UNIVERSAL VALUES OF DEMOCRACY AND THE MARKET ECONOMY Anwar Ibrahim Former Deputy Prime Minister and Minister of Finance of Malaysia

Reflecting on the East Asian experience The setting of the East Asian “economic miracle” in the 1990s – Mostly soft authoritarian states or illiberal democracies – Strong macroeconomic performance due to the expanded role of the private sector Economic growth spurred the demand for liberal reforms, including more democratic rule – Economic growth eventually raised the questions about the lack of democratic freedoms – A contentious public discourse theme emerged: What is the use of expanding the economy if governments continue to deny basic rights to their people?

Was the East Asian “economic miracle” really that miraculous? Euphoria about the “miracle” was misleading – Four-fifths of China remains untouched by globalization and half continues to live in near abject poverty – In Malaysia, programs such as public housing, quality education, health, basic infrastructure reached half of the population – Progress in only macroeconomic fundamentals of development does not quite qualify as a “miracle” True market economy is about freedom – and freedom was largely absent in East Asia at the time despite good macroeconomic performance

The Malaysian experience State-led efforts to pursue mega-projects financed by high taxes were not beneficial to the economy – Having the longest bridge or tallest building in the world may be prestigious BUT it does not improve productivity (which is the basis of economic growth) Policy emphasis should instead have been on: – Lower taxes to increase productivity – Better education, public services, public infrastructure

Good governance as a universal value necessary for economic progress Examples of Adam Smith, Ibn Khaldun, Wang Anshi These early economists and philosophers from diverse cultures shared similar views on what is needed for social well-being: – Good governance Order and the rule of law Accountability and transparency Anti-corruption measures No excessive taxation The values of freedom, accountability, responsibility, and transparency are universal.

Universal values, local solutions – The prescription for good governance is universal Democratic governance is necessary to safeguard economic gains and make them accessible to whole societies, not just elites – Within this basic framework, countries and societies can design their own solutions and pursue their particular development goals – Without this framework, governments become oppressive, while a functioning market economy fails to develop and corrupt crony capitalism monopolizes the gains of propelling the economy

The lessons from Adam Smith People often focus on excerpts from Adam Smith’s writings without understanding his entire thesis Smith’s two great works, The Wealth of Nations and The Theory of Moral Sentiments, need to be considered together Many people think that Smith advocates strictly laissez fair approach and they equate free markets with greed and excesses of global capitalism BUT Smith also emphasizes the need to embed moral and ethical values in the market – John Ruggie also spoke of “embedded liberalism,” or economic liberalization accompanied by attention to the social adjustment costs

In defense of free markets The global polemics between market supporters and opponents is gaining ground – Excessive criticism of globalized markets gives a pretext to authoritarian leaders to avoid needed reforms BUT market system is necessary for greater freedom and economic success of nations – Advancing free market is not a matter of political or cultural predisposition – it is a matter of economic survival and well- being of nations Defending free markets has at its core a conviction of the necessity to defend freedom.

Markets and the distribution of wealth Advocates of distributive justice support the idea of top- down distribution of wealth – BUT wealth must be generated in the first place – Without growth-generating free markets, all that distributive policies can accomplish is distributing poverty – Rawls-Nozick debate Free markets together with democratic governance are distributing wealth by: – Propelling the economy – Empowering people (especially the marginalized groups) – Encouraging private enterprise Supporting freedom and free markets is not an academic issue, but rather a practical way to enhance human well-being around the world.

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