July 16, 1997
“Economic Freedom of the World: 1997,” written by Professors James Gwartney (Florida State University) and Robert Lawson (Capital University), uses seventeen objective factors to derive a summary economic freedom rating, from zero to ten, for 115 countries, the freest being a ten.
As has been the case for the past two decades, Hong Kong is the world's freest economy with a rating of 9.3, a full point higher than Singapore. New Zealand, the United States, and Mauritius, a tiny island nation off the coast of Africa, rounded out the top five. Switzerland, the United Kingdom, Thailand, and Costa Rica occupied spots six through nine. Four countries—Malaysia, Phillippines, Australia, and Panama—were tied for the tenth place.
At the other end of the spectrum, the least-free economies were Algeria, Croatia, Syria, Burundi, Haiti, Iran, Nigeria, Zaire, Ukraine, and Albania.
People mistakenly stress the importance of democracy as key to economic progress. While economic and political freedom are both parts of personal liberty, there are fundamental distinctions. Economic freedom refers to the rights of individuals to engage in exchange activities, decide how they'll earn a living, keep what they earn, decide what goods they will purchase, and protect private property rights. These are the core elements of economic freedom.
Political freedom refers to procedures to elect government officials, decide political issues, and whether the franchise is broadly extended. Civil liberty has to do with rights to assemble, free speech, fair trials, and religious freedom. Recognizing these distinctions, we can see how a country like Singapore can have few political and civil liberties yet have top ranking in economic freedom.
On the other hand, democracies like Israel and India have considerable political freedom and civil liberties but have high levels of government intervention and control that restrict economic freedom.
Gwartney and Lawson break the 115 countries into five groups, according to their economic freedom rating, and then look at per capita GDP and growth in GDP. For the twenty-three most-free countries, average per capita GDP was $14,829. For the next group it was $12,369. For the least-free economies average per capita GDP was $2,541.
It's the same story with growth rates. The freest economies grew at 2.9 percent while most of the countries in the least-free category experienced negative growth rates.
There is no question about a positive correlation between economic freedom and higher standards of living. Low taxes, monetary stability, free markets, and laws that protect private property are far more important ingredients for economic prosperity than a democracy.
Of course, the best of all worlds is a combination of political, civil, and economic liberty. Professors Gwartney and Lawson point out that preliminary evidence suggests that a side benefit from the greater wealth, which stems from economic freedom, is that it strengthens people's demand for political and civil liberty.
If Gwartney and Lawson are right, and all evidence suggests they are, we can easily see why four decades of foreign aid expenditures have produced little success. We can give billions to African countries, Egypt, and Israel but they'll continue to be basket cases or at best wallow in the swamp of economic mediocrity because they have not established the necessary condition for prosperity—economic freedom. It'd be great if poor countries and our State Department discovered that simple fact.