Personal freedom leads to economic freedom

The Fraser Institute of Canada’s annual Economic Freedom of the World report (co-published by a world-wide network of institutes and organisations known as the Economic Freedom Network) was released recently, crowning Hong Kong the freest jurisdiction in the world.

The award is more topical than usual, given the highest ranking has been awarded to a city state that’s been experiencing widespread pro-democracy protests.

It would be easy to declare a paradox, or conclude this proves economic freedom and liberty are not the same thing. However this obscures the fundamental relationship between the two.

Any freedom index will have paradoxes and outliers. On economic freedom, Australia is deservedly in the top 10 along with Hong Kong, Singapore, New Zealand, Switzerland, Mauritius, United Arab Emirates, Canada, Jordan and (tied for 10th) Chile and Finland.

Clearly though, it is counter-intuitive to see countries like UAE and Singapore reported as more free given the limits on personal freedom and censorship in those places.

But all lists reflect a particular lens. The Index of Press Freedom lists Jamaica, Costa Rica and Ghana as freer than Australia. A sensible analysis looks across the measures to draw some conclusions about the way different freedoms can interact and grow to support human flourishing.

Examining the relationship between economic freedom and liberty was a founding premise of the Fraser report when the Index was established some decades ago. Led by Milton and Rose Friedman with Fraser’s Michael Walker, the project was designed to find a way to measure economic freedom and explore the connection between it and other variables.

Co-author Fred McMahon commented on the perceived paradox of Hong Kong saying, ‘Hong Kong’s number one rating based on 2012 data and the ongoing protests this year highlight how much Hong Kong stands to lose if the rule of law or fair treatment of all is undermined.’

For another useful lens we can look to The Wall Street Journal/The Heritage Foundation annual scorecard, the Index of Economic Freedom, which celebrated its 20th anniversary earlier this year. On this Index, Australia comes in at number 3.

Looking at the 20-year picture, meaningful observations are possible about the links between economic liberty, national prosperity and individual flourishing.

It is clear now that economic liberty has supported a massive global reduction of poverty, disease and other key factors. It is also clear that the relationship holds—even controlling for geography, history and culture.

It can also be observed over 20 years that the foundations of economic prosperity are in fact the foundations of individual liberty.

Those societies which have prospered have also delivered greater and more diverse opportunities for citizens to live a rich and self-directed life. Or as the authors of the Index describe it, ‘make their own choices and actions in pursuit of their dreams.’

Regrettably, 4.5 billion, or about 65 percent of the world’s population, live in countries that remain economically ‘unfree’. More than half these people live in China and India—which shows the potential that reform in those two countries can make to total human freedom and flourishing, though clearly the trajectory for both is positive.

In good news for both prosperity and freedom, the 20-year perspective of the Index suggests that the world is trending towards increased economic freedom.

The global average economic freedom score in the 2014 Index is 60.3, the highest average in the 20-year history of the Index

While declines were noted in 59 countries, almost twice as many improved their score: 114 countries, the majority of which are less developed, delivered gains for their citizens in the past year.

The crucial finding of the WSJ/Heritage report’s authors is that ‘More than any other political or policy approach, economic freedom generates more opportunities and greater well-being for more people’

Slogans, promises, manifestos and political hyperbole have delivered far less to human flourishing on a global scale than good economic management based on limited government and the rule of law

However, the most profound lesson is that the journey is not always forward.  The last two years of the Bush presidency and first two Obama years marked the largest expansion of state power in the U.S. since the 1930s.

Progress among the so-called BRIC nations has stalled, with Brazil now judged ‘mostly unfree’. The rankings of the other BRIC countries—Russia, India, and China—declined also.

Paul A. Gigot, Editorial Page Editor of The Wall Street Journal comments ‘prosperity is not a national birthright. It must be earned by each new generation in every country on Earth, even those that have long been prosperous.’

No country can afford to backslide — even one as free as Australia.

Greg Lindsay is Executive Director of the Centre for Independent Studies