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Democracy: Freedom and Capitalism

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Democracy: Freedom and Capitalism

Author: Rodolfo Sosa Garcia

Sosa Galilei Consulting

January, 2008
www.galileiconsulting.com

Electronic copy available at: http://ssrn.com/abstract=1154856

The content of this paper is responsibility of the author.
They do not necessary represent the views of
Sosa Galilei Consulting or any of its members.

Copyright (2006) ©
New York, USA

All rights reserved. Not part of this publication could be

reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical,
photocopying, recording or otherwise without prior
permission of Sosa Galilei Consulting.

This publication is sold subject to the condition that it

shall not, by way of trade or otherwise, be lent, resold,
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which it is published and without a similar condition.

2
Electronic copy available at: http://ssrn.com/abstract=1154856
 Contents

Contents 03
1 Justification 04
2 Freedom 05
3 Democracy: Freedom and Capitalism 08
3.1 Democracy 08
3.2 Capitalism: economic freedom 09
3.3 Freedom and capitalism 12
4 Challenges to global freedom 15
5 Conclusions 18
6 Recommendations 20
Bibliography 21

3
1 Justification
The events of September 11th 2001 changed the world perception about the concept of
freedom and motivated us to question that concept and to understand the new risks against
freedom. New York City experienced the destruction of the Twin Towers in the World Trade
Center area located near the Statue of Liberty that welcomed thousands of immigrants to the
United States during World War Two. I lived just few blocks near the Twin Towers, and I had
the opportunity to reflect about the concept of freedom, the threats and the future risks that
freedom will confront in the global society.

After the terrible events of 11/09, various leaders of opinion expressed their concern for
freedom, which is conceptualized as a universal human right and a global asset. The concept
has been analyzed based on different approaches through the human history. Among the
international expressions, I want to quote the song “Freedom” composed by the famous
musician, Paul McCartney:

“This is my right, a right given by God.

To live a free life, to live in freedom,
I am talking about freedom; I am talking to freedom,
I will fight for the right to live in freedom, to live in freedom”.

My personal experience after the 11/09 events, and my accumulated experience for my
participation on diverse economic and political international forums motivated me to write this
essay. My objective is to analyze the concept of freedom in relation with the capitalist
economic system, both of which are elements of the democratic system that we should keep,
expand and improve in the future.

Democracy (including freedom) is confronting various internal threats, among them the lack of
quality of laws; but also they are confronting various external threats, such as terrorism. My
essay presents some reflections on the advance of democracy in the global society and with
the hope that in the future leading groups and individuals will align their interests and work
together towards one common objective: to fight-propose-contribute for the defense of the
freedom at global level.

4
2 Freedom

The concept of freedom is an important concept currently discussed on different points of view
at world level and based on different historical contexts. A poll among different individuals at
global level will describe different concepts of freedom. An investor in New York, a politician
in Washington D.C., an artist in Paris, executives of private corporations in Japan or in China,
the Dalai Lama, religious leaders in Middle East, common citizens in small villages in Africa,
Bono the singer of U2, a survivor of Hiroshima bomb or a survivor of the events of 11/09 will
each describe a different concept about freedom and about its relation with other two
important concepts: capitalism and democracy.

Democracy has been studied historically and enriched through time by various philosophers
such as: Rousseau in “Social contract”; Montesquieu in “The spirit of laws”; Kant in
“Metaphysics” and “Perpetual Peace”; Hegel in “Fundamentals of the philosophy of rights”;
and Locke in “The civil government”. In addition, we have studied the concepts developed by
various Nobel Prize winners: 1) Woodrow Wilson (1919) “The new freedom”, where he studied
the new forms of freedom; 2) Andrei Sakharov (1975) “Progress, peace and intellectual
freedom” he studied the freedom of information and freedom of conscious (human rights); and
3) Rigoberta Menchu (1992), promoter of the freedom of organization and movement to fight
against the discrimination of Indians in Guatemala. All those thinkers have presented new
concepts and principles that have enriched the concept of freedom and thanks to them we
have transformed the democratic forms of government at world level.

