Economic Freedom of the World 2022

The Economic Freedom of the World Annual Report 2022, published by the Fraser Institute, is available for download (pdf) here. It reports on the economic freedom for the year 2020. The exec summary begins with:

“The index published in Economic Freedom of the World measures the degree to which the policies and institutions of countries are supportive of economic freedom. The cornerstones of economic freedom are personal choice, voluntary exchange, freedom to enter markets and compete, and security of the person and privately owned property.”

A casual glance of the graphic at the head of the post reveals that most of the world is not economically free — India and China at the top. Chapter 1 answers the question “What is economic freedom?”

Economic freedom is based on the concept of self-ownership. Because of this self-ownership, individuals have a right to choose—to decide how to use their time and talents to shape their lives. On the other hand, they do not have a right to the time, talents, and resources of others. Thus, they have no right to take things from others or demand that others provide things for them.

The cornerstones of economic freedom are personal choice, voluntary exchange, open markets, and clearly defined and enforced property rights. Individuals are economically free when they are permitted to choose for themselves and engage in voluntary transactions as long as they do not harm the person or property of others. When economic freedom is present, the choices of individuals will decide what and how goods and services are produced. Put another way, economically free individuals will be permitted to decide for themselves rather than having options imposed on them by the political process or the use of violence, theft, or fraud by others.

Here are the highlights of the report:

Top-rated countries
The most recent comprehensive data available are from 2020. Hong Kong remains in the top position, though its rating fell an additional 0.28 points. Singapore, once again, comes in second. The next highest-scoring nations are Switzerland, New Zealand, Denmark, Australia, United States, Estonia, Mauritius, and Ireland.

Rankings of other major countries
The rankings of some other major countries are Japan (12th), Canada (14th), Germany (24th), Italy (43rd), France (54th), Mexico (65th), India (90th), Russia (94th), Brazil(114th), and China (116th).

Ten lowest-rated countries
The ten lowest-rated countries are: Democratic Republic of Congo, Algeria, Republic of Congo, Iran, Libya, Argentina, Syria, Zimbabwe, Sudan, and lastly, Venezuela.

The relationship between economic freedom and prosperity is robust and causal.

Nations that are economically free out-perform non-free nations in indicators of well-being

      • Nations in the top quartile of economic freedom had an average per-capita GDP of $48,251 in 2020, compared to $6,542 for nations in the bottom quartile (PPP constant 2017, international $).
      • In the top quartile, the average income of the poorest 10% was $14,204, compared to $1,736 in the bottom quartile (PPP constant 2017, international $). Interestingly, the average income of the poorest 10% in the most economically free nations is more than twice the average per-capita income in the least free nations.
      • In the top quartile, 2.02% of the population experience extreme poverty (US$1.90 a day) compared to 31.45% in the lowest quartile.
      • Life expectancy is 80.4 years in the top quartile compared to 66.0 years in the bottom quartile.

Finally, here’s the summary of chapter 3.

Economic Freedom in the Literature: What Is It Good (Bad) For?
Robert Lawson
Scholars such as Adam Smith, David Ricardo, Ludwig von Mises, F.A. Hayek, Milton Friedman, among others, argue an economic system based on private property, competitive markets, and free trade yields good outcomes: not only prosperity but human flourishing in many dimensions. Other scholars, among them Karl Marx, J.M. Keynes, Joseph Stiglitz, argue economic freedom leads to bad or sub-optimal outcomes. Ultimately, whether economic freedom yields positive or negative outcomes is an empirical question. This chapter examines over 1,300 peer-reviewed journal articles that have cited the index published in Economic Freedom of the World. Of these, over 700 articles looked at the impact of economic freedom on the human condition and most find a link between high or increasing levels of economic freedom with gains in prosperity and other measures of well-being; less than one in 20 find negative consequences.

Economic freedom is a choice variable available to the people of a nation: they choose the degree of economic freedom they grant themselves. True, one may argue that it is the political leadership that chooses but ultimately the leaders do what the people allow them to do. Without the support of a significant segment of the population, leadership is powerless. This is true regardless of whether it is a democracy, autocracy, monarchy or whatever. There is no ruler without the consent of the people.

I feel sad to conclude that Indians appear to lack a taste for freedom. The vast majority is quite content to just obey their “superiors”. It’s all karma, neh!

Author: Atanu Dey

Economist.

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