The Interplay of Free Speech & Economic Growth

Author Name: Hassan Mujtaba       23 Dec 2020     International Economy

Many disciplines within the social sciences teach us that policies and legislation that are inclusive, meticulous, thoroughly debated, and patiently executed fare much better in achieving their intended goals than do those which do not involve consultation processes. The new social media rules stipulated in the —Removal and Blocking of Unlawful Online Content (Procedure, Oversight, and Safeguards), Rules 2020—passed by the Pakistan Telecommunications Authority (PTA) serve as an example of the latter, since they did not involve deliberations and consent of all relevant stakeholders. Therefore, the new rules are being protested by several quarters, especially the social media companies (SMCs), digital rights activists, and civil society, who perceive them to be a governmental attempt to consolidate online censorship, thus trampling upon the already shrinking space for free expression and dissent.

While a lot has been written and said about the pernicious effects of censorship on democracy, civic rights, and political freedoms, what is usually ignored is the interplay of free speech and economic growth, especially in the context of emerging economies. Although the link is imperceptible at first glance, the fact is that greater acceptance of free speech facilitates the free exchange of ideas and information, which drives innovation, thus resulting sustainable economic growth. And growth is what capitalism depends upon, with nation-states regarding it as the most crucial metric of prosperity and progress.

The dynamics of capitalistic growth might be best explained by Austrian economist Joseph Schumpeter in his 1942 book titled Capitalism, Socialism, and Democracy. In the book, Schumpeter adopts a radically different approach from other economists and theorizes that the cut-throat competition of capitalism forces entrepreneurs to continually innovate and generate new ideas that help them stay afloat. Those firms which fail to innovate are, thus, weeded out and replaced by more creative counterparts who are engaged in consistent research & development (R&D). Schumpeter calls this dynamic process ‘creative destruction’ and asserts that microlevel creative destruction generates macro-level economic growth.

One wonders at the validity of this theorization for emerging economies where capitalism routinely co-mingles with other primitive modes of production. One can reasonably argue that since Least Developed Countries (LDCs) have not completed their transition towards full-scale capitalism, the dynamics of creative destruction may as well be rudimentary. Indeed, many other economic theories explain the alternative paths towards growth & development that LDCs can take. For example, the neoclassical Solow Growth Model asserts that one way for the LDCs to achieve long-run economic growth is by imitating the inventions and innovations of industrialized developed economies. In other words, by not re-inventing the proverbial wheel and by merely recreating cars, computers, software, machinery, and other capital goods, an LDC can also embark on a path of sustainable economic growth. However, there is a caveat to this form of economic growth as LDCs cannot continue to grow forever by merely copying innovations, as they will eventually run out of things to copy! This is what the economists call reaching an ‘economic frontier’ beyond which an economy cannot grow without further innovation and R&D.

The United States has been operating at the economic frontier for at least the past one century. This suggests that most, if not all, of its impressive productivity gains and economic growth have exclusively resulted from innovations and R&D, which is facilitated by the free exchange of ideas and information. Indeed, it is no coincidence that the United States’ status as the world’s most free country is directly correlated with its robust economy which can be gauged by the fact that the social media giant Facebook—located in Silicon Valley, USA—boasts market capitalization which is more than double the size of all European tech companies!

One can question as to what is so harmful about censorship or restricted speech that it negatively impacts growth and economic prosperity. To begin with, restrictions on free speech—in the garb of national ideology, religion and security—creates an environment where it gradually becomes difficult to carry out any speech, and before anyone realizes, the web of censorship stymies free exchange of information, thus stifling creativity and generation of new ideas. Small wonder then, that the world’s most authoritarian countries are not known for the innovation element in their economic profiles, and certainly not for cutting edge research or new technological breakthroughs.

The growth spillover effects of free speech are well-documented in economics literature and backed by sufficient empirical proof. For example, a study conducted on English cities by Simon and Nardinelli using data from 1861 to 1961 found that cities with the highest concentration of the bourgeoisie (i.e., entrepreneurs and skilled white-collar workers) experienced the most rapid industrial and economic growth. They also found that cities which allowed the bourgeoisie to engage in the free exchange of ideas and information—at the industry workshops, fairs, coffee shops, tea houses, and literary festivals—grew at a significantly faster pace than cities which restricted such progressive activities. The authors, thus, conclude that
“it is the talk of the bourgeoisie and not the smoke of the factory that leads to economic growth”. In another study titled
Bourgeoisie Virtue, author Donald McCloskey came to similar conclusions and asserted quite wittingly that “the bourgeoise works with its mouth and depends on the word of mouth”.

In this context, it becomes clear that any unnecessary restrictions on speech and digital freedoms—barring online harassment, slander, identity theft, and spread of fake news—is counterproductive and inimical to Pakistan’s long-run growth and economic progress. On their part, the policymakers of Pakistan should realize that in the age of knowledge economy, data is the biggest capital asset possessed by individuals, companies, and countries, and its free exchange results in a win-win situation for all.

Hassan Mujtaba is a Researcher in the Economic Affairs section of Centre for Aerospace & Security Studies (CASS). The article was first published in The Business.  He can be reached at cass.thinkers@gmail.com.

 

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