In the Christian bible we can find the reference in John 8:32 “Know the truth and the truth will
make you free” But unfortunately; the catholic inquisition prosecuted great thinkers such as
Galileo Galilei and those who advanced scientific thinking. In addition, the Catholic Church
expelled the Jewish from Spain in 1492, and obligated them to convert to Catholicism if they
wanted to live in Spain. Historically, we have witnessed cases where institutions have formally
recognized freedom as a universal right of human being but in practice they subordinated
those principles to their own economical and political interests.

5
Regularly dictatorships offer their own justifications to oppose free countries; they have
created their own perceptions about the concept of freedom and have indoctrinated their
citizens based on ideology. Dictatorships have paradoxically created their own concept about
freedom. We should remember that the Nazis published the phrase “Arbeit macht frei" which
means “The work makes you free” in the extermination fields where thousands of human
beings were sacrificed.

The universal declaration of Human Rights was signed on December 10 of 1948. In the body
of the declaration is written “The recognition to the dignity and equality of the inalienable rights
of all members of the human family is based in freedom, justice and peace in the world”. It
also declared “the advance to a world where human being will enjoy freedom to talk, freedom
to believe, freedom to want, that have been proclaimed as top most aspiration of the common
people” and finished with “the human rights must be protected by the law”. Summarizing,
freedom is included as one of the three more important rights of the human being in a
globalize world and the UN Declaration defined the three basic types of freedom that are
protected by the law.

Country members of the Organization of the United Nations (ONU) have agreed to improve
human rights (freedom) and economic freedom (living standards and social progress)
because the United Nations Declaration states: “The peoples of the United Nations have in
the Charter reaffirmed their faith in fundamental rights of human beings, in the dignity of the
person, in the equality of man and woman, to promote the social progress and determined to
promote better standards of life and more freedom.” If we consider that Capitalism is the
system that guarantees the economic freedom then the letter of Declaration of Human Rights
of the United Nations Organization promotes also the concept of Democracy related with other
two concepts: freedom and capitalism.

The concept of freedom was included in several of the 30 articles of the Declaration of Human
Rights. In the article 3, three universal rights are defined: right to live, freedom and security.
Article 13 established the right of freedom, to move in one individual country. Article 14,
established the right of religious freedom. Article 19, established the freedom of public
expression. Article 20, established the right of freedom of association. Article 29, established

6
that the rights and freedoms established in the letter, that are determined by law, in order to
sustain the public order in a democratic society.

Based an all of the above, a society considered to be democratic should fulfill and guarantee
the freedoms described in the six articles in order to be considered a real democracy and not
just an electoral democracy, which only considers the right to vote and the respect for the
electoral vote. It is clear that there is an inherent direct relation among the concept of freedom
and democracy and that should be guaranteed by the governments of the global economy.

The expression “Liberty, Equality, Fraternity”, was the motto of the French revolution. The
expression was first mentioned in 1790 by Robespierre and it was included in two French
constitutions from 1946 to 1958. Annually in the plaza of the Concordia, next to the Eiffel
Tower in the heart of Paris, thousands of people get together to commemorate it. In addition, it
was printed in the entrance of most of the main buildings of the government to remind their
government officials of their obligation to those principles.

The declaration of Independence of the United States of America (USA) was signed on 14th of
July 1776, and it established: “We sustain the truth that all men are created equal and they
are endowed by their Creator with certain unalienable rights, among them the freedom to seek
happiness. To be guarantee those rights, the governments elected by the citizens and the
government receive its power from their governed”. The rights and liberty of the American
citizens should be guaranteed by their government, through the capacity to create laws that
preserve the three main rights mentioned. Another method for promoting freedom by the USA
government has been through “The medal for freedom.” It is awarded in very special
occasions and to outstanding contributors for freedom: Sir Winston Churchill, Dr. Martin
Luther King, President Ronald Reagan, the secretary of state Collin Powell and mother
Teresa. Another important historical event was the foundation of the Center Margaret
Thatcher for liberty, which promotes the concept of freedom. During the first conference on
September 6th 2006, the prestigious Israeli politician Natan Sharansky, president of the
Jerusalem Report, mentioned that freedom is a right for all human beings in the globalize
world; he enumerated the various risks that dictatorships represent for the global
democracies.

