The political left should embrace free-market reforms. At least according to the Italian economists Alberto Alesina and Francesco Giavazzi. The argument is based on the notion that some aspects of classical right of centre economic politics, such as de-regulation of the service industry, lower taxes and privatization, clearly benefit the less fortunate members of society. People who oppose these reforms often talk about social justice, but are in fact using centralized economic planning to maintain the interests of various privileged societal groups.
According to Swedish economists Stefan Fölster and Fabian Wallen, this argument holds for a number of free market reforms that have come to the fore in the Swedish public debate. One example is rent control; a policy based on the notion that low income earners should be able to live in the same neighbourhoods as the wealthy. In practice, rent controls subsidize the cost of renting in expensive parts of cities, which in turn leads to less housing construction rent hikes in less affluent areas.
Understandably, those living in rent control apartments in well-off areas are typically far from low-income earners, but are rather wealthy members of society. Here policies of rent control might be viewed as a far-fetched socialist vision of integration between various segments of society, or perhaps simply an example of so called rent-seeking policies that benefit a small group at the expense of the rest of society.
A similar situation exists in the labour market. Regulating the labour market is one of the favourite policies of the left, who claim to be looking out for average workers. But economic studies clearly show that these policies benefit those having jobs, while shutting out marginalized groups of workers – such as immigrants and the young – from the labour market. The economist Per Skedinger recently wrote book regarding on labour market regulations that detailed this phenomenon.
Rent controls then benefit privileged tenants at the expense of other tenants (and those who cannot find housing since rent control limits construction), while labour market reforms benefit privileged groups of workers at the expense of marginalized workers. In the same manner, market regulations limit competition and benefit those manufacturers who succeed in manipulating the political machinery to benefit their business and shut out the competition.
It may seems a bold notion to claim that free market reforms in many cases not only would benefit society in general (which most people agree), but also direct their benefits to marginalized groups within society (something the left often thinks only its policies can accomplish). But as Fölster and Wallen note, there is ample research evidence to back up this argument.
Perhaps this is simply a difference in perspective. The left sees the state as the great equalizer, a force to be used in order to bring forth societal justice. But in reality, political power is often bent to the will of various interest groups, who use central planning to distort free and fair competition in order to benefit themselves at the expense of others.
The left should embrace free-market reforms, but with the possible exception of Marxist free-market intellectual Boris Benulic, the Swedish left has not yet reached this conclusion.