Our previous infographic visualized the top 10 countries with the highest economic freedom, pulling data from the Index of Economic Freedom by The Heritage Foundation. In the 2022 rankings of economic freedom, the top 10 countries were as the following: Singapore, Switzerland, Ireland, Luxembourg, New Zealand, Taiwan, Estonia, Netherlands, Finland, and Denmark. These countries have the highest levels of economic freedom in the world. But why is economic freedom important? And how does it affect the economic development?
To answer question, let’s first define the word “economic freedom.”
A Brief Definition of Economic Freedom
Many organizations and researchers discuss various dimensions and measurements of economic freedom. Here, we pick up several definitions by some of the pioneering organizations.
The Heritage Foundation
The Heritage Foundation, a Washington D.C.-based conservative think tank, defines economic freedom as the following:
Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please. In economically free societies, governments allow labor, capital, and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.
The Competitive Enterprise Institute
A Washington D.C.-based libertarian think tank the Competitive Enterprise Institute defines economic freedom as below:
Economic freedom enshrines personal choice, voluntary exchange, and protection of private property at its core. It is the freedom to start a business or hire an employee without government interference or to invest and trade with whomever you please. It is development from the bottom up by individuals, as opposed to top down by governments.
The Fraser Institute
A classical liberal Canadian think tank, the Fraser Institute states:
Individuals have economic freedom when property they acquire without the use of force, fraud, or theft is protected from physical invasions by others and they are free to use, exchange, or give their property as long as their actions do not violate the identical rights of others. Individuals are free to choose, trade, and cooperate with others, and compete as they see fit.
The United Nations
The United Nations defines economic freedom as one of the internationally accepted human rights. In 1967, the United Nations declared The International Covenant on Economic, Social and Cultural Rights. The covenant includes the following rights:
the right to work in just and favourable conditions;
the right to social protection, to an adequate standard of living and to the highest attainable standards of physical and mental well-being;
the right to education and the enjoyment of benefits of cultural freedom and scientific progress.
Simply Put, Economic Freedom Is One’s Ability to Take Economic Actions Freely
Summing up in basic words, economic freedom is one of the basic human rights that enables people to take economic actions. In a society where there is economic freedom, individuals are able to make economic decisions freely.
In other words, they can buy, sell, and trade freely. Additionally, they are able to invest their capital, own properties, choose occupation without interference of others. In such a society, the government primarily protects its people’s freedom without excessively controlling it.
Why Is Economic Freedom Important?
In today’s civil society, no individual can survive without these economic activities. Economic activities are fundamental for social development and growth. But why should there be economic freedom, instead of a controlled economy? How exactly can economic freedom impact prosperity?
There are many other elements that contribute or hinder prosperity in our society. However, economic freedom can be a good solution for certain challenges.
Economic Freedom Helps Achieve Better Income, Education, and Health
According to the report by The Heritage Foundation, the five freest economies in each region are significantly more prosperous than the five least free economies. More particularly, the data show the freer economies have higher GDP per capita. In addition to the stronger economy, economic freedom brings about a better access to education. The average total years of schooling in economically freer countries are twice as long as those in economically repressed countries. Economic freedom also increases the space for environmerally friendly innovation.
The Fraser Institute points out that economically freer countries experience less poverty. People in economically freer countries earn significantly more than people in economically least free countries. In addition to more income, it is easier to save more, which makes it easier to start and expand businesses or find a job in economically freer countries. Moreover, literacy rates are better in economically freer countries. Additionally, when there is more economic freedom, people live longer and healthier.
In addition to these factors, it is economic freedom that has helped revitalize the economic life during the ongoing COVID-19 pandemic. It is interesting that strict government management and controls such as lockdown did not much protect citizens.
There Is a Correlation between Economic Freedom and Prosperity
Acknowledging that there are many dimensions of prosperity, it it worth noting that the top 10 countries in the Economic Freedom Index are among the most prosperous countries in the Legatum Prosperity Index. The Legatum Prosperity Index considers education, health, and natural environment as well as open economies as prosperity pillars. The most prosperous countries generally score higher for these pillars. A better education, healthier lifestyles backed by a better healthcare system, and a better education result in better economic freedom, and vise versa. As a result, countries with economic freedom flourish both economically and socially.
Key Takeaways: Why Is Economic Freedom Important?
Economic freedom—a fundamental human right to take economic actions—is important because it affects various aspects of our lives. Where there is economic freedom, individuals are able to engage in economic activities without interference of others. Furthermore, their freedom is protected by the government.
Individuals are able to earn, save and invest however they please in a country with economic freedom. They are free to choose occupation and own properties as long as their action does not violate others’ rights. In economically free nations, individuals can attain a better education. A healthier longer life is also a fruit of economic freedom.