7
3 Democracy: freedom and capitalism

3.1 Democracy
I have been working with David Schrunk, president of the Quality of Laws Institute in Poway,
California. We have discussed the concept of democracy in a wide sense. The internal risks
can be solved. Specifically, democracy can be strengthened by applying quality principles to
the formulation of laws and at the same time applying the principles of rational economics.
The external risks can be solved with the cooperation of countries, and those risks and some
proposals to solve them would be explained in the point four of my essay.

I have decided to include the concept of Democracy as the one presented by David Schrunk,
“Democracy is the category of government in which citizens are the sovereign”, that means
that a democratic government should serve the highest interests (freedom, security and
economic progress) of their citizens by the best ways. That definition was formulated after
studying various studies of recognized philosophers such as: Aristotle in “Politics”,
Montesquieu in “The spirit of laws”, Kant in “The science of laws”, Madison in “Federal
reports” and finally by Thomas Jefferson in “The declaration of independence of the United
States”.

Autocratic governments come in different forms: aristocracy, ideocracy, monarchy, and

theocracy. On those forms of governments the group in power keep their privileges through
different strategies: 1) The abuse of human rights; 2) Creating complex laws, inefficient or
selective (towards a group of interest); and 3) Aggressive actions to counterbalance internal
or external balances that do not recognize their authority.

The requirements for a government to be considered democratic in a wide sense are three: 1)
The citizens choose their governments, and their governments recognize their citizens as
sovereign; 2) The individual governments recognize and guarantee their human rights; and 3)
The governments apply quality methods to solve problems for the benefit of their citizens as a
whole by applying the principles of quality of laws and rational economics.

8
The process of quality of laws eliminates inefficient laws, obsolete laws, laws that promote the
waste of resources, laws that are injustice and laws that are not fulfilled because of the
corruption of their governments. The principles of quality of laws were discovered by Juran,
Deming and Crosby and were transferred by the successfully application of the process of
formulation of laws.

The principles of economic rationality should be understood as the process where the laws
and decisions of the government are fundamental to various economic principles: 1) Laws
should include the cost-benefit analysis; 2) Lawmaking should apply various alternatives that
could maximize the benefits for their citizens and that minimize their direct and indirect costs;
3) The laws should be economically sustainable through time, with an impact analysis for
many generations; and 4) Laws should be sustainable environmentally (considering global
warming) through time in the medium and long terms. I have developed the principles of
rational economics based on the prolific work of two economic Nobel prize winners:
1) Douglas C. North (1993), who developed the analysis of cost of transactions, analyzed the
process of social change, and analyzed the process of institutional change; and 2) Robert J.
Aumann (2005), who developed the game theories and applied them to the field of economic
decisions.

3.2 Capitalism: economic freedom

Freedom is a universal right, and more than a philosophical concept as stated in the
declaration of Independence of the United States and in the Universal Declaration of Human
Rights by the United Nations. The United States has promoted the capitalist system, where
individuals are organized in firms that have generated the economic growth through more
efficient ways of accumulation of capital, and in the development of technology and in the
specialization of human labor.

Democracies tend to generate major states of freedom and peaceful relations between
nations, whereas dictatorships and fundamentalist groups tend to generate more conflicts.
Dictatorships are unstable not only internally, because of the fight by opposition groups, but

9
also externally by creating alliances with the governments and political groups that are allied
to their interests. We can conclude that democracies should ceteris paribus generate higher
levels of Pax in the world.

