Does Freedom mean Prosperity?

Doing what is right should be enough justification for promoting a libertarian society based on equality and rights. After all, why was slavery abolished? Not because it was economically inefficient (which it was1.), but because abolishing it was the right thing to do.

Putting moral arguments aside, does freedom mean greater prosperity? According to the Economic Freedom of the World Annual Report (EFW) compiled by the Fraser Institute, the answer is a solid yes!

The EFW report is a thorough analysis conducted by an international team of economists, two of which teach at Aarhus University and the Copenhagen Business School2.. These economists publish their findings annually. The report was first published in 1996 and has since then been used in numerous studies, research papers and other scholarly works.

What is Economic Freedom?

So what does the Report mean by economic freedom? The EFW report identifies four major requirements for freedom, these being: personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others. These requirements naturally extend from the Non-Aggression Principle which is for many libertarians the moral axiom from which they draw their guiding philosophy.

The report determines a country’s freedom based on five major fields:

1. Size of Government

2. Legal System and property rights

3. Sound Money

4. Freedom to Trade Internationally

5. Regulation

These fields are then divided into further subsections. Each country is then evaluated on a scale from 1 to 10, 10 being the freest, 1 being the least free. For more information on how the indexes are created you can access the EFW for free at this link.

Let’s use Denmark as an example of the rating system.

 

Denmark’s Economic Freedom

Overall, Denmark ranks 16th in the world, beating the U.S.A by 2 places3.. Below are Denmark’s ratings.

Size of Government rating 3.78 out of 10.

Legal System and Property Rights rating 8.67 out of 10.

Sound Money rating 9.60 out of 10.

Freedom to Trade Internationally rating 7.99 out of 10.

Regulation rating 8.52 out of 10.

As expected Denmark fares terribly when it comes to Size of Government- the existence of a large and oppressive welfare state seriously infringes on the property rights and freedoms of individuals and this is reflected in the rating. While the Danish state might pay little attention to its citizens’ rights and freedoms it luckily doesn’t follow the same policy with its corporations and businesses. Denmark’s business environment is relatively free and open, giving the nation the economic power to survive despite its bloated government. One can only hope that in the future the Danish state will extend this level of freedom beyond its corporations.

 

Somalia’s Economic Freedom

I am sure that many libertarians have heard the quip “if you don’t like this country, why don’t you move to Somalia, there’s no government there!”. The ignorance of such a remark is blatant, since it obviously misunderstands the difference between chaos and anarchy. How could one ever say a country is libertarian if it shows no respect for property rights, not to mention no respect for the Non-Aggression Principle?

Unfortunately, statistics on Somalia are unavailable, but other failed African states do appear in the report. How do such conflict zone or oppressive countries such as Zimbabwe, and the Republic of Congo fare? The answer is terribly. They occupy the lowest 10% quartile. War, dictatorial rule and violence are diametrically opposed to a free system.

 

Freedom and Prosperity

So, now that we have had a brief look into how a country’s freedom is rated, let us look to see if there is any relation between economic freedom and prosperity. By dividing the countries listed in the EFW into four quartiles, from least free to most free, the EFW is able to clearly show the discrepancies that exist between economically free and unfree countries.

2010 Income per Capita4.

Freest Quartile= $37,691

Second Freest Quartile= $16,957

Third Freest Quartile= $6,596

Least Free Quartile= $5,188

As we can see, the countries with the highest level of freedom earn almost twice the amount per capita in comparison to the second freest quartile. While in comparison to the least free quartile income per capita is almost 8 times higher.

 

2010 Economic growth 5.

Freest Quartile= 3,56%

Second Freest Quartile= 2,78%

Third Freest Quartile= 2,38%

Least Free Quartile = 1,58%

Despite the fact that advanced economies tend to experience slower growth than their developing counterparts the freest nations still show a very healthy growth rate in comparison to less free countries.

For further information, including life expectancy, civil/political liberties and the welfare of the poor I direct the reader to the EFW Report itself. The graphic representations of the statistics are very telling and communicate the reality of the situation of the world clearly. Quartile comparisons can be found on page 23 of the report linked here.

As a matter of interest the top 5 freest countries in the world are, 1. Hong Kong, 2. Singapore 3. New Zealand 4. Switzerland 5. Australia. The wealth of these countries is readily apparent.

The EFW shows freedom is highly correlated to a country’s wealth and prosperity. This speaks strongly for the freedom movement, not only as a philosophy of morality, but also as a utilitarian approach to improving people’s lives.

 

 

1. For more information on this topic click here

2. I have had the pleasure of learning under one of these economists. Christian Bjornskov teaches Sustainable Economics at the Aarhus School of Business.

3. In the last decade the U.S.A have experienced a strong drop in freedom that has unsurprisingly coincided with its worsening economic situation.

4. Page 23 Authors: James Gwartney, Robert Lawson, and Joshua Hall Title: Economic Freedom of the World: 2012 Annual Report Publisher: Fraser Institute Date of publication: 2012 Digital copy available from <www.fraserinstitute.org> and <www.freetheworld.com>

5. ibid.

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Sasa Kovacevic

Sasa Kovacevic is an official CFF author and founding member.

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