Institute for Research in Economic and Fiscal issues

IREF Europe - Institute for Research in Economic and Fiscal issues

Fiscal competition
and economic freedom


by ,

Going Back to Basics: The Promotion of Free Trade

Big Governments usually do not trust people or companies to improve living conditions. That is why notions of “social justice”, “solidarity”, “equality” and above all “sharing” were hijacked by Governments and turned into an economic principle: redistribution. Since it is believed the Government is the only organization that can be fair and would share wealth without any interests of its own, collectivism has been on the top of political agendas. Reality and practice have blown up this utopian belief: Governments are acting for their own interest, the one of the public sector, hampering the private sector’s growth. Yet “sharing” does not need any Government to be implemented: citizens can do it on their own and be even more generous than Governments could imagine. A recent study done by Sinan Aral, an assistant professor and a Microsoft Faculty fellow at NYU’s Stern School of Business, leads us to believe that economic “sharing” and distribution of “wealth” do not need any Government to be fair. People can be trusted!

Sinan Aral’s studies aimed at understanding how people influenced each other on social networks as Facebook, Twitter, etc. This was clearly a marketing study. A part of this study drove our attention since it had to be with money itself and no longer with product promotion. Let’s explain.

Sinan Aral used a very concrete example, the best in economics. Three types of incentives were created to promote a web-based flower delivery service. One incentive was given to one group of “users”, thus making three groups of “users”. They had to send “invites” to friends to activate the incentive. These three incentives were as such:

1- “selfish incentive”: $10 was given to a user of this group if a friend was invited to use the service.

2- “generous incentive”: $10 was given to a friend invited by a user.

3- “fair incentive”: if a user invited a friend, both would receive $5.

Government or collectivist people would immediately think that, mankind being naturally greedy, the “selfish incentive” would have the biggest success. Well, sorry: that was not the case. Indeed, it was discovered, to the surprise of Sinan Aral, that the “generous and fair incentives generated more sends than the selfish incentive did”. This study is putting forth the notion of “gift economy” that gives to generosity an economic impact.

It is indeed interesting to see that people, dealing directly with money, would share it in what they think to be a “fair deal”. And they are doing so by themselves, without no Government behind or any kind of external intervention.

We are not saying that it is a revolution, since we know at IREF we can trust “individual sovereignty”. But we must, in Europe and especially in Big Government’s countries as France, go back to basics. As such, Sinan Aral’s study shows in an indisputable way that “sharing” can be organized among people and be fair without any external intervention. On a global economic scale, this “sharing”, based on a win-win situation, is called “free trade”.

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