Economic Freedom

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Economic freedom is Freedom (philosophy) to produce, trade and consume any goods and services acquired without the use of force, fraud or theft. Economic freedom is embodied in the rule of law, private property rights and freedom of contract, and characterized by external and internal openness of the markets, the protection of property rights and freedom of economic initiative.Surjit S. Bhalla. Freedom and economic growth: a virtuous cycle?. Published in Democracy's Victory and Crisis. (1997). Cambridge University Press. ISBN 0521575834 p. 205David A. Harper. Foundations of Entrepreneurship and Economic Development. (1999). Routledge. ISBN 0415153425 p.57, 64 It is usually associated with a free market system. Numerous empirical studies have found that, among other beneficial effects, economic freedom promotes economic growth and poverty reduction.Adam Jolly. OECD Economies and the World Today: Trends, Prospects and Oecd Statistics. (2003). Kogan Page Business Books. ISBN 0749437812 p.87

Institutions of economic freedom Rule of law One of the prerequisites for economic freedom is the rule of law. Basically, the rule of law means that the government must be ruled by the law and subject to it.Keith Charles Culver (edt). Readings in the Philosophy of Law. (1999). Broadview Press. ISBN 1551111799 p.14 The rule of law requires existence of widely shared cultural values and ethical norms, because the state, or people in power, in the absence of a widespread social consensus about what is just can violate the rights of citizens, sometimes by turning one group against the other. In such conditions government can issue arbitrary and inconsistent decrees that dissimulate individuals by creating uncertainty about consequences of their actions. However, