The Economic Freedom of the World report was born from a series of international conferences held by Milton Friedman and Michael Walker to clearly define the measure of economic freedom for a large set of countries. Economic freedom is present when adults are free to produce, consume, and trade with others as long as their actions do not harm the interest of others. The four cornerstones of economic freedom are personal choice, voluntary exchange coordinated by markets, freedom to enter and compete in markets, and protection of persons and their property from aggression by others.
Economic growth results from gains in trade, capital investment, and the discovery of improved products, lower-cost production methods, and better ways of doing things. So, increases in economic freedom and improvements in quality of life are closely related.
There is a dramatic difference in the incentive for productive action between a market economy and one that is managed and directed by the political process. Profits provide people with incentives to innovate and discover production methods with lower costs and new products that people value highly relative to cost. This drive to use resources productively and discover better ways of doing things is the driving force underlying economic growth and progress.
The incentive structure of the political system is very different. It puts innovators and entrepreneurs at a disadvantage. The political system will have no reason to produce products that consumers value highly relative to cost, and one will have to compete for political favoritism. The result is more resources being used to obtain political favors, also known as rent-seeking.
Countries with higher and improving economic freedom grow more rapidly and achieve higher levels of per-capita GDP. The share of income earned by the poorest 10% of the population is unrelated to economic freedom. The amount, as opposed to the share, of income earned by the poorest 10% of the population is much higher in countries with greater economic freedom. With fewer regulations, taxes, and tariffs, economic freedom reduces the degree of corruption.
But economic freedom conveys benefits outside the realm of mere income. Life expectancy is about 20 years longer in countries with the most economic freedom than in countries with the least.
From 1980 to 2008, there was a steady increase in the number of countries transitioning towards an economically free society. The average economic freedom score rose from 5.53 in 1980 to 6.74 in 2007. Countries are beginning to realize that individuals need to enjoy the fruits of their labor and that capitalism is the only method that does not require the coercive intervention of authority.
