Purposes of the Mackenzie Center for Economic Freedom

To contribute in a solid way to the debate on the role of the market and the characteristics and consequences of different types of intervention and regulation, having as our object the real issues of the Brazilian economy and the barriers to its development.

What is Economic Freedom?

Economic freedom refers to the ability of individuals to undertake and carry out exchanges of goods, services and factors of production without state interference. The basic principle is that through the price system—which signals the scarcity or relative abundance of goods and services—individual decisions are self-coordinated and made compatible.

Why discuss Economic Freedom?

From the Great Depression in the ‘30s, government intervention and regulation have expanded under the justification of correcting market failures and promoting economic welfare. At that time, politicians were more willing to listen to the interventionist ideas of Keynes that empowered them more than the scathing critique of the Austrian business cycle theory of Mises and Hayek. The Austrian approach blamed excessive credit under the auspices of the Federal Reserve, the economic bubble, and its subsequent burst. For the Austrians, the economy would come out of depression faster alone, as happened in the early ‘20s depression.

State interventionism was a widespread movement that occurred in varying degrees in all capitalist economies. The belief that the leaders would know how to fix the problems and would act in the public interest, for the collective welfare, underlay the expansion of state intervention.

However, the stagflation of the late ‘60s and early ‘70s revealed the weaknesses of interventionism, which was not able to reverse the process. An enabling environment was therefore created in developed countries for several criticisms to be leveled at government intervention in the economy, based on the argument that government failures coexist with market failures and are often overwhelming.

In the field of macroeconomics came criticism from Milton Friedman and the New Classical economists, pointing out the ineffectiveness of active macroeconomic policies. In the field of microeconomics, the approaches from Stigler, Posner and Peltzman pointed out the regulator tendency to be captured by the firms and operate on their behalf, protecting regulated firms from competition from other firms. Of course, such regulatory trade was alien to the idea of public interest.

The New Institutional economists, in turn, sought to investigate the reasons that less developed nations were not able to promote development. Acemoglu and Robinson showed that consistent long-term development depends on inclusive political institutions. Such institutions are related to property rights, freedom of choice for individuals, respect for contracts and laws, the existence of mechanisms to prevent interest groups from appropriating gains without having participated in their production, safety and protection of people and equal opportunities—principles that underlie economic freedom.

For this reason, in a country like Brazil, which has failed to consistently grow and is trapped in statism and in the middle-income trap, it becomes fundamental to develop studies focusing on economic freedom and the institutions related to it. It is time to rethink Brazil from the perspective of free enterprise.