Why the news media is important to the economy

J.J. Colao is the founder of Haymaker Group, and a former Forbes staff writer, writes for Fortune about the importance of news coverage to the economy and business.

Colao writes, “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.”

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