I. Thesis
 n order to properly understand economic and political freedom, it necessary first to begin with a proper definition of freedom.
Merriam Webster defines freedom as "the absence of necessity, coercion, or constraint in choice or action" and "power or condition of acting without compulsion." Freedom, in the most basic sense, is the ability to act and choose without coercive pressure. This is not to suggest that in any free society all individuals make choices that are without coercion. Rather, "coercive pressure" entails the notion that no one person or institution is morally permitted to forcibly require a person's obedience.
As the name would indicate, "economic freedom" is the application of freedom to the individual's role and capacities in a market economy. As is stated in DFN's Handbook of Freedom, economic freedom is defined as "the right of man to engage in voluntary economic activities (e.g. trade) for his benefit." Naturally, there are other definitions as well. The Fraser Institute views economic freedom as:
The extent to which one can pursue economic activity without interference from government. Economic freedom is built upon personal choice, voluntary exchange, the right to keep what you earn, and the security of your property rights.
Steve H. Hanke and Stephen J.K. Walters of the Cato Institute believe the central elements of economic freedom are:
Secure rights to property (legally acquired), freedom to engage in voluntary transactions (both inside and outside a nation's borders), freedom from government control of the terms on which individuals transact, and freedom from governmental expropriation of property (e.g., by confiscatory taxation or unanticipated inflation).
What is evident from these explanations and definitions is that a singularly agreed upon term for "economic freedom" does not exist. Despite the absence of definitional convergence upon one term, there are key factors that directly contribute to what constitutes economic freedom.
According to the Fraser Institute, there are five major areas where economic freedom can be assessed: size of government (expenditures, taxes, and enterprises); legal structure and security of property rights; access to sound money; freedom to exchange with foreigners; and regulation of credit, labor and business.
1.Size of Government - Economic freedom is reduced when individuals, households, and businesses spending decrease spending relative the government. In effect, governments make more decisions and so freedom declines. This can be witnessed through such things as top marginal tax rates and government expenditures as compared to GDP.
2.Legal Structure/Property Rights - DFN firmly believes the government must protect property rights. The ability to engage in trade and finance is meaningless in the absence of property rights. Moreover, there must be a reliable legal system to enforce the protection of these rights. Freedom can be hampered in this respect by military interference in the rule of law and the protection of intellectual property.
3.Sound Money - Inflation, as a function of unsound monetary policy and printing, has hurt private trade and allows the government to use newly printed currency for its expenditures. Recent inflation rates and freedom to own foreign currency bank accounts domestically and abroad are factors that effect economic freedom.
4.Exchange with Foreigners - Freedom to exchange with foreigners not only raises the overall living standard, but is an essential ingredient of freedom: the "vast majority" of status quo goods and services come from abroad. Therefore, the need for foreign exchange is a requirement of economic freedom. Taxes on international trade and regulatory hidden barriers are elements that help measure freedom.
5.Credit, Labor and Business - Regulatory barriers that stymie entry into markets and restrict voluntary trade enormously limit economic freedom. DFN argues that the ability to voluntarily trade for mutual benefit and enter into open markets is a necessary element of economic freedom. Price controls and competition are indicators of a restriction on economic freedom with respect to this category.
In sum, the Fraser Institute offers 38 variables from all five categories. For more information, consult their 2003 Economic Freedom of the World index.
Economic freedom is a complex and expansive concept, but there are a few particular topics that require specific emphasis, namely, property rights; capitalism as the only economic system capable of producing freedom (both economic and otherwise); the inextricable link between economic freedom and economic success; and observations about the capacities and limitations of freedom in the economic sphere.
II. Property Rights
A "property right" is the notion of rights applied to material reality. Property rights are the legal, economic, and moral sanctions to possession and ownership over material objects for the purpose of one's choosing. This right also gives the individual the ability to seek out and obtain property, insofar as that pursuit is both scrupulous and in no violation of the rights of others.
Property rights warrant underscoring on two grounds: their highly correlative relationship to economic productivity and in direct relation to DFN's mission, their tremendous value in fostering positive change in the international world, but particularly developing countries.
