by Mitch Kokai
Senior Political Analyst, John Locke Foundation
While a broad literature has assessed the relationship between economic freedom and income inequality, there has not been any direct test of economic freedom on social mobility. This is somewhat surprising since one of the main reasons to care about income inequality is as a means of assessing social mobility. We fill this gap here.
Using two measurements of social mobility—the World Economic Forum’s Global Social Mobility Index (GSMI) and the World Bank’s Global Database on Intergenerational Mobility (GDIM)—we find the former measurement to be largely correlated to economic freedom, while the relationship with the latter is less robust. Economic freedom appears to be highly related to four pillars of social mobility: Education Quality, Lifelong Learning, Technology Access, and Inclusive Institutions. Our most interesting results come when we disaggregate the pillars of social mobility (in GSMI) and the different areas of economic free- dom. Legal System and Property Rights are related to nine of ten pillars of social mobility, suggesting that our results are largely driven by this Area. Freedom to Trade Internationally is also correlated to four pillars and Regulation to seven. Overall, we find fairly robust evidence that economic freedom is generally linked to social mobility. However, a clearer picture is shown when disaggregating both pillars of mobility and Areas of economic freedom.
The new report offers more evidence of the enduring value of economic freedom. It’s a lesson many of us learned years ago.
There are good reasons for people to prefer a higher score and higher ranking on the economic freedom list. Countries with more freedom are “richer,” Lawson said. Within countries ranking in the Fraser index’s top 25 percent, average income totals $40,376. Among the bottom 25 percent, that number slumps to $5,649.
Socialists might respond that all of that extra income in economically free countries flows to the rich. In the critics’ preferred economic arrangements, they believe the most disadvantaged people secure a larger piece of the pie.
In countries with the most economic freedom, the poorest 10 percent of the population secures 2.74 percent of the income. That share drops to 2.47 percent within the countries with the least freedom. “There is no relationship between the level of economic freedom, as we measure it, and the degree of economic inequality around the world,” [Economist Robert] Lawson explained.
The freest countries also enjoy higher life expectancy and lower poverty and infant mortality rates. People in economically free countries are happier, too, according to Lawson’s assessment.