Two economic Nobel Prize winners developed research in order to quantify economic
freedom within the past fifty years: Dr. Lawrence R. Klein (University of Pennsylvania) and Dr.
Milton Friedman (Chicago University). First, Dr. Lawrence Klein initiated the development of
econometric global models built during the years 60’s and 70’s. He was pioneer in the creation
of the first econometric model of the USA, and he was the first to elaborate an econometric
model of the Soviet Union and China. In our weekly meetings in the city of New York, we have
looked to increase our understanding of the global econometrical models. Second, Dr. Milton
Friedman, developed a research study during the years 50’s, to study the relation of economic
phenomena and the human progress. His book “Capitalism and freedom” has converted into a
classical of the libertarians of capitalism, and he has expressed that for him economic
freedom was the base of the other liberties. In 1982, Dr. Friedman initiated his intensive
cooperation with the Prime Minister of England, Margaret Thatcher, and finally in 1984
created the Index of World Economic Freedom (IWEF) with a panel group of 70 countries over
the world.

Actually, The Heritage Foundation in United States and The Fraser Institute in Canada have
created global indexes to measure economic freedom. The first one is a panel of 161
countries that initiated in 1995 and the second one is a panel of 141 countries that initiated in
1985. The purpose of both studies was to measure and quantify the concept of economic
freedom, more than an abstract concept, that could be used by politicians and governments in
the practical form and to define economic policies that tend to increase the democratic
advance in countries.

The definition of two indexes of economic freedom included from 7 to 10 economic variables
to measure quantitatively the concept of economic freedom: 1) Freedom in business; 2)
Freedom in commerce; 3) Fiscal freedom; 4) Freedom of government; 3) Freedom of
investment; 4) Financial freedom; 5) Property rights; 6) Corruption; 7) Labor freedom; and 8)
Monetary freedom. In my essay, I am not going to analyze the statistical quality of those

10
methodologies, or speculate if the aggregation of variables measure what they should do.
I am going to take those measures as an indicator of direction, not an indicator of magnitude,
that allow us to obtain certain general conclusions about the correlation of economic freedom
and per capita GDP.

The definition of economic freedom of the Heritage Foundation is: “Freedom includes all
liberties and rights of production, distribution and consumption of good and services. The
higher economic freedom the higher level of absolute private ownership and the government
must guarantee the full realization of freedom and movements of human labor, capital goods,
product and services. An absolute absence of the coercion of economic freedom is required to
protect and sustain the freedom of their citizens”. Ergo, individuals are free to produce,
consume, and invest in the form that they select. That is, the freedoms that government must
protect and not limit. I consider that Heritage’s definition is incomplete, because it does not
include the idea that individual freedom must be limited to the other’s rights and that the
economic activities should be regulated by laws based on quality principles and should
include the principles of economic rationality.

I can conclude that the results derived from the research of economic freedom indexes are not
surprising with respect to our intuitive thinking. The five countries ranked with the highest
levels of economic freedoms are: 1) Hong Kong, 2) New Zealand, 3) Switzerland, 4) United
States, and 5) England. The five countries ranked with the lowest levels area: 1) Zimbabwe, 2)
Congo, 3) Angola, 4) Cuba and 5) Venezuela. During the last decade, Europe has been the
economic zone that has experienced the highest levels of improvement in the economic
freedom index. The conclusions of both studies are clear: 1) Democratic process has
advanced historically at international level, the number of countries “almost free” and “free”
have increased considerable during the last ten years. 2) There is a positive correlation
among two variables higher level of democracy and higher level of income per capita.

International financial agents are currently evaluating how to reward, those countries that
experience higher levels of economic freedom. In 1995, for the first time the Liberty
Investment Group of Chicago, created an Investment Fund for Economic Freedom (IFEF); this
investment fund is specialized and directed to countries with higher levels of economic

11
freedom. The Liberty Group created a portfolio with six countries and actually the fund has
included 20 countries with the highest rankings of the index of economic freedom reported by
the Heritage index. Our expectation is that the returns of the IFEF portfolio will improve
through time with respect to the returns of a fund constructed with an index of average returns
of the financial markets.

