Economies that enjoy high levels of freedom tend to be highly productive and their people enjoy a higher standard of living. The effect of economic freedom is greater than strictly material benefits, however. Two institutions—the Fraser Institute in Canada (”Economic Freedom of the World”) and the Heritage Foundation in the United States (”Index of Economic Freedom”)—produce annual indexes that measure economic freedom throughout the world.
Each index looks at issues like free trade, property rights, levels of taxation, and business regulation, while demonstrating how economic freedom correlates not only to greater wealth and economic growth but also to many other socially desirable goods. Here are a just few examples.
INCOME. Economic freedom correlates to higher incomes. Countries in the top quartile of economic freedom have a GDP per person of $52,877 compared to $6,968 in the least free quartile.
POVERTY. People at the bottom of the income ladder in free countries are much better off than those in poverty in the less free countries. In the freest places, the poorest 10 percent earn on average $7,610 per year, whereas in the least free countries they earn just $952 annually. Additionally, only 1 percent of people in the most free countries lives on less than US $2.15 a day, compared with 30 percent in the least free.
LIFE EXPECTANCY. The citizens of free countries live substantially longer. They live on average about 16 years longer than the people of the least free countries. Infant mortality in the least free countries is also roughly nine times higher than in the freest.
LITERACY. Youth literacy is nearly universal in the freest countries with no gender gap. In the least free quartile only 78 percent of young women are literate.
GOVERNANCE. Citizens of free countries have more trust in their governments, encounter less corruption, and find it easier to run businesses and work with public officials. The Corruption Perceptions Index (CPI), published annually by Transparency International, aggregates expert opinions and business-leader assessments on the prevalence of corruption in their country’s public sector. A higher score means more trust in government. Countries in the most-free quartile score roughly 2.5 times higher on the Corruption Perceptions Index (68 vs. 28) than those in the least-free quartile.
Closely tied to the question of good governance is rule of law. Good rule of law is essential to economic freedom. Clear laws, efficient courts, and even-handed judges create the conditions for markets to work. In such a system, the law protects the rights of the poor and wealthy alike. Conversely, labyrinthine rules and regulations, coupled with an ineffective or corrupt judicial system, create the conditions for rent-seeking, cronyism, and oligarchy. Many entrepreneurs and small to medium sized enterprises suffer under such conditions, especially in the developing world.
The importance of economic freedom extends far beyond what might be considered purely economic concerns. Every person is made for flourishing and endowed with creative capacity, of which economic activity is one expression. The freedom to participate actively and fully in the economy is an acknowledgement of human dignity, one that fosters a sense of achievement, agency, and self-worth. For these reasons, and many others, it should be no surprise that higher economic freedom correlates strongly with higher self-reported life satisfaction.