On the first ground, the evidence suggesting the correlation between the specific inclusion of a well defined, coherent and legally-protected system of property rights and subsequent economic success is overwhelming. According to Gerald P. O'Driscoll, Jr. and Lee Hoskins, both of the Cato Institute, there is indisputable data that affirm the aforementioned link. O'Driscoll and Hoskins offer a few comparisons of economic outcomes between states with coherent, legally-protected property rights and those without:
1.In 2000, real per-capita GDP was $50,061 in Luxembourg and only $490 in Sierra Leone.
2.Real per-capita GDP in the U.S. is roughly four to eight times that of Mexico.
3.Measured conservatively, South Koreans have 17 times the income of North Koreans.
4.Based on various measures, in 2000 the average Finn earned two and a half times to more than seven times the average Estonian earned. Recognize in the 1930s that Finns and Estonians had a commensurate standard of living. Additionally, the two countries are nearly neighbors, their languages share a common linguistic root, and both nations share common values.
5.Both Hong Kong and Singapore sustained periods of annual growth of real per-capita GDP at 5 percent for a long period, despite a near complete absence of natural resources.
6.China's real per-capita GDP in 2000 was still under $4,000 while Taiwan's is over $17,000, more than four times China's.|
7.South Koreans live on average income roughly equal to average incomes in the U.S. in 1945. North Koreans, on the other hand, struggle to survive, often existing by eating roots and grass, according to Prof. Allan Meltzer. Moreover, Nick Eberstadt points out the effects on diet from reduced standard of living: seven-year-old South Korean boys are 8 inches taller than North Korean boys.
Clearly, the reasons contributing to these economic disparities are more than property and rights. However, the overarching idea being pursued is that the value of property and property rights has been historically omitted and that ironically, they are an enormous factor in determining economic success. It is nearly inexplicable that a factor as significant as property would be ignored despite its tremendous necessity, purpose and worth.
O'Driscoll and Hoskins argue the connection between a strong system of property rights and economic success require two provisions: the exclusive right of individuals to use their resources as they see fit as long as they do not violate someone else's rights and the ability of individuals to transfer or exchange those rights (more specifically, not the right inasmuch as the application of the right) on a voluntary basis. They contend "the extent to which those elements are honored and enforced will determine how effectively prices in an economy will allocate goods and services." Both "experience" and "theory" demonstrate that economies that are better at producing wealth have effective price systems. Or:
The stronger the private property rights system, the better the economy is at efficiently allocating resources and expanding wealth-creating opportunities.
A staggering fact worth observing is the economic success nations with private property protections experience despite a wholesale absence of natural resources:
Hong Kong and Singapore are city-states, almost completely lacking in natural resources. They border much larger and poorer neighborhoods. Hong Kong in particular experienced long periods of immigration from its poorer neighbor, mainland China...Singapore's real per-capita GDP doubled from 1962 to 1971. The real per-capita GDP of Hong Kong, a former colony of Great Britain, now exceeds that of the mother country ($25, 153 vs. $23, 509 at Purchasing Price Parity in 2000).
Hong Kong and Singapore place a remarkable emphasis on private property, and again, while each country's success is not solely determined by their average citizen's ability to own material goods, it is clear there are far-reaching implications of private property and their corresponding rights.
On the second ground, DFN seeks to bring about economic reform in the international world through the adoption of free market policies as opposed to the donation of economic aid packages. There are several reasons that demonstrate policy changes towards the free market are highly preferable to foreign aid. Prof. Allan Meltzer, according to O'Driscoll and Hoskins, believes that "developing nostrums have lead not to prosperity but to penury in all too many developing countries" and that "private property was omitted from the development consensus." He and other free market advocates believe the U.S. policy should be the encouragement of strengthening rule of law and systems of private property.
Economist Hernando de Soto in his landmark book The Mystery of Capital has accomplished significant work and research pertaining to this field. De Soto argues that financial aid packages do not effectively meet the needs of poor. Usually the reasons are numerous, varying from mismanaged monetary allocation to inherent rigid government structures where no amount of money can effectively be implemented. Instead, he contends the real solution is the introduction of sound property rights. Yet, de Soto is quick to highlight an important qualification, namely, that each country must evolve its own property rights system according to its unique history and political culture. De Soto warns that a nation's exportation of its system of rights, which grows from its unique development and maturation, cannot be effectively implemented in another society. The emergence of property rights is a slow, political and cultural phenomenon, not one of systemic duplication. Thus, the supplanting of a property rights system with a differing country's alien conceptions and isolated histories cannot be expected to succeed since such systems are neither universal donors nor acceptors of that sort of delimiting uniqueness.
