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No. 1

WHICH WAY TO THE ECONOMIC FREEDOM REVOLUTION?

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EDITOR’S NOTE
By Tanja Porčnik*

The aim of The Visio Journal is to explore public policy through an interdisciplinary approach.

The first volume of The Visio Journal brings together numerous studies measuring the degree to which the policies and institutions of countries are supportive of economic freedom. In doing that, they utilize data published in the various issues of Economic Freedom of the World since its inception in 1996. The studies examine the impact of economic freedom on investment, economic growth, income levels, and poverty rates. Their findings demonstrate that countries with institutions and policies that are more consistent with economic freedom have higher investment rates, more rapid economic growth, higher income levels, and a more rapid reduction in poverty rates.

The contributions in its first issue of The Visio Journal were presented at the 2016 Economic Freedom Network annual conference, “Which Way to the Economic Freedom Revolution?”, held at Lake Bled, Slovenia, September 3-5, 2016. It was a pleasure and honor for the Visio Institute to partner with the Fraser Institute on this year’s Economic Freedom Network annual conference, which brought together participants from Hungary, Hong Kong, Iraq, the United States, Canada, the United Kingdom, Poland, Georgia, Bosnia and Herzegovina, Germany, Denmark, Ukraine, Iran, Turkey, Switzerland, Russia, and Slovenia.

Several people made important contributions to the substance and production of this first issue of The Visio Journal. Key among them was Mark Breznik, director of the Visio Institute, who was instrumental in the preparation and execution of the 2016 Economic Freedom Network annual conference and the journal that followed. I would also like to thank the authors of the journal for their indebt and unique contributions, as well as Detmar Doering and Fred McMahon for their contributions to the publication. Special thanks go to Milutin Pavićević for designing the cover of The Visio Journal.

Finally, I would like to acknowledge the generous contribution of the Friedrich-Naumann-Foundation for Freedom and the Atlas Foundation for supporting the 2016 Economic Freedom Network annual conference and the journal that is before you.

* Tanja Porčnik is President of the Visio Institute. Porčnik is coauthor of the Human Freedom Index.

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The Paradox of Natural Resources: The Impact on Economic Freedom
By Kamal Field Al Basri* and Mudhar Al Sebahi**

ABSTRACT
The objective of the paper is to examine the attitude of natural resource dependent governments towards the principles of economic freedom and on effective governing institutions. This paper seeks to demonstrate that undemocratic governments with abundant natural resources are less inclined towards rational economic behaviour; and, have less effective governing institutions which is fundamental for ensuring “property rights”. Consequently, these countries score poorly on the Economic Freedom index relatively to other countries. The data used in this paper is comprised of the Economic Freedom Index, and two other datasets: The World Bank database on Good Governance and the International Budget Partnership on Open Budget Survey.

* The author is the Director of Research at the Iraqi Institute for Economic Reform. Field earned his PhD from the University of Strathclyde, Glasgow.
** The author is the Executive Manager at the Iraqi Institute for Economic Reform.

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How Freedom Fundamental Factors Affect Real Exchange Rate Misalignments in Selected OPEC Oil-Exporting Countries
By Hajar Mostafaee*, Samin Sobhi**, and Saeed Daei-Karimzadeh***

ABSTRACT
REER misalignment affect the balance of the economy. There is a vast theoretical and empirical literature that suggests that REER misalignment is one of the key indicators in identifying a country’s economic vulnerability. Different variables such as institutional and economic factors have great impact on real exchange rate misalignment and this issue can cause negative effect on growth and productivity and incense poverty and rent. The question is, what constitutes a misalignment of exchange rates from long-run equilibrium values and how macroeconomic policies can influence real exchange rate movements is important, especially for growing oil exporting economies?

Oil-exporting countries in global economic activity have always received increasing attention because of worlds need to their oil resources. Despite of high oil revenues most of these countries couldn’t find their path through industrialization and have not important role in international trade of non-oil products. These countries are extremely dependent to oil revenues for their development and growth, meanwhile most of their export is oil and the government budget is being financed through oil revenues. So it creates motivation for misalignments of the real exchange rate to earn more revenue in the base of domestic currency.

This paper examined the role of macroeconomic and institutional fundamentals such as economic and political freedom, oil rent, financial development, globalization index and inflation as a domestic economic shock, in determination of selected OPEC real exchange rates misalignments. Our primary data set comprises annual macroeconomic and financial variables for eleven OPEC countries over the period of 2000 to 2013. This study finds that institutional variables like economic freedom, political freedom and financial development have significant effect on misalignment but inflation and globalization index have no significant impact on it.

