The Necessity of Freedom of Speech to Economic Growth
Information for Choice and Correction
By
William Gamble
September 21, 2005
In the September 19th edition of the Financial Times Professor Zhiwu Chen of Yale School of Management state that there was a correlation between freedom of the press and economic development. Specifically he found that "the freer the press, the better developed a country's service sector. Press freedom facilitates service development by reducing information asymmetries among transacting parties, bringing confidence to the marketplace. Unbiased information enhances trust, which is fundamental to the deepening of a service market." Since China does not have a free press, it had developed manufacturing industries instead of a service sector.
While I am in agreement with Professor Zhiwu Chen=s Comment regarding the necessity of free speech for economic growth. I believe that the need goes beyond the manufacturing-services dichotomy and far beyond China. The problem is quite simple. Markets are basically about choice. To make an informed choice, you need accurate information. To get accurate information you need free speech. Without free speech, capital will be allocated inefficiently.
The reason that free speech acts as a regulator is that agents, CEOs, bureaucrats, employees, and even regulators, cheat. Game theory shows that an agent=s best move is not only to deceive his principal, but he also will suborn his minder. As Professor Chen points out, it is only the spotlight of a free press that can act as a successful disincentive.
The effects of censorship on the economy are not generally obvious, because they take time. It might be possible for a totalitarian regime to organize a nation=s resources to reach a short term goal. Over time, without the guidance of the market and the curative powers of the press, mistakes are made and not corrected. The result is an economy with all of the vitality of North Korea or Myanmar. The connection between free speech and economic growth is something that the leaders of Russia, China, Thailand and many other developing nations might want to contemplate before they silence their critics.
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