Despite their need and value, objections are often raised about the alleged "value" or "need" for property rights. A common criticism against robust property rights systems is the difficulty they have in assigning and enforcing those rights with respect to knowledge-based goods and the economic use of various natural resources. Economists often concede that this is a problem that requires special attention and should ultimately be decided on the particular merits of individual situations, but that as a principled system, there is no preferable alternative, theoretically or empirically, to a system of property rights. With respect to natural resources, some economists have argued that environmental conservation, which has a history of rallying against strong property rights, should not promote itself necessarily in the form of legal dictums that restrict behavior. Instead, there should be an embrace of the private property system, albeit philanthropically, to attain those lands and objects of consequence.
Supplementary complaints against robust rights systems argue that an emphasis on private property entrenches the wealthy's stranglehold on property while it simultaneously precludes the poor from partaking in those rights. Fortunately, this view is awfully misguided. As Nobel laureate F.A. Hayek observed, property rights do not harm the poor, but actually prevent the poor from being harmed:
It is only because the control of the means of production is divided among many people acting independently that nobody has complete power over us, that we as individuals can decide what to do with ourselves. If all the means of production were vested in a single hand, whether it be nominally that of 'society' as a whole or that of a dictator, whoever exercises this control has complete power over us [emphasis added].
Russian scholar Richard Pipes contends property "provides the key to the emergence of political and legal institutions that guarantee liberty." For Pipes and others, the groundwork for the creation of comprehensive but limited government is achieved through the initial weight placed on private property and the rights necessary for their existence entailed therein. Responsible and free government can grow out of a pre-existing established importance on property since it provides much of the basic constitutive elements necessary for those institutions.
To reinforce both Hayek's and Pipes' claims (that property rights give everyone, including and especially the poor, sovereignty that keeps government at bay, and that property actually sets the foundation for the creation of proper government), economists refer to the present-day Venezuela, a country with little priority on property rights that serves as the evidence for both complementary arguments:
Ordinary Venezuelans cannot title property, so they build shanties on the hills surrounding Caracas. Meanwhile, the elites live in barricaded villas. It is the absence of legal protection of private property that has blocked the democratization of both property and capitalism in that region.
Moreover, it has been estimated that 18th century German immigrants to the U.S. had more property rights than the modern-day Venezuelan. Given the weight of this evidence, there should be no wonder why the U.S. is able to proper while poor Venezuelans live Third World conditions in order to barely survive.
For additional analysis concerning property rights, please consult the essays Why Property Rights? and The Inviolability of Economic Freedom in DFN's Handbook of Freedom.
III. Coming Soon!
IV. Economic Freedom As Contributory to Economic Success
 romoters of the free market routinely cite the presence of economic success in countries that adopt fewer restrictions on market forces. They believe that regardless of what deftly argued position one could muster for restrictions, sound economics and ideas that espouse freedom provide incontrovertible evidence that unequivocally prove the connectivity between economic freedom and economic prosperity. As the Fraser Institute observes, "that economic freedom contributes to a faster growing, more efficient economy that translates into better, longer lives is hardly a controversial finding."
The following is a compendium of important work by economists and other scholars that show the necessity of economic freedom. This compilation is by no means exhaustive. However, it provides an important framework for understanding and further exploration.
DFN has provided resource materials and other important works where those issues are explored. DFN also encourages you to read the information below and to further investigate these ideas to gain additional depth and comprehension.
The following are powerful examples of the undeniable relationship between economic freedom and prosperity. They are in direct contrast to the sub-standard and even disastrous repercussions of restrictions on the economy.
The World is Becoming Increasingly Democratic
The data from this graph is not particularly shocking, but extremely telling. In the past 100 years, the surge in number of democratic nations is directly related to the overall development of the human condition in countless different ways.
A hundred years ago, not a single country on earth offered universal suffrage. Even the West was dominated by dictators and monarchies, but nearly all of those regimes have fallen.
A hundred years ago, colonial powers governed one-third of the world's population. Today all of those colonial empires have been dismantled.
In 2002, Freedom House said there 121 democracies with multiparty systems and universal and equal suffrage. In total, 60 percent of the world's population (or roughly 3.5 billion) currently live in democracies. Freedom House further claims 85 countries, with a total population of 2.5 billion, are "free", or democracies with civil rights.