* Hajar Mostafaee is a PhD candidate in Economics at Islamic Azad University, Isfahan, Iran.
** Samin Sobhi is a PhD candidate in Economics at Islamic Azad University, Isfahan, Iran.
*** Saeed Daei-Karimzadeh is Associate Professor of Economics at Islamic Azad University, Isfahan, Iran.

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Free Market a Condition for Economic Growth in Iran 
By Morteza Sameti*, Robabeh Jaberi**, Behnam Ebrahimi***, and Hossein Esmaeili****

ABSTRACT
Based on power oil real revenue, Iranian economy has been three durations from past to present: 1-Without oil revenue economy (1959-1971), 2-With high-power oil real revenue economy (1971 – 2006), and 3-With low-power oil real revenue economy durations (since 2006). In first duration Iran’s economy was based on more economic freedom and less government interference in economic activities and in these years the economic growth rate was about 5 percent in average. In second duration, economic system changed to state economy due to high power real oil revenue and economic growth rate in these years was about 1.5 percent in average and daily per capita oil real revenue was about $3. In third duration, the purchasing power of real oil revenue beginning to decrease and leads to a decrease of economic growth rate to – 5.4 percent in 2013 and daily per capita real oil revenue in average was $0.004.

This paper reviews several questions by using econometrics approach to analyze the effectiveness of oil revenue (as natural resource) on economic growth rate in Iran: 1. Has oil revenue been able to cover government’s economic decision-making failure in Iran?, 2. Has oil revenue been used for exercise of political sovereignty, or suitable economic protection?, 3. Economic freedom a condition for economic growth in Iran?, and 4. Increasing economic freedom, is it possible to achieve 6 or 8 percent economic growth in Iran? How?

Results shows that by continuing current situation, economic growth rate in Iran in best condition could not be more than 2 percent in average until 2020. By attention the unemployment rate (about 13%), it is not good situation and by change to economic freedom it is possible to achieve the 8 percent economic growth rate till the end of recent decade.

* The author is Professor of Economics at Isfahan University, Iran.
** The author works at Almas Shargh company, Isfahan, Iran.
*** The author Is Professor at the Islamic Azad University of Najafabad, Isfahan.
**** The author works at Hashtbehesht Higher Education Institute, Isfahan, Iran.

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Turkey’s Great Moderation After 2002
By Ünsal Çetin*

ABSTRACT
Turkey’s post–2002 economic performance is remarkable in most of its various aspects. In this paper, it will be argued that this successful performance has a strong similarity to the USA’s Great Moderation. The USA had an economic boom period between 1982–2002 which called ‘the Great Moderation’ by John B. Taylor and some other important economists. As convincingly proved by Taylor’s works on the subject, that happened because the Fed had quite approximately followed Taylor Rule in the conduct of its interest rate policy throughout the moderation years. Beginning with the year 2003, Turkey’s main economic policies have progressed from pure discretionary nature towards rule–like manner. This policy progress has led to the long and sound economic progress that goes on today. However, based on an application of productivity norm of monetary policy to interest rate policy of TCMB, we will be able to diagnose an instability source that appears within Turkey’s economy. This diagnosis provides us a few concrete policy proposals which may support Turkey’s economic development in the future.

* The author is senior fellow at the Association for Liberal Thinking in Turkey. Çetin obtained master degree in Banking and Finance from İstanbul Bilgi University, Turkey.

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New Political Trends in Europe and their Impact on Economic Freedom. A Long Shadow of the NonDemocratic Past?
By Andrzej Kondratowicz*

ABSTRACT
This paper reviews some aspects of shifts in economic freedom (EF) levels. First, we will show numerical characteristics illustrating the unstable nature of EF, both in relation to the world and some national economies. Next, we will offer some general observations on the mechanisms of changes in EF and then, we will relate them to newly emerging political phenomena that are increasingly clearly visible in today’s Europe. Currently, they can be seen predominantly among several new members and candidates for members of the European Union (for brevity we will label them as “EU peripheries”) – notably in Hungary, Poland and Turkey (HU-PL-TR). But on a more distant political horizon some observers see signs of political instability affecting the core EU countries, as well. Time will tell to what extent they will have materialized. Our hypothesis is that those political processes, if continued, might be quite detrimental to the EF level in the EU peripheries, while – with some minor qualifications – they are not that threatening to the EF level in the core “post-Brexit” EU countries and in the UK in the long-run. Many examples will be drawn from recent Polish experience, of which the author possesses the best knowledge.

* The author is Professor of Economics at the SWPS University, Faculty of Arts and Humanities, Warsaw, Poland.

