Freedom and Prosperity

The Human Freedom Index 2021 is out. Published by the Fraser Institute, HFI presents a broad measure of human freedom, understood as the absence of coercive constraint. It is the most comprehensive freedom index so far representing 98.1 percent of the world’s population. On a scale of 0 to 10, where 10 represents more freedom, the average human freedom rating for 165 jurisdictions in 2019 was 7.12. Here are some highlights:

The countries that took the top 10 places, in order, were Switzerland, New Zealand, Denmark, Estonia, Ireland, Canada and Finland (tied at 6), Australia, Sweden, and Luxembourg. Selected jurisdictions rank as follows: United Kingdom (14), Germany, Japan, and the United States (tied at 15), Taiwan (19), Chile (28), Hong Kong (30), South Korea (31), France (34), Argentina (74), South Africa (77), Brazil (78), Mexico (93), India (119), Nigeria (123), Russia (126), Turkey (139), China (150), Saudi Arabia (155), Iran (160), Venezuela (164), and Syria (165).

That’s from the executive summary section of the full publication (pdf). The report notes the correlation between freedom and prosperity.

Jurisdictions in the top quartile of freedom enjoy a significantly higher average per capita income ($48,748) than those in other quartiles; the average per capita income in the least free quartile is $11,259.

Note that India’s per capita GDP is one-fifth that of China, and yet India is ranked higher (119) than China (150) — meaning that the freedom index is not fully determinant of a country’s per capita GDP. Generally, prosperity and freedom go hand in hand.

See my January 2020 post on China and Economic Freedom for  more on that matter.

Different peoples have different preferences for freedom. That implies that in a strict sense, people indirectly choose their level of prosperity.  Denmark has an HFI rank of 3 and Ethiopia ranks at 132. Here’s a graphic of their relative prosperity. (Click on image to embiggen.)

The world is unequal. The trend of increasing inequality tracks increasing prosperity. I agree with William Easterly who wrote, “Development is unequal; get used to it.” Sure, there are lots of very poor people in the world today — around 10 percent of us — but that’s nothing compared to when 90 percent of us were desperately poor, just 200 years ago. Here’s a graph of income distribution. (Click on image to embiggen.)

I note that the poorest 50% of humanity live on less than $6.70 a day, and that 85% live on less than $30 a day (which is the poverty line in a high income country.) I suppose around 96% of Indians live on less than $30 a day.

We have to  distinguish between three distinct measures related to material prosperity: wealth, income and consumption. Wealth is a stock while income and consumption are flows. They are generally correlated but not perfectly so. A person with immense wealth may choose a level of consumption similar to a person with a modest income. Warren Buffett’s wealth is massive compared to that of a successful lawyer’s but their consumption would be quite similar.

Basic point: we should be concerned about the consumption of the poor, and should be less concerned about the wealth of the super-wealthy. I don’t care how much wealth Bezos has; what I care about is whether a child is malnourished.

Back to the matter of freedom. Why don’t people choose freedom? Why is it that they are OK with being ordered around? Even if freedom did not have the instrumental role of increasing material prosperity, shouldn’t people value freedom for its own sake?

To me it’s a mystery  99.999 percent of the population get ruled over by about 0.001 percent of the population. Perhaps it is habit and conditioning. If Indians really wanted, they could easily get rid of the corrupt bureaucrats and politicians — but they don’t. They accept their servitude with the same resignation as they do the movements of the sun and the moon.

Author: Atanu Dey

Economist. View all posts by Atanu Dey