Likewise, in 2002 there were 47 countries that violated basic human rights. That list includes Cuba, China, North Korea, Syria, Saudi Arabia, and Burma among others. It is no coincidence that these countries are also the least affected by the rise of global capitalism.
Standard of Living Is Rising Everywhere
As determined by the UN's own Human Development Index (HDI), global standards of living are not only rising across the world for all types of countries (on the other hand, certain individual countries have suffered a lowering in the standard of living), but the inequality between the poorest and the wealthiest is diminishing.
The HDI essentially measures the standard of living in countries using average income, education standard, life expectancy and other comparable data. The scale measures from 0 to 1, with 0 as total misery and 1 as complete welfare. According to the UN's graphs, in the past 40 years all types of countries have experienced greater welfare, but the fastest growth was exhibited not by the richest countries, but by the poorest! Moreover, the ratio of HDI score between the industrialized nations (IN) and the least developed countries (LDC) grew increasing smaller: in 1960 the IN's score was 5 times as high, four times in 1970, three and a half times in 1980, and by 2000 only twice as much. Simultaneously, both groups also increased their overall scores, with the IN's rising to .932 from .798 and the LDC's score skyrocketing to .445 from .161, almost a three-fold increase.
Other standards of measurement used by economists to determine living standards also corroborate these findings. One such measurement is the Gini Coefficient. Like the HDI, the Gini Coefficient is measured between 0 and 1. 0, the best possible score, means everyone owns all the wealth equally and 1, the worst possible score, implies all the wealth is owned by one person. From the periods of 1969 to 1997, the Gini Coefficient dropped from 0.6 to 0.52, a ten percent reduction.
Third World Wages Are Rising
Wages in poorer countries are, in fact, less than in industrialized nations. This is primarily true because manpower returns less to business. Or, workers in poorer countries are generally less skilled and operate with less efficient machinery, so the business does not reap as many rewards.
But what we are seeing is an overall climb in the average wage of in poorer nations. In 1960, the average employee in the developing world had only 10% of the American worker's wealth. By 1992 that number had climbed to 30% in spite of overall gains by American workers' wages experiencing a corresponding rise.
World Hunger is Declining
The results of this graph are astonishing: according to the UN Food and Agricultural Organization, 960 million people were undernourished in the developing countries in 1970, but by 1991 that figure was 830 million and 790 million by 1996.
Norberg notes:
Thirty years ago nearly 37 percent of the population of the developing countries were afflicted with hunger. Today's figure is less than 18 percent...in only 30 years the proportion of hungry in the world has been reduced by half, and it is expected to decline further, to 12 percent by 2010.
Even more impressive, progress in the 1990s alone saw the reduction of 6 million hungry per year despite an overall increase in the population of 800 million.
Critics of capitalism would be quick to argue this improvement is a product of sound foreign aid programs for developing countries. The facts, however, say otherwise. Enormous reductions in hunger have been the result of more efficient use of arable land, not use of new land or government programs. Per acre yield of arable land has almost doubled. The "Green Revolution" in India has produced higher yields and more resistant crops through new and vastly improved farming methods: in 20 years, farmers' real earnings have risen by 90 percent and for landless peasants, 125 percent. Africa has been affected the least, and yet, there has been a spread of 10 to 40 percent increase in maize production per acre. Hunger is not a problem of overpopulation, but access to necessary technology. Technology, incidentally, that free market reformation can bring. Experts believe that if all the world's present agriculture employed modern farming techniques, that another billion people would be able to be fed in the status quo. Lastly, Nobel prize-winning economist Amartya Sen has observed there has never been a famine problem in a democracy. Sen argues that democracies are better able to handle disasters, despite the fact that countries that have experienced famine (e.g. China, Cambodia, and North Korea) have often had greater food supplies. Famines are almost never a product of food shortage, but of centrally-controlled regimes with no incentive to adaquetly solve the problems.
Developing Countries Are Receiving More Capital
Foreign direct investment into developing countries from industrialized nations has increased sharply in recent years. Critics of economically free policies often claim that established markets will never allow infant markets to develop, thus causing rich nations to remain wealthy while the poorer countries writhe in economic agony.