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Economic Freedom in Light of Central Bank Independence: The Case of Slovenia in a Free-Market Context
By Jure Stojan*

ABSTRACT
This is a case study of political attacks against central bank independence in Slovenia – there is a history of attempts to curtail the Bank of Slovenia’s (Banka Slovenije’s) freedom from political interference. Granted, it is a central bank of a small country. But it is of much wider interest since it is also member of the Eurosystem, where Slovenia’s monetary policy making – the core function of central banking and the ostensible rationale for central bank independence – was transferred to the ECB (in the case of Slovenia, in 2007). Because of the binding constraints of European treaties and EU law, it also means there are few remaining lines of attack against the Bank of Slovenia’s independence. This article places these developments within the normative and positive contexts of free markets. At first sight, there is little to be said about central banks from this perspective – other than expressing a long-run preference for their abolition, thereby creating the necessary space in monetary policy so that market forces can work their magic. The libertarian view of central bank independence appears aptly summarized by Murray Rothbard: ‘The Federal Reserve, virtually in total control of the nation’s vital monetary system, is accountable to nobody—and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.’ While many dislike the core idea of central banking – succinctly if uncharitably characterised as unaccountable technocrats yielding discretionary power over the purchasing-power of money – there is a diversity of views regarding central banks as they appear and operate in the real-world. What follows is an analysis of the attacks on the Bank of Slovenia and a discussion of free-market-based.

* The author is Senior Fellow at the Visio Institute in Slovenia. Dr. Jure Stojan holds a doctorate in economic history from St Antony’s College, University of Oxford.

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Why Regional Trade Agreements Could Jeopardize Global Free Trade in the Future
By Jens Hertha*

ABSTRACT
Under the regime of the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization (WTO), multilateral trade agreements have been highly successful in liberalizing trade on a global scale. However, the member countries of the WTO failed to agree on several essential trade issues negotiated in the context of the Doha Round which started about 15 years ago. Simultaneously, an increasing number of bilateral and plurilateral trade agreements came into force that cast shadow over the future of the WTO. This paper gives a broad overview of the benefits of global free trade, the structure of bi- and plurilateral trade agreements and the current problems the WTO must face. Additionally, some essential reasons are presented why so many nations prefer such regional trade agreements (RTA) to the multilateral approach of the WTO. Finally, the enormous drawbacks of RTAs are highlighted that may in fact jeopardize the efforts of the WTO. Consequently, the paper concludes that especially the industrialized nations should come back to the multilateral negotiation table to reach the first-best solution for global mankind: A free world without trade barriers.

* The author completed a B.Sc. and M.Sc. in European Economic Studies, and is currently pursuing a PhD degree in Economics at the University of Bamberg, Germany.

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Good Is Better Than Better: The Two Concepts of Competition
By Eszter Nova*

ABSTRACT
There are two contrasting interpretations of competition – depending where one stands on the authoritarian scale. One interpretation can largely be described as the Hayekian discovery procedure. The other is overwhelmingly negative, and it is the product of authoritarian thinking pattern. It defines competition solely as defeating others by cutting metaphorical throats. Authoritarian thinking is not compatible with the idea of competition for several reasons but it doesn’t mean that authoritarians don’t compete. They just do it according to their own definition – which is closer to sabotage. Once the negative interpretation of competition is internalised, individuals and societies will resist to it by making sure it fails. The limitation for competition to produce beneficial spontaneous order is thus the resistance to the idea of competition – as spread by collectivist and authoritarian ideologues.

* The author is a blogger, journalist, political economy fellow at Financial Research Institute in Budapest, Hungary. Nova obtained her PhD (summa cum laude) from ELTE, Budapest. Her dissertation is a study of the financial crisis from the perspectives of international relations, geopolitics, geoeconomics, and international political economy.

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Economic Freedom: Ukraine’s Perspective
By Nataliya Melnyk*

Throughout its lengthy history, Ukraine has had to partake in several quests to reach some kind of freedom. It seemed that in 1991 it finally managed to accomplish the goal by obtaining its independence. However, it turned out that becoming a sovereign country did not automatically make it successful and prosperous. 25 years later Ukraine remains weighed down by its Soviet past and with an ever-growing potential – that is, the one that constantly lags behind its neighbors and reduces its share in the global economy. Despite its rich resources, it is the most corrupt, economically unfree and the poorest (after Moldova) European country.

* The author is a Communications Manager at the Bendukidze Free Market Center, Ukraine.

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Copyright © 2016 by Visio institut. All rights reserved. No part of this journal may be reproduced in any manner whatsoever without written permission except in the case of brief quotations embodied in critical articles and reviews.

The authors of this publication have worked independently and opinions expressed by them are, therefore, their own and do not necessarily reflect the views of the supporters or staff of the Visio Institute. This publication in no way implies that the Visio Institute or its staff are in favor of, or oppose the passage of, any bill; or that they support or oppose any political alliance, party, or candidate.

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