The news media has not gotten great PR lately. Sure, there have been a few notable Hollywood depictions over the years, with films like The Post, Spotlight, and All the President’s Men celebrating the doggedness of reporters exposing wrongdoing. But the glow of these portrayals has quickly faded in an age of fragmented media, polarized politics, and “do your own research” on social media.
The proof is that the American public’s trust in traditional media remains at record lows. That erosion in trust extends beyond U.S. Borders as well, with recent declines in press freedom on nearly every continent. Around the world, journalism has faced serious setbacks in the face of hostile governments and skeptical voters in democracies such as India, Hungary, and Mexico.
This is a tragic development on many levels–even for those who don’t buy into the standard civic arguments for the Fourth Estate. A free press is vital for one very practical reason: It helps the economy. Here in the U.S., there is a real connection between our resilient economy, growing GDP, and a press that has both the power and obligation to hold companies accountable for wrongdoing.
To understand why a free press has fueled America’s success, let’s first go back to the Constitution. Incredibly, the press is the only industry that the founders explicitly mention, right up in the First Amendment of the Bill of Rights:
Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press…
The emerging United States of the 1780s was a very different polity and place compared to today. But the founders understood that much of the dynamism of our economy–not to mention the efficacy of our government–would boil down to one thing: accountability. And the press is a highly effective instrument for accountability.
To see how accountability adds dynamism to the economy, we need only look at the U.S. Stock market. Each quarter, companies present a report card to investors in the form of earnings reports, outlining the previous three months’ sales and profits, and providing updates on forecasts and strategies. Over time, effective companies get rewarded with better access to capital and talent. Their stock prices rise, making money for shareholders while attracting more resources to plow back into the company. Ineffective companies get punished in reverse.
When this system works as planned, it culls the sluggish and corrupt, elevates the nimble, and leads to the productivity gains that result in all of the luxuries of modern life.
But the financial markets, and consumers, can only do so much. Even in the most honest societies, individuals and companies often do their best to avoid accountability. In other words, they lie. Left unchecked, this kind of lying has serious negative consequences for a society’s economy–and for the well-being of all of those within it.
If investors are constantly tricked into diverting capital towards ineffective companies, and customers are routinely deceived into buying shoddy products, the whole economic engine breaks down. Investors take their capital out of the country and divert it to places with stronger institutions and more accurate information. Customers lose faith in domestic products and stop buying them. Tax revenues plummet. Jobs are lost and never return. Buying power erodes, GDP declines, and standards of living fall.
This is exactly what happens in countries without the accountability of a free press. Researchers in Australia recently examined the paths of 97 countries over a 40-year period and found that a decrease in press freedom correlates with up to a 2% drop in real GDP growth. Even more striking, a map of press freedom correlates pretty well with places where you would actually want to be born. Countries with high per-capita GDP, relative gender parity, long lifespans, and high levels of self-reported happiness are almost certain to have a robust, free press.
In practice, it’s important to note that our society does have other mechanisms for providing accountability in the economy. Short-sellers, regulatory bodies, and law enforcement can detect and punish business fraud on their own. But it’s the media that often first uncover wrongdoing. Recent history is full of striking examples.
Enron, for instance, wowed investors with misleading accounting and outright deception for years until an enterprising Wall Street Journal reporter started asking questions. A Coins2Day investigation then set in motion the investigation that ultimately resulted in bankruptcy and criminal charges. It was The Los Angeles Times that spearheaded an investigation into Wells Fargo, which was found to have created millions of fake customer accounts. And in July, The Wall Street Journal uncovered a network of toxic lead pipes owned by wireless companies in a story with serious implications for investors and for public health.
For private companies, which lack the natural check of quarterly earnings and public market oversight, media scrutiny is even more important. The mess at crypto firm FTX was uncovered by CoinDesk, the fraud at Theranos by The Wall Street Journal, and the brazen deception of Ozy Media by The New York Times.
If the media hadn’t probed these companies, investors and customers would have been duped, with their funds lining fraudulent business leaders’ pockets rather than fueling productive economic activity.
In contrast, we see the impact of an absence of free press at play just next door in Mexico, where journalists are routinely killed to eliminate the possibility of accountability for those in power. Corruption can siphon off billions of dollars in public funds while drug cartels embed themselves deeper into the country’s business and political fabric. In Russia, where GDP growth has languished compared to its freer neighbors, the media has been increasingly consolidated under the control of the state and related interests. There, the press largely acts as a rubber stamp on behalf of oligarchs who run some of the least competitive companies in the world.
Free markets and free speech are messy. Open societies are often contentious and uncomfortable, and democracies are eternally imperfect. But time and time again, they prove to be far better places to live–and to get rich–than the alternatives. Ours has survived nearly 250 years because our founders were clear-sighted enough to develop a flexible, interrelated system of checks and balances that keeps our country and its economy on track. The press is a key part of that system. So the next time you get a raise, or see a healthy bump in your 401k, remember to thank a reporter.
J.J. Colao is the founder of Haymaker Group, a communications firm that works with leading technology and CPG companies. He previously worked as a staff reporter at Forbes.
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