This mentality is nothing more than the product of an economic fallacy. The most money to made, as a rule, are in the newest enterprises that are unable to finance their own projects. It is almost always the case that capitalism is stupendous for those with great ideas, but not enough capital. Established firms will place money in the hands of those with brilliant vision to augment their profits. This allows smaller firms to compete with larger ones, or as is often the case, domestic with international. The freer and more flexible a system is, the easier it becomes for investment into new projects that have the ability to offer choice to consumer, employ locals, raise living standards and introduce fresh and competitive concepts to the market.
Thus, there is a flow of investment into areas with virtually no capital, but real investment opportunities. Developing countries receive more than a quarter of the world's combined investments in business, projects and land. Presently, there is almost $200 billion net dollars of foreign direct investment each year into developing countries. As a result of freer markets, that figure is four times the mark a decade ago and almost 15 times as much 20 years ago.
Growth Benefits the Poor
Growth equates to opportunities and power for people, especially the poor. It is often claimed by anti-globalists that growth "makes the rich richer and the poor poorer." However, when looking at the facts, we find that indeed the rich do grow richer, but accordingly, the poor grow richer as well.
World Bank economists David Dollar and Aart Kraay studied 40 years of income statistics in 80 countries to test the hypothesis that the poor grow richer during periods of economic growth. They concluded that growth benefits the poor just as much as the rich. In general, with a 1 percent growth in the economy, wages rise by 1 percent. With 10 percent growth, the wages rise 10 percent.
Dollar and Kraay also assessed the claims of "trickle down" effects. Critics contend that if it is true the poor benefit from growth, they do so marginally, only after the rich get wealthy first and parts of that wealth trickle down to the poor. The two economists found that to be manifestly false: poor benefit from growth to roughly the same extent and at nearly identical speeds as the rich. Poor people immediately benefit from increased purchasing power and an increase in the value of their labor. The corresponding graph provides ample detail of the effect.
Equally important is that no country has ever succeeded in reducing poverty without long-term growth. Additionally, there has never been a single case where a country experienced long-term growth and the poor failed to benefit. Most importantly, there is also no case of a country having long-term growth without also opening up its markets.
The World Bank's World Development Report 2000/2001's graphs conclusively showed that in the past 20 years, the higher a country's growth rate, the faster it was able to reduce poverty, infant mortality and illiteracy.
One must also consider other ways economic growth is necessary, even in democracies. Consider the case of a battered women. She has all the democratic rights afforded someone in a modern democracy, and yet, if she is economically tied to her abusive husband, she will likely stay with him and almost certainly receive more abuse. Even if the poor have the right to vote, when economically tethered to landowners due to a stagnant economy, it will not matter that they vote since they will be at the landowner's mercy. Growth is necessary because it allows the poor to accumulate wealth, save, slowly invest and seek other options that could free them from unfortunate circumstances.
What should be clear is that growth does not have the power to bring good results to everyone, but it is manifestly necessary for improvement.
Free Trade Brings Prosperity
This graph shows the compelling results from free trade, more especially for open and free economies. The per-capita GDP of the most free is nearly 8 times that of the least free, and nearly twice the size as the second-most open quintile. Even the third quintile is more than twice the size of the least free quintile. For those concerned about the plight of the poor in developing and underdeveloped countries, this data clearly shows that the surest way to poverty is by closing off markets, setting up tariffs and quotas and pursuing a policy of self-sufficiency.
Capitalism's detractors claim that less free countries are unable to benefit from free trade in the same way that larger countries do. They insist there should be "fair trade", not "free trade." In other words, they should erect tariffs or quotas to prevent larger countries from flooding markets with their cheaper goods (sometimes known as "dumping") or to inhibit rich foreign companies from stifling smaller and newer local business (sometimes referred to as "infant industries"). But free trade is fair by definition. Free trade involves cooperation under the auspices of voluntary cooperation. All parties involved in the trade agree to its terms, otherwise it would not take place. Free trade necessarily means that the individual, not the government, chooses the conditions of trade. Establishing trade barriers in order to make it "fair" do little more than rob citizens of their freedom to choose consumption options for themselves, thereby hurting the consumer. "Fair trade" policies may do a considerable amount for labor unions or domestic businesses that shield themselves from competition by leaching off the government, but they reduce purchasing options, artificially drive up costs, limit employment and reduce disposable income. Very little of such measures can properly be described as "fair."
