The IEF answers Dr. Nikolaos Karagiannis

First Published: 2003-02-08

Dr. Nikolaos Karagiannis, a lecturer in economics at the College of the Bahamas and St. Benedict-s College / St. John-s University, has taken issue with views expressed by the Institute in several newspaper articles.

The “New Right” and the “Old Left”.

Dr. Nick characterized the Institute as the “New Right” whose ideas on privatization were “poor, very biased and superficial.” He disagrees with the Institute on the “constructive” role of the state and the effects of competition on efficiency, waste, technology and growth.

Dr. Nick believes that the Bahamas needs ~

  • The “guiding hand of the state” and
  • A “synergistic connection between a public system and a mostly private market system with the government setting rules and influencing decision-making in the private sector.”

He alleges that a bureaucrat, presumably a “synergistic connector”, can ~

  • Calculate the profitability of all public or private investments and
  • Pick the ones that will “accelerate development and growth.”1

Dr. Nick does not describe his “return-on-investment” program, nor does he tell us how it works and what use has been made of it.

Dr. Nick does what intellectuals did in the 1920s and 1930s and “the attitudes of that time are still with us. There is still a tendency to regard any government intervention as desirable, to attribute all evils to the market, and to evaluate new proposals for government control in their ideal form, as they might work if run by able, disinterested men, free from the pressure of special interest groups.

“Yet, conditions have changed. We now have several decades of experience with government intervention. It is no longer necessary to compare the market as it actually operates and government intervention as it ideally might operate. We can compare the actual with the actual.”2

Role of the state.

Before doing just that, let-s first examine the role of the state. The Institute sees a very important, positive and vigorous role for government.

In defining this more clearly let-s identify four areas of government activity:

  1. Core functions. The protection of private property, the security of the individual and an efficient judicial system are necessary for a civil society and are described as “core functions”. Today in the Bahamas excellence in the performance of these is a monumental task of the highest priority.
  2. Common utilities. Common services such as roads, airports, harbors, air transport, telecommunications, public communication, electrical power, potable water and sewerage have been state functions since the 1970s. Until recently the Old Left overlooked the high cost and poor quality of services in government owned and managed utilities.
  3. Personal needs. Education, medical care and relief from natural disasters, unemployment, old age and destitution are needs which individuals, voluntary associations and governments historically have met. Over the last 150 years governments increasingly have replaced personal, familial and private responsibility in meeting these needs and has funded itself with increased taxes. The Old Left has actively promoted this…seemingly without limit.
  4. Individual rights. Governments limit individual rights for purposes that it deems appropriate through their ability to license, permit, penalize and tax. These modify and limit the right of citizens to enter voluntary associations, purchase or sell property, hire and dismiss employees, open or change businesses, build structures, etc. The Old Left is feverishly expanding government activity in this area.

The Institute favors government that ~

  1. Is largely limited to the core functions (Group “1”, above),
  2. Does not provide specific consumer services other than roads, harbors and airports (Group “2”),
  3. Responds to society-s personal needs (Group “3”) in ways that promote the individual-s investment in human capital…the most critical investment that society can make, and
  4. Stresses (Group “4”) economic freedom whose central elements are personal choice, protection of property and freedom of exchange.

This concept of the role of the state is a “bottom up” concept of social and economic organization and it contrasts sharply with the “top down” approach of the Old Left. In the former power is diffused; in the latter it is concentrated in government in a few hands. This concept recognizes that free markets are much more efficient than governments in making the thousands upon thousands of decisions that affect our daily lives. It recognizes the importance of the social virtues…honesty, hard work, familial responsibility and learning…to economic health and a civil environment.

True in theory and practice.

That a society that embraces this “role of government” also fosters vigorous economic growth sounds like “a theory”…to the Old Left, a bad one at that. But there is literally tons of data, both anecdotal and statistical, that makes this idea true in both theory and practice.

We could start with Communism and its self-destruction or the “Pampers-to-Depends” welfare systems of Western Europe. Instead, let-s look at Hong Kong, the all-time growth champion. This was a city-state without any natural resources…including an adequate supply of potable water…and a crushing and continuous population problem. Yet this city-state moved from a level of wealth per capita below Mexico in 1960 to one equal to the United States in 1998.

How did it do it? In 1961 John Cowperthwaite became the financial secretary of the colony and in the 1961 Budget he set out his principles of governance-

“…in the long run the aggregate of decisions of individual businessmen, exercising individual judgment in a free economy, even if often mistaken, is less likely to do harm than the centralized decisions of a government; and certainly the harm is likely to be counteracted faster.

“While Britain continued to build a welfare state, Cowperthwaite was saying -no-: no export subsidies, no tariffs, no personal taxes higher than 15 percent, red tape so thin a one-page form can launch a company.

“During Cowperthwite-s -nothing doing- tenure, Hong Kong-s exports grew by an average of 13.8 percent a year, industrial wages doubled, and the number of households in extreme poverty shrank from more than half to 16 percent.”3

“Nothing doing”, however, is a bit overstated since the Hong Kong government did provide courts, contract enforcement, laws that applied to everyone, some measure of national defense, an effective police force…and a bureaucracy that was efficient and uncorrupt. It also provided schools, roads, and a stable currency and balanced budgets.

We could look at other positive examples like Chile and New Zealand and even negative ones like Tanzania and Nigeria. Or…we could turn to statistical studies. One economic research institute defined and measured economic freedom and related this to economic growth. Data on 119 countries for a 30-year period of time indicate that the higher the level of economic freedom the higher rate of growth…and increases in economic freedom increase the rate of growth.

The Institute has reported on this work over the past three years…most recently in “63rd in the World and Loosing Ground”, The Review, 1998, Issue #3. (For a copy call The Institute at (242) 322-6300.) Alternately any interested party can examine this work on the Internet at The Fraser Institute

Conclusion.

Dr. Nick and the Old Left may consider the work of the Institute to be biased…after all, it leads to conclusions opposite to theirs. Nevertheless, it is a consistent body of theory that has been tested in the real world. It is certainly well conceived and far from superficial as the above indicates. At this moment it should be considered seriously by all Bahamians who are genuinely concerned about the future of their country.


1. – Nikolaos Karagiannis, “Commentary”, The Evening Journal, April 15, 1999, p 8. Back

2. – Milton Friedman, Capitalism and Freedom, The University of Chicago Press, 1962, p. 196-197. Back

3. – P. J. O-Rourke, Eat the Rich: A Treatise on Economics, Atlantic Monthly Press, N. Y., 1998, p 208. Back

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