Economic Freedom Receives a Boost

Wriston, Walter B.

1986

Last February, President Ferdinand E. Marcos of the Philippines was driven from office just days after proclaiming victory in a special national election. Ten years earlier, Mr. Marcos won a similar election that entrenched him in power. What happened in the meantime to account for such a radically different result?

In the second election, unlike the first, television cameras went directly into the barrios and reported to the world the story of a corrupt and unpopular dictator. Even though Mr. Marcos controlled the army, the votes and the assembly, he could no longer preserve power. This is a brand new situation in the world. The global electronic network that has evolved in the last decades forcing us to redefine our ideas of sovereignty. The rapid transmission of information has become a radical force for change, encouraging the growth of political and economic freedom.

Mr. Marcos's demise is not an isolated instance. In the past few years, we have observed the birth of five new democracies in Latin America, whose countries are perched along a belt where satellites steadily transmit news and information. National censorship has become almost irrelevant. It is estimated that 80 percent of the news reaching the third world is received through hand-held transistor radios. As the late economist Barbara Ward said, revolutions of rising expectations occur only when people have knowledge of an alternative. The information revolution is providing electronic images of that alternative on an ever-expanding scale.

Even rigidly totalitarian governments are on a collision course with the information era. Although Mikhail S. Gorbachev wants to bring the Soviet Union into the computer age, he presides over a system in which the free flow of information is inherently subversive. In the United States, we have linked together fast and easily accessible data bases. In the Soviet Union, the gross national product is still a classified number. Unless the Soviet Union opens up its system, it is doomed to relative decline as a world economic power.

The electronic revolution affects economics as well as politics, radically weakening the power of governments to dictate policies that run counter to the preferences of individuals in the marketplace without paying a price in the value of their currencies. There is now an "information standard" that in many ways is more Draconian than the gold standard.

Governments that once were able ot get away with bad monetary or fiscal policies, controlling the value of their currencies through a variety of devices and regulations, must now contend with judgments about the dollar, the yen and the pound that thousands of investors make every day, 24 hours a day. The chairman of the Federal Reserve board hiccups and the dollar falls or rises in 50 markets around the world. President Reagan says that he doesn't like deficits and in two minutes 80,000 Quotron and 60,000 Reuters screens light up.

The power of the world's central banks to control economic activity is similarly restricted by what happens in the electronic marketplace. In New York, an international payments system for Eurodollars handles a daily volume of about $300 billion - many times the total reserves of the world's major central banks. With this kind of mismatch, banking leaders are in no position to counter, let alone reverse, the dictates of market forces. This puts pressure on governments to pursue sound economic policy in the same manner as the global media brings pressure on political leaders.

Today, capital goes where it is wanted and stays where it is well treated. It has been estimated that the flight of capital from Latin America to deposits in New York and Miami exceeds the total capital remaining in Latin countries. The regulatory, protectionist policies of the less-developed countries aggravate this migration of vital domestic wealth - a fact that policymakers in Argentina and Brazil have recently acknowledged.

These developments are linked to the revolution in world communications, to the growing linkages in electronic communications that have created a fundamentally new political and economic reality. Our leaders must understand and adapt to that reality if they are to help rather than hinder the promise of greater freedom that it holds.