Free Trade and Growth During the 1970s and 1980s
Harvard economists Jeffrey Sachs and Andrew Warner conducted a study by examining the trade policies of 117 nations between the years 1970 and 1989. The study demonstrated, among other findings, that after controlling for other factors, there was a statistically significant relationship between free trade and growth. Economic growth in countries who adopted free trade practices were anywhere from three to six times as high as their protectionist counterparts. The study showed that these results were not a result of how receptive another country is to exports, but how wealthy a nation can become by remaining open: the open economies experienced faster growth every single year between 1970 and 1989.
The study also showed that open economies were better able to cope with financial crises and hyperinflation. During the 1980s, less than 8 percent of the open economies were hurt by the crises, whereas almost 80% of the closed economies suffered tremendously.
Big Corporations Are Becoming Less Dominant
This graph demonstrates that in a mere 13 years, the percentage of GDP as determined by sales from the 500 largest corporations plummeted, reducing in size by almost half.
Anti-capitalists will often cite the statistic that of the biggest 100 economies in the world, 51 are corporations. However, such a claim is almost an outright lie. The reason is because that statistic measures the size of the companies determined by sales, from any source. But GDP is the value that is newly added. Thus, when using sales, any purchases or expenditures the corporations makes are not included. If, instead, we attempt to determine the value added (like the GDP of a nation), the result is that only 25 to 35 percent of sales can rightly be counted. When we properly compare value-added sales with GDP, the picture alters drastically: of the top 100 economies in the world, 37 are corporations and only 2 in the top 50. The notion that giant corporations are larger than important countries like Sweden is just false: Sweden is more than twice as big as the world's largest corporation, Wal-Mart. Comparing Wal-Mart to other important countries, we discover France is 15 times as large and America is more than 100 times bigger. In fact, the world's 50 biggest corporations would have only 4.5% of the GDP of the world's 50 biggest countries.
Capitalism and Democracy Go Hand in Hand
Critics of capitalism view financial markets as a threat to democracy. According to their view, businesses and their capital can quickly move through borders into countries that are more hospitable to their desires. Thus, governments are coerced into catering to the desires of these businesses to keep them localized by creating environments favorable to their every whim. Detractors of globalization often view this process, as they see it anyway, as "the dictatorship of the market."
However, this argument is, as scholar Johan Norberg says, "a grotesque distortion" and "not only insulting but also abysmally ignorant." As an example, consider some of the Arab states. Many of these nations were thought of as incapable of becoming democratic, since many of their most prominent traits were gender inequality and oil-driven centrally planned economies. Yet, this assumption has been shown to be wholly incorrect. Both Qatar and Bahrain have introduced economically liberal (in the classical sense of the word) reforms that have resulted in massive economic growth. In tandem with this economic growth have been real political reforms as well. Qatar has weakened its control over the media and had local democratic elections where women have both voted and run for office. Bahrain's leader released political prisoners and the country has seen a recent influx of political dissidents returning to engage in the newly emerging political dialogue. Norberg explains that people who grow richer are generally more educated and thus far more reluctant to have others make decisions on their behalf. Moreover, when groups who were once excluded from political discourse suddenly gain a voice, the ruling elite find it increasingly more difficult to subjugate their citizens. Even further, an economic system that is decentralized creates groups that are independent of political power, which then forms the foundations for political pluralism. As rulers seek to have strong economies by liberalizing, they are ultimately forced to introduce democratic reforms. But, if that's true, doesn't that reinforce the claim that businesses can dictate the market? Actually, no. Consider that politicians are tremendously influenced and pressured in a number of ways: there are environmental constituents, members within the party that must be appeased, gender issues that must be attended to, local concerns, demographic needs and more. Interestingly, though not surprisingly, Norberg observes the term "dictatorship of the public spending" is never used. The notion that market forces dictate political decisions in their favor assumes the political process is determined by nothing more than the decisions of Congress. In fact, change in the political system most often comes from outside the level of politicians in more representative levels. Businesses will attempt to get rewarded through favorable laws and political decisions (it is not clear, however, that the inverse is true, i.e., that companies "reward" nations after favorable legislation). This type of collusion occurs all too often and demonstrates that purported capitalists do not act particularly capitalistic at times. But what this evidences is the need for the two spheres to not have unfair and illegal influence with the other. This type of ideal separation can only be achieved in capitalism. Instead of special treatment, firms should be forced to compete. That desired competition can be found in well-ordered economies. Observe that one would be foolish to place money in an irresponsibly managed stock portfolio versus a properly coordinated pension fund with fluctuations in the market having little negative effect. In very much the same sense, businesses are more inclined to invest their money and capital (since in capitalism they impose all the risk on themselves) where they feel they can achieve their desired ends. What is crucial to understand is that well-ordered economies are not necessarily free market oriented: Sweden is extremely well-ordered and yet has the highest taxes in the world. Furthermore, simply because taxes are high does not necessarily imply a business will leave to relocate where taxes are lowest. Instead, the will go to those areas where they can get the most out of their money. As Norberg explains: If citizens feel that they are getting security and service that are worth the money they pay in taxes, they will not leave a country. If businesses feel that they are getting research, education, and infrastructure worth the money they pay in taxes, they will not leave the country either. It is only if taxes are used inefficiently or on things people do not value that they will cause problems in a world where we can move about more freely. It will be more difficult to maintain taxes that people feel give nothing in return. Which isn't exactly undemocratic, is it?
