Market Ideas at Work Around the World

(Guest Post by Jonathan Butcher)

It is a beautiful thing when improvements in how we live can be explained by economic theories rooted in free market principles.  When someone halfway around the world sees their way of life improve and this is featured in the media, dust off your favorite book by a free market thinker and look for the theory that explains it. 

This week’s Economist provides an opportunity to do just that.  In a feature section on the telecom industry and emerging markets, this excerpt on cell phones in an article entitled “Eureka Moments” caught my attention:

“How did a device that just a few years ago was regarded as a yuppie plaything become, in the words of Jeffrey Sachs, a development guru at Columbia University’s Earth Institute, ‘the single most transformative tool for development’?  A number of things came together to make mobile phones more accessible to poorer people and trigger the rapid growth of the past few years.  The spread of mobile phones in the developed world, together with the emergence of two main technology standards, led to economies of scale…” (emphasis mine).

The casual reader may miss the significant principle at work here: the poor, even on the other side of the planet, benefit from developments in wealthier nations.  This idea is at least as old as 1960, as Friedrich A. Hayek, beautifully elaborates in The Constitution of Liberty:

“There can be little doubt that the prospect of the poorer, ‘underdeveloped’ countries reaching the present level of the West is very much better than it would have been, had the West not pulled so far ahead.  Furthermore, it is better than it would have been, had some world authority, in the course of the rise of modern civilization, seen to it that no part pulled so far ahead of the rest and made sure at each step that the material benefits were distributed evenly throughout the world…

“The over-all speed of advance will be increased by those who move fastest.  Even if many fall behind at first, the cumulative effect of the preparation of the path will, before long, sufficiently facilitate their advance that they will be able to keep their place in the march.”

So, if we want to help the poor at home or abroad, powerbrokers should do everything they can to foster the success of the successful.  Instead of redistributing wealth through higher taxes on the rich, policymakers should make policy that helps entrepreneurs succeed.  For it is the knowledge they create, use, and pass on with their enterprises that quickens the pace of progress, pulling everyone along at a faster rate as the new technology spreads.

It is not just tax policy or legislation pertaining to businesses to which this idea applies; other social programs can be improved in the same way, and education is no exception.  Charter schools are an excellent example of a public policy that promotes individual liberty and entrepreneurship—resulting in the creation of new ideas that can then be used widely. 

Everywhere charters have spread, the new ideas on leadership and teaching, for example, that they carry with them have been copied.  Even those opposed to charter schools have decided to combat them using the charter concept.  For example, Pilot Schools were created in Boston by existing school leaders in response to charter schools, using concepts central to the charter movement (more freedom over administrative decision making, specialized mission statements, etc.).  The result is that parents have even more options than before—more schools to chose from and more freedom.

Likewise, President Obama’s recent call for a longer school day and yearis nothing new; the much-heralded KIPP Academies, also charter schools, have been operating with this policy for many years.  Again, new ideas that survive once implemented, created in the realm of entrepreneurship, are difficult to ignore even at the highest level. 

The Economist’s piece goes on to explain how cell phones help the poor in rural areas around the globe, by “generally mak[ing] it easier to do business.”  In fact, a recent study found that “adding an extra ten mobile phones per 100 people in a typical developing country boosts growth in GDP per person by 0.8 percentage points.”  Would that we could see such an improvement in student achievement from policies promoting educational entrepreneurship.  Here’s hoping policymakers let the successful succeed, in education and elsewhere.