Although there is strong evidence of the correlation among democracy and economic growth,
there are countries that have openly opposed economic freedom: North Korea, Zimbabwe,
and Cuba. Most recently in Latin America, Venezuela has opposed the advance of the free
markets. Countries that openly have affronted the democracy-capitalism principles such as
Iran, Venezuela and Angola, have benefited from the high prices of oil and energy sources
during the last years but they have used those financial resources to finance political and
ideological movements rather than to improve the economic progress of their citizens.

3.3 Freedom and capitalism

The encyclopedia Britannica defines capitalism “The economic system in which the majority of
the mediums of production are private property, and where the operation of markets rules the
production and the distribution of income”. Barron’s financial dictionary of Finance and
Investments define capitalism “The economic system where: 1) There are rights to protect
private property; 2) The owner of the private property and capital provide the income required
for firms and individuals to own and accumulate them; 3) Individuals and firms are free to
compete among them for their own economic benefit; and 4) The incentive to generate profits
is the base of economic activities”.

The Massachusetts Institute of Technology (MIT) dictionary of Economics: “The economic,

political and social system where the private property, included capital goods, are owned and
controlled by private individuals. In this system, the price mechanism is used as a signal
system to allow investors to allocate resources among different uses. The higher the use of
the mechanism of prices, the higher the level of competitiveness of their markets; finally the
level of intervention of the government define the exactly form of capitalism”. Other synonyms
of capitalism are: Free market economy, system of free enterprise, system of free prices, or

12
Laissez Faire Economy (literally, free hands economy). I am not going to analyze the
differences of conceptions of capitalism by geographic origin, historically, or by economic
schools of thought. My purpose is not to analyze the historical process of the capitalist
system; my purpose is to link the concepts of capitalism and freedom as the fundamental
concepts of the democratic forms of governments. Democracy has been defined as the form
of government where their citizens are the sovereign of their government. Governments must
serve the best interests of their citizens, their human rights (freedom) and to improve their
standards of living and quality of life (capitalism). Ergo, true democracies, properly governed
must guarantee their citizens higher levels of freedom and quality of life.

Human rights (freedom) recognize in the human being his rational capacity, the use of reason
to guarantee their survival. Human rights are the source of the other rights, among them the
private property right (core principle of capitalism). I agree with Ayn Rand about her definition
of capitalism, “The economic system that is based on the recognition of the human rights
(freedom), included the right for property and the private form of property”. The core principle
of the capitalist system is the right for private property but also that right is originated in the
human rights (freedom). We can conclude that capitalism is the social system that guarantees
individuals their higher levels of freedom.

Dr. Alan Greenspan, ex-president of the Federal Reserve in USA, has defined that in a free
economy, capital markets regulate competition. Barron’s definition includes the concept of
freedom to compete as base of the capitalist system. In addition, Greenspan thinks that
capital markets are the regulators of prices, and that those generate the incentives to increase
productivity and higher living standards. If the capital markets regulate the prices and the
higher use of the mechanism of capital prices the higher level of competitiveness (MIT
definition). Finally capital markets regulate competition, and we have arrived to the same
conclusion presented by Dr. Greenspan.

The main assumption of the capital markets is capital freedom; the flow of capitals would be
allocated in those areas that offer higher economic returns. That definition of the operation of
capital markets is a fundamental of the capitalist system (Barron’s) because investors
compete to maximize economic profits. We can conclude that capitalism and the operation of

13
capital markets recognize the rational capacity and the search of better living standards by
individuals, guaranteed by their human rights (freedom).