Benefits of Economic Freedom
The following are data collected by cross-referencing economic freedom with various measures of human welfare.
Economic Freedom and Per Capita Income
Here we see that in the top quintile of free nations, the average per-capita income is seven times that of the bottom quintile. Notice also the increasing trend of Purchasing Power Parity (PPP) as the nations become increasingly free. This implies that citizens in freer nations likely have more consumer choices and have more discretion over their affairs. Given the ability to have more choice over their money, they can save for those things they deem worthy and spend on other items they want or need. Sadly, this option is not nearly as available to those in less free nations.
Economic Freedom and Human Development
The "Human Development Index" is an index used by some to prove that countries with high levels of intervention can sometimes produce better social conditions than those countries with less intervention. The HDI gives equal weight to life expectancy, adult literacy rates, school enrollment and real per capita income. Interesting, this graph directly contradicts the notion that more intrusive governments can engineer more positive social conditions. What we find is the exact opposite: more economically free nations have higher standards of living, longer life expectancies and various other social goods.
Economic Freedom and Life Expectancy
While the continuity of growth is not found in the third and second quintiles, there is an obvious trend in extension of life expectancy. Additionally, Johan Norberg underscores that life expectancy is increasing throughout the world, but obviously much faster in nations that foster economic freedom.
Economic Freedom and Adult Literacy
Another social good is adult literary. Critics of capitalism have insisted that the level of adult literary is directly related to per capita income. However, this data says otherwise. What is repeatedly found is that economic freedom is far more contributory to social goods than usually considered.
Economic Freedom and Per-Capita GDP
Again, the evidence is alarming. Per-capita GDP is the GDP represented by each person. In other words, it measures the average person will produce (value-added) dollars in goods and services per year. The more economically free a country becomes, the more it is able to produce in value-added goods and services. What this demonstrates for the lesser free countries is that little is added to the economies (often in countries with high population numbers) and the poor must work even harder for the most modest standard.
Economic Freedom and Economic Growth
This graph presents some of the most serious evidence against restrictive and centrally planned economies. Not only is there more growth in freer nations, but the most-restrictive countries actually experienced an overall decline in growth from 1992 to 2001. In the modern era, the consequences of this are profound: countries that are economically restrictive have much less access to education and health care, less ability to deal with disasters, little social mobility and humiliating living conditions. Economic freedom is imperative not only for the richest businessman, but the lowliest peasant as well.
Economic Freedom and Economic Growth (2)
Eerily, one can see the same patterns in different time periods, thus providing even more substantive evidence of the correlation. Note again how the least free countries also economically sank.
Economic Freedom and Unemployment
Here we find that actions governments take to combat unemployment have the opposite intended effect. Policies such as strengthening unions, raising minimum wages, granting additional benefits to the unemployed and regulating collective bargaining procedures do not help create or improve jobs. As business are forced to incur costs that make them less productive and efficient (such as minimum wage laws that create surplus prospective job seekers), companies are less able to use their resources to expand and hire more workers. This ultimately reduces average income levels and overall growth.
Economic Freedom and Poverty
This graph clearly shows "that the 40 percent of countries with the least economic freedom have the highest levels of poverty, and the 40 percent with the highest economic freedom have the lowest poverty levels, by a large margin." What this translates to is that not only are the poor in other countries less able to dig themselves out of poverty because of economic (and sometimes political) barriers, but that they are able to purchase less with their money. The poor in the freest quintile are able to use more of their money to satisfy their daily needs, but also to save and eventually invest. The poor in those countries who are less economically free are thus even "poorer." For those who view capitalism as a hindrance to the poor, DFN encourages you to review the facts.
