Economic Affairs

Free to choose, but at what price?

When should governments step in to regulate personal decisions? A cost-benefit analysis suggests it's when those actions impose a cost on society, such as when protests disrupt property rights.

Recent events such as the Hong Kong protests, suggested tax on sugar and proposed ban on personal mobility devices (PMDs), as well as the cancellation by Yale-NUS College of the "Dialogue and Dissent" module, have raised questions about where the balance between freedom of choice and government intervention lies.

These questions are not new and there are many facets to the debate.

Some of the arguments are philosophical in nature, such as those related to natural rights (which, during the Enlightenment, was used to challenge the divine rights of kings).

Instead of such a philosophical approach, a more pragmatic means of determining the proper extent of government intervention is to weigh the benefits and costs to society of government inaction vis-a-vis intervention.

WHETHER TO LET PROTESTERS BE

Standard economic theory is pro freedom of action. As Dr Milton Friedman, a great champion of free market economics, once asserted: "The most important single central fact about a free market is that no exchange takes place unless both parties benefit."

So, when people are given freedom of action, we can expect society to benefit through a series of mutually beneficial exchanges. In this light, the government should intervene as little as possible.

However, even so, freedom of action can bring about beneficial outcomes only when it is underpinned by law and order. The corollary of this is that where people's actions will impinge on others' property rights, there is good reason for the government to curb such actions.

This principle can be applied to the Hong Kong protests (or civil disorder in general). Where the protests are peaceful and do not disrupt the usual functioning of markets, there is little reason to insist on the dispersal of protesters. This was true in the earlier days of the protests.

ST ILLUSTRATION : CEL GULAPA

But where the protests take on a more violent turn and protesters do not respect property rights (that is, through damaging property belonging to others without compensation), there is a clear and unambiguous case for strong and swift government intervention.

In the case of Hong Kong, the protesters have thus far caused much damage to others that they have not compensated. This includes destruction to both public and private property, loss of income for business owners (especially those not supportive of the protests), loss of tourism revenue, cost of injuries and lost productivity.

Intangible costs such as loss of security, and loss of leisure and recreation as people cannot go out freely, have also been incurred.

Using the value of the Hong Kong stock market as an example, the monetary value of the protests has been at least HK$500 billion (S$87 billion) - the fall in value of the stock market since the start of protests. Others have estimated that the protests have caused a 0.3 per cent shrinkage in Hong Kong's gross domestic product. Put in blunt terms, the protests championing freedom and democracy have come with a high price tag. And since the protesters do not seem keen to shoulder the cost, it is the responsibility of the government to intervene on behalf of those on whom the price has been extracted.

MY LIFE, MY CHOICE?

The idea of government intervention being warranted when personal choices have larger ramifications on society extends to the markets for sugary drinks and PMDs too.

Some may think that so long as people are willing to run the risk and bear the costs of developing diabetes and other diseases, they should be allowed to eat and drink whatever they want. However, the problem with such thinking is that diabetes inflicts a cost not only on the individual, but also on society. Sick people impose a burden on the national healthcare system, and greater healthcare subsidy expenditure will have to be paid by future generations through higher taxes. As such, there are grounds for the government to intervene in the sugary drinks market to reduce their consumption.

Similarly, PMD usage needs to be regulated as its use has generated external costs on the rest of society from the fires caused by charging of the devices, and the injuries and even deaths of riders of such devices and of pedestrians on footpaths.

It is interesting to note that while people are generally supportive of the ban on PMDs, they are much less so of a sugar tax even though the principle behind the two are the same.

The difference is likely due to a combination of saliency (the deaths and injuries caused by PMDs are significantly more salient than the burden on future generations in the form of higher taxes), immediate visibility and self-interest (the majority of people are not PMD users and would not be affected by the ban, whereas a sugar tax would be felt by almost everyone).

Nonetheless, regardless of public sentiments, the principle is clear - governments should intervene in both instances because these seemingly personal consumption choices also create other effects on society.

Even for a seemingly innocuous personal choice such as selecting a household appliance, there will be those appliances that are energy-saving, and those that are not. In a renewable energy-deficient country like Singapore, energy efficiency is a must as energy costs are high.

Instead of allowing a total "free to choose" with regard to household appliances, why not limit the import of non-energy-saving appliances, and allow only those appliances that are? Even in this restricted-choice case, there are plenty of appliances available that are energy-efficient to choose from.

Again, some who may disagree with this approach may not fully appreciate that the freedom of choice in this context will increase costs to society, which the few enjoy but the majority may have to pay for higher energy costs.

UNIVERSITY COURSE OFFERINGS

The issue with university course offerings is largely similar. In general, as long as the core skills and fundamental knowledge of a study or discipline are covered, the choice of electives for students is desirable as such electives broaden the students' education. However, this must be weighed against potential detrimental effects on society.

For example, electives such as practical bomb-making would clearly be frowned upon for its potential to be misused and cause harm to society.

Of course, one could argue that the potential for knowledge to be misused could be applied to most, if not all, forms of knowledge. While that is true in theory, practically speaking, some types of knowledge are easier to misuse than others. A certain degree of subjective judgment is inherent in deciding where to draw the line and, in our opinion, in the case of "Dialogue and Dissent", getting students to create protest boards does seem to cross a line.

THE OTHER SIDE OF THE COIN

In each of the earlier examples, we have argued for government intervention on the basis that freedom of choice can impose some sort of costs on society.

This is not to say that we are supportive of government intervention all the time. Rather, government intervention may be necessary when society's welfare is compromised by individual actions.

This is because governments have a responsibility to safeguard society's interest. Nonetheless, it is possible that in some scenarios, the cost of intervening may exceed the benefits of doing so. As such, governments need to conduct cost-benefit analysis to determine whether to intervene and if yes, how to do so? The latter requires another approach beyond economics.


 • Euston Quah is Albert Winsemius Chair Professor and head of economics at Nanyang Technological University. He is also president of the Economic Society of Singapore. Christabelle Soh is a teacher in a junior college in Singapore.

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