as to compensate for this positive influence? It does not seem to fit the facts.
Stigler (1961) made a first step in that direction in his economics of information paper in which he shows that the return to search (for information) is higher in imperfect markets where the price dispersion is large. While he does emphasize the impact of information acquisition cost on the amount of search, and the pooling of search costs by specialized dealers and advertisers, he could not anticipate the huge technological changes in information storage, processing and communication of the present era. He could not anticipate either their major impact on all organizations, and thus on rights.
Demsetz (1967) explores the case of the Montagnais Indians in Quebec who developed property rights on hunting grounds previously open to all, in response to increased demand for fur by European trappers. The gross social value of the land increased, exceeding the cost of establishing and defending rights to it.
As Diamond (2010, p. 70) also recently noted: “The Internet’s decentralized character and ability (along with mobile-phone networks) to reach large numbers of people very quickly, are well suited to grassroots organizing. In sharp contrast to radio and television, the new ICTs are two-way and even multiway forms of communication.” It is a “liberation technology.”
And, in presenting these illustrations, we are mindful of their limitations. In particular, we follow Hayek (1979, p. 201) who approvingly quoted Yule who, in 1921, wrote that “Failing the possibility of measuring that which you desire, the lust for measurement may, for instance, merely result in your measuring something else—and perhaps forgetting the difference—or in ignoring some things merely because they cannot be measured.”
As Chandler (1973, p. 2–3) noted “…although Roosevelt and Eisenhower, and du Pont and Sloan, concerned themselves with very different types of problems, the processes by which decisions were reached and actions implemented had many similarities. And these similarities differentiated their activities and careers from those of earlier presidents, generals and businessmen. Theirs were usually group decisions, based on a vast flow of information, and synthesized by offices within the enterprise. The information that went up the line as well as the directives that went down, passed through an extensive bureaucracy which could turn and shape them…’ (emphasis ours, JJR-XdV).
Of course, the 1970s were also the decade of development of Xeroxing, which replaced in part the book for the exchange of information.
See Tullock and the rent-seeking literature.
References
Acemoglu, D., Johnson, S., Robinson, J. A., & Yared, P. (2008). Income and democracy. The American Economic Review, 98(3), 808–842.
Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: an empirical investigation. The American Economic Review, 91(5), 1369–1401.
Alesina, A., Spolaore, E., & Wacziarg, R. (2000). Economic integration and political disintegration. The American Economic Review, 90(5), 1276–1296.
Barro, R. J. (1999). Determinants of democracy. Journal of Political Economy, 107(6 Part 2), S158–S183.
Barzel, Y. (1989). Economic analysis of property rights. Cambridge: Cambridge University Press.
Becker, G. S. (1958). Competition and democracy. Journal of Law and Economics, 1, 105–109.
Becker, G. S. (1983). A theory of competition among pressure groups for political influence. Quarterly Journal of Economics, 98(3), 371–400.
Bolton, P., & Roland, G. (1997). The breakup of nations: a political economy analysis. Quarterly Journal of Economics, 112(4), 1057–1090.
Buchanan, J. M., & Tullock, G. (1962). The calculus of consent: Logical foundations of constitutional democracy. Ann Arbor: The University of Michigan Press.
Chandler, A. D., Jr. (1973). Decision making and modern institutional change. The Journal of Economic History, 33(1), 1–15.
Chandler, A. D., Jr. (1977). The visible hand: The managerial revolution in American business. Cambridge: Belknap.
Clark, G. (2007). A farewell to alms. Princeton: Princeton University Press.
Coase, R. A. (1937). The nature of the firm. Economica, 4(3), 386–405.
Demsetz, H. (1967). Towards a theory of property rights. The American Economic Review, 57(2), 347–359.
de Vanssay, X., Hildebrand, V., & Spindler, Z. A. (2005). Constitutional foundations of economic freedom: a time-series cross-section analysis. Constitutional Political Economy, 16(4), 327–346.
Diamond, L. (2010). Liberation technology. Journal of Democracy, 21(3), 69–83.
Engerman, S., & Sokoloff, K. (1997). Factor endowments, institutions, and differential paths of growth among new world economies: A view from economic historians of the United States. In S. Haber (Ed.), How Latin America fell behind: Essays on the economic histories of Brazil and Mexico, 1800–1914 (pp. 260–306). Stanford: Stanford University Press.
Friedman, M. (1962). Capitalism and freedom. Chicago: The University of Chicago Press.
Friedman, D. (1977). A theory of the size and shape of nations. Journal of Political Economy, 85(1), 59–78.
Giavazzi, F., & Tabellini, G. (2005). Economic and political liberalizations. Journal of Monetary Economics, 52(7), 1297–1330.