Economic Freedom Reduces Corruption
In countries with heavy regulations on businesses, a natural by-product will be corruption. As companies are saddled with excessive and burdensome regulations, they will seek to circumvent those processes in favor of black market or extra-legal avenues. Companies will often use their resources that could be spent on business towards avoiding regulations. In poor countries with weak systems of accountability, this results in bribery and nepotism. At times, strict laws and requirements are necessary. For example, under no circumstance should companies be permitted to dump toxic chemicals in a water well, thereby cutting costs for the business by not having to dispose of it legally (since proper disposal is costlier). In cases where heavy regulations are structured for justifiable ends, businesses cannot be allowed to go outside the legal framework. But all to often this is not the case. Norberg notes that the surest way to foment corruption is to "demand that citizens get bureaucratic permission for production, for imports, for exports, for investments." Businesses are not morally perfect and have in the past committed ghastly crimes to save money. However, a colossal portion of black market affairs deal only with evading oppressive and unnecessary regulations. Economist Amartya Sen believes that reducing corruption in developing countries by opening markets would be reason enough to liberalize, even if no other economic benefits materialized. V. Limitations and ObservationsThe value of economic freedom and its pivotal role in helping to bring about prosperity cannot be understated. Despite that important and inextricable bond, there is a tendency to view this freedom without also acknowledging its inherent functional capacities and therefore, in many cases, its limitations.
Economic freedom is freedom as applied to the market and the individual's role in those processes. While this freedom is of the utmost importance, it is not the only noteworthy and essential freedom that a person should (and a has right to) experience.
For instance, there are numerous freedoms such as the right to vote, express free speech, and due process that are not entailed within the "economic freedom" framework. These "political" freedoms can be found in nations with very little economic freedom and interestingly, one can experience economic freedom without the ability to enjoy other political freedoms. Thus, while both forms of freedom have the same constitutive nature, one form does not necessarily entail the other.
Consider two countries whose governments underscore the existence of mutual exclusivity with respect to political and economic freedom in the lives of citizens: Singapore and Israel.
Singapore can accurately be described as an economic marvel. After gaining independence in August of 1965, Singapore methodically instituted bold regulatory reforms that allowed for heavy foreign investment and international trade. This extant freedom in the marketplace ushered in massive economic development and according to Freedom House, Singapore was transformed from "a squalid port city into a technological hub and regional finance center." In fact, in roughly 40 years, the Purchasing Power Parity of the average Singaporean has risen to $23, 356 annually (compared with the current U.S. PPP at $31, 872). The Economic Freedom of the World index in 2003 ranked Singapore as the second most economically free country, marginally behind Hong Kong and one position ahead of the United States. Interestingly, however, Singapore imposes strict regulations on the civil liberties of its citizens. Freedom House insists that the Singaporean government "uses civil defamation laws, strict electoral rules, curbs on civil liberties, patronage, and its influence over Singapore's media to undermine the opposition's prospects in elections." A clear example of this restriction of freedom can be seen through the hindrance of outlets for free speech. The one location where Singaporeans can make public speeches without a permit, a downtown park known as Speakers' Corner, still requires that a person must register with the police at least 30 days prior to speaking and all speeches are recorded by the government to be kept for six years.
Israel, on the other hand, is the antipode of Singapore in fundamental respects. Whereas Singapore restricts political liberties, Israel fosters most political freedoms: freedom of religion, assembly, association are all generally respected. Freedom House contends "newspapers are privately owned and freely criticize government policy" and although there is military censorship over articles concerning security matters, "the scope of permissible reporting is wide." Thus, many of the basic political and civil provisions of liberty that are ignored in Singapore are safeguarded in Israel. However, the ability to engage in the marketplace is not nearly as widespread or robust. The 2003 Economic Freedom of the World ranked Israel (number 56, tied with Egypt and Bolivia) below Jamaica (35), Uganda (44), Kenya (51), Jordan (39), Batswana (26) and the Dominican Republic (51). Again, Israel fosters considerably more political freedoms than these aforementioned nations and can therefore rightly be said to superior in promoting freedom. Yet, having less economic freedom than vari |