Human rights (freedom) are a fundamental principle for the operation of capital markets;
competition, production and distribution freedoms are the basis of the capitalist system. We
have reached the same conclusion as Ludwig Von Misses “Planning freedom”, “Capitalism
protects the human rights (freedom) and it allows individuals to reach better living standards”.

My definition of democracy in a wide sense, assumes that democracy is based on two core
concepts freedom and capitalism, that conceptual relation has also been verified in empirical
form through the historical correlation among democracy and economic growth (per capita
GDP) reported by the main studies and indexes of economic freedom based on global panels,
with more than 100 countries.

Adam Smith in his book “Wealth of Nations” written in 1776 defines that “The purpose of the
economic policy of one country is to increase the wealth of that country”. Moreover, it
mentions “Institutions should protect the freedom of individuals in order that they could reach
their own economic purposes, and then improve the general society wealth”. That is to say,
the capitalist system looks to improve the freedom of individuals and at the same time
increase the wealth of nations. From my point of view, the democratic definition of capitalism
should be expanded: “The purpose of the economic policy of a country is to increase the
wealth of that country, with higher levels of freedom, and increasing the living standards of
their citizens”.

The presidents of the United States historically recognized the democratic advances of the
nations at international level. From president John F. Kennedy in 1961, who defined two
regional “Domino effects” at international level: the group of democratic-capitalism countries
and the group of authoritarian-socialist countries (for example Cuba in Latin America);
president Ronald Reagan complemented the “Domino effect” with the concept of freedom of
commerce (economic freedom) to catalyze the advance of the democracies at international
level.

14
More recently, Secretary of State, Condoleezza Rice has declared that the world security and
the world economic development depend on multilateral efforts and has confirmed in the
Organization of American States (OAS) “When citizens select a democratic government they
are hoping that through democratic governments they would be taken to better living
standards and to a higher quality of life”. The democratic responsibility mentioned by the
Secretary, where democratic governments are obligated to improve the quality of life of their
citizens is included in our definition of democracy in a wide sense, and it is presented and
analyzed in the part three of this essay.

Dr. Hernando De Soto, Director of the Center for freedom and Democracy in Peru, has
advised 32 heads of state regarding financial funding from the Inter-american Development
Bank (IDB). Dr. De Soto found that governments have been ineffective to improve economic
freedom and democratic conditions for their citizens and their firms. Those problems could be
solved by applying the three elements of our definition of democracy in a wide sense.

That economic phenomena described by Dr. Hernando de Soto, is one of the internal threats
for democracies; but that could be solved by the use of the principles of quality of laws and the
principles of rational economics. It is commonly known that economic resources should not be
wasted or directed to the projects of the interest groups, to secret accounts but for the benefits
of the population as a whole. The purpose of democracy based on the principles of quality of
laws and the principles of rational economics should be to increase of living standards of their
citizens.

Democracies should open their markets based on the improvement of their institutions and
improvements in their process to formulate laws. When the process of formulation of laws
would be based on the principles of quality of laws that will guarantee increasing levels of
freedom of their citizens; and complementary based on the principles of rational economics
(capitalism), then they would improve the standard and the quality of life of the majority of their
citizens.

15
4 Challenges to global freedom
As a member of the Millennium Project at the United Nations, the reports have indicated that
there are various phenomena that have arisen as threats for democracies and global freedom
in the medium and long terms:
1) The budget of the organized crime is higher that the resources assigned by the official
governments to combat them, that is to say, they would not accomplish the laws to respect
the rights of their citizens. When organized crime interferes in the decisions of their
governments for the benefit of their citizens.
2) Only 40% of the countries in the world are self sufficient in water. Based on that, the
economic development in some countries would be limited for the lack of water.
Agricultural production receives 70% of the water flows at international level, and it is
estimated that the cost of supply of water to urban zones will increase during the years to
come.
3) Poor countries would continue to send millions of immigrants towards richer economic
zones, putting into risk the legal capacity of receptive countries. Migration has generated
conflicts: social, economic, political and religious in those countries that have received the
immigrants.
4) The accelerated development of high technology, in the hands of terrorist could put into
risk global security, if terrorists develop weapons of mass destruction. The subject of
homeland security is a priority for the agenda of the United States, which means that the
interventions of civil freedom could be reduced for security requirements to combat the
potential threats of new terrorist groups.

All the problems above mentioned are threats for democratic societies and the societies that
look to protect the freedom of their citizens; but the methods to combat the threats could
reduce the freedom associated with democratic governments. In addition we have the
following questions: ¿Who should defend the liberty of democracy? The logical answer should
be that democratic governments should cooperate among them as much as possible; ¿What
instruments they could use? International Organizations such as the Organization for
Economic Development and Cooperation (OEDC), United Nations Organization (UN),
International Monetary Fund (IMF) and World Bank (WB); they could offer advise and facilitate
the interchange of information.

16
Every government could improve or could create their own institutions; and promote
participation of non-government organizations that were compromised with the principles of
democracy and capitalism.

We can mention some examples of the generation of information, the proposals and
recommendations that could be used for individual countries to formulate economic policies:
The World Bank reported that $1 trillion dollars was the budget of the organized crime during
the year 2005. The same year, the OEDC reported 40 recommendations to reduce money
laundry. United Nations Organization signed the agreement against organized crime in the
year 2003 (Palermo). International Transparency has realized studies of corruption among
governments at international level. International Monetary Fund (IMF) has suggested central
baking standards to detect and to reduce financial operations of the organized crime.

The council of security of the United Nations should promote agreements and actions to solve
the threats and risks those democracies will confront at a global level. It could be possible to
create new institutions as the World Environmental Organization to promote and formulate
public policies for environmental and economic development. That organization could be
directed by the vice-president Al Gore, winner of the Nobel Prize 2007, for his studies and
contribution about the phenomena of global warming.

It could be possible to organize meetings among general secretariat members, World Bank
(WB), International Monetary Fund (IMF); Organization of American States (OAS), United
Nations Organization (UN), and the World Trade Organization (WTO) to generate agreements
of cooperation among their agendas and to promote the interchange of information. We
should define a commission that could initiate a global strategic report that democracies will
affront: freedom and the global economic progress. First governments should identify the
threats to solve, and then they should look for solutions and should analyze their technical
feasibility, and finally plan tests of effectiveness to protect individual freedom and increase
their living standards, in order to expand the democratic principles at international level.

17
Capital flows are fundamental for the operation of the capitalist system, but the flows of the
organized crime are estimated in thousand of millions of dollars, those flows should be
combated by the cooperation of democratic governments and international financial
institutions. We should minimize those resources used to corrupt democratic governments, to
reduce human rights, and finally to put into risk the global security systems.

5 Conclusions

Freedom is a universal right for the human being, and the capitalist system is the one that
guarantee individuals higher level of freedom and to protect their human rights. We have
demonstrated that democracy is directly related with the concepts of freedom and capitalism.

The limited concept of electoral democracy (only the electoral vote) should be expanded
toward a concept of democratic government that should guarantee human rights (freedom)
and guarantee better living standards (capitalism) for their citizens. Individual governments
should evaluate their economic and social policies taking into account the concept of
democracy in a wide sense.

As an economist, I am conscious of the economic costs to incorporate the concepts and

principles of democracy in a wide sense, for individual governments in their laws. I am sure
that different government would cooperate to reduce and control the external risk of
democracies. As was correctly explained by Vice-president Al Gore, during his ample
international tour in defense of environment and climate change, the benefits are higher than
the costs. We can conclude that it is rational economically to expand democracy, freedom and
capitalism at international level.

We have defined in the point 3.1, the concept of democracy in a wide sense that solves the
internal threats for democracies incorporating the principles of the qualities of laws and
rational economics. Among the external threats to democracies, we can mention: lack of water
sources, high energy costs, technological weapons in the use of terrorist groups, high energy
rents used by dictatorships, and financial flows from the organized crime. It is clear that to
solve those problems it’s required the international cooperation of democratic

18
governments and to look for efficient policies to solve them; it is important the participation of
international organizations and the participation of non-government-organizations (NGO’s) to
increment the standard of living of human being and the global economic growth. The
advanced of the democratic process, will increase the number of countries in the category of
“free” and that would promote the international Pax among governments.

The Declaration of Independence of the United States and the Universal Declaration of
Human Rights have recognized freedom as a right for all people. The American government
has recognized its responsibility to guarantee the freedom of their citizens and recognize his
democratic status through the improvement of the best interest of their citizens: freedom,
security and economic progress. The events of 11/09 put into risk the level of freedom and
security of the american citizens; american government then initiated a process to rethink and
to redefine the forms of security in a democratic government and policies of multilateral
international cooperation.

United States incorporated in its declaration of independence the principles of democracy,

freedom and capitalism. The government of the United States should cooperate with the
country members of the United Nations Organization and should lead the country members of
G7 group to promote democratic forms of economic freedom that generates higher forms of
pacific cooperation at international level. We should expand the international democratic map
that is to incorporate more governments committed with the concept of democracy in a wide
sense. Democratic forms of government would guarantee higher levels of pacific international
cooperation among nations.

It is possible to measure economic freedom; we have mentioned prestigious studies

developed by the Heritage Foundation and the Fraser Institute that could be used by the
governments to establish public policies and to increase the advance of democratic principles
in those countries. We expect that the efforts of international cooperation would increase the
map of economic freedom; annually should be an increase in the classification of “almost free”
and “free”.

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The benefits are clear, there is a positive correlation of democracy and economic growth,
another advance will be to increase the number of investment funds that could promote higher
levels of capital flows towards the countries with advance in their index of economic freedom.

Freedom in capital flows will increase the economic growth and is a core principle in the
operation of the capitalist system. Capital markets promote economic competition, regulate
prices, increase economic growth and generate economic incentives for the agents to
increase productivity. If the investment funds for the economic freedom (IFEF) work efficiently
then capital markets will promote the advance of democracy. We have an important new
concept, capital markets then will be actively promoters of democracy: freedom and
capitalism.

6 Recommendations

I present some recommendations for individual governments. If they follow them, they would
not only improve their policies and the process of formulation of their laws, but also will enrich
their multilateral international agreements:
1) Advance human freedom, its important that human rights should be included and to
expanded in the agendas of democratic governments.
2) Improve economic freedom, countries that increase economic freedom and promote
capitalism will benefit from higher economic standards of living.
3) Apply quality programs to laws and lawmaking that would improve government’s
efficiency and will improve the standard of living of their citizens.
4) Apply rational economics principles, economic and financial resources are limited
applying rational economics principles governments will increase their future economic
benefits for the majority of their citizens.

I truly believe that it is possible to incorporate those principles in the agendas of governments
and then to strength democracy: freedom and capitalism. That process will take time, require
capital and human resources and should be leaded by politicians, institutions and civil
organizations but at the end the benefits will highly exceed the costs.

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 About the Author

Dr. Sosa Garcia graduated PhD. in Economics and Finance from CUNY, CUM LAUDE in New
York, USA. He has participated in the Project Link meetings, United Nations Organization in
New York since 1997. He has been economic advisor for the Millennium Project of the United
Nations Organization, Organization of American States (OAS) and the World Bank in
Washington DC. He has participated as speaker in international forums such as: Biarritz
Forum (France), ALC-UE (Vienna, Austria). He has offered conferences at New York
University and Harvard University. He is founder of the financial group Sosa Galilei
Consulting, based in New York, with Dr. Lawrence Klein (Economics Nobel Prize 1980). He
has published papers with Dr. Akira Onishi (Economic Nobel Prize finalist 2006) and his
economic comments have been quoted by Financial Times and other leading economic
newspapers.

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