Haber, S., & Menaldo, V. (2010). Rainfall and democracy. Working Paper, SSRN, URL: http://ssrn.com/abstract=1667332.
Hayek, F. A. (1945). The use of knowledge in society. The American Economic Review, 35(4), 519–530.
Hayek, F. A. (1979). Law, legislation and liberty (Vol III). Chicago: The University of Chicago Press.
Headrick, D. R. (2000). When information came of age: Technologies of knowledge in the age of reason and revolution, 1700–1850. Cary: Oxford University Press.
Holsey, C. M., & Borcherding, T. E. (1997). Why does government’s share of national income grow? An assessment of the recent literature on the U.S. experience. In D. C. Mueller (Ed.), Perspectives on public choice (pp. 562–589). Cambridge: Cambridge University Press.
Huntington, S. P. (1991). The third wave: Democratization in the late twentieth century. Norman: University of Oklahoma Press.
Lipset, S. M. (1959). Some social requisites of democracy: economic development and political legitimacy. American Political Science Review, 53(1), 69–105.
Lyman, P., & Varian, H. R. (2003). How much information, 2003. Technical report, UC Berkeley, URL: http://www.sims.berkeley.edu/research/projects/how-much-info-2003/.
Marks, G., & Diamond, L. (1992). Seymour Martin Lipset and the Study of Democracy. In G. Marks & L. Diamond (Eds.), Reexamining democracy: Essays in honor of Seymour Martin Lipset (pp. 1–14). Newbury Park: Sage Publications.
McKenzie, R. B., & Lee, D. R. (1991). Quicksilver capital: How the rapid movement of wealth has changed the world. New York: Free Press.
Mokyr, J. (2002). The gifts of Athena: Historical origins of the knowledge economy. Princeton: Princeton University Press.
Peters, J. (1992). Book Industry Statistics from the R. R. Bowker Company. Publishing Research Quarterly, 8(3), 12–23.
Posner, R. A. (1971). Taxation by regulation. Bell Journal of Economics, 2(1), 22–50.
Przeworski, A., Alvarez, M. E., et al. (2000). Democracy and development: Political institutions and well-being in the world, 1950–1990. Cambridge: Cambridge University Press.
Rosa, J.-J. (2000). Le second XXème siècle: Déclin des hiérarchies et avenir des nations. Paris: Grasset.
Rosa, J.-J. (2006). The second twentieth century: How the information revolution shapes business, states, and nations (revised U.S. editionth ed.). Stanford: Hoover Institution Press.
Rosa, J.-J., & de Vanssay, X. (2010). The global freedom boom: An economic analysis. In B. Batavia, P. Nandakumar, & C. Wagué (Eds.), Crossing borders: Global prospects, new perspectives and emerging agendas (pp. 22–45). Toronto: Athenian Policy Forum.
Rosen, S. (1982). Control, and the distribution of earnings. Bell Journal of Economics, 13(2), 311–323.
Ross, M. (2001). Does oil hinder democracy? World Politics, 53(3), 325–361.
Stigler, G. (1961). The economics of information. Journal of Political Economy, 69(3), 213–225.
Tanzi, V. (2001). Globalization and the work of fiscal termites. Finance & Development, 38(1), 34–37.
Tanzi, V., & Schuknecht, L. (2000). Public spending in the 20th century: A global perspective. Cambridge: Cambridge University Press.
Tiebout, C. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), 416–424.
Tullock, G. (1976/2006). The vote motive. London: Institute of Economic Affairs.
Tullock, G. (1987). Autocracy. Hingham: Kluwer Academic Publishers.
Tullock, G. (2002). Government spending. The Concise Encyclopedia of Economics, The Library of Economics and Liberty, URL: http://www.econlib.org/.
Umbeck, J. (1981). Might makes rights: A theory of the formation and initial distribution of property rights. Economic Inquiry, 19(1), 38–59.
Vanhanen, T. (2003). Democratization: A comparative analysis of 170 countries. London: Routledge.
Wintrobe, R. (1998). The political economy of dictatorship. Cambridge: Cambridge University Press.
Yule, G. U. (1921). Critical Notice of William Brown and Godfrey H. Thomson’s The Essentials of Mental Measurement. British Journal of Psychology, 12(1), 100–107.
Acknowledgement
Part of this research was completed while de Vanssay was visiting the National GRIPS (Tokyo). He gratefully acknowledges financial support from the Nakajima Heiwa Foundation. We are grateful to an anonymous referee for helpful comments and to Richard Baldwin for sharing his ICT data. An earlier version of this article was presented at the 2011 APEE Conference.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Rosa, JJ., de Vanssay, X. Information, organization, and freedom: Explaining the great reversal. Rev Austrian Econ 25, 329–350 (2012). https://doi.org/10.1007/s11138-012-0173-9
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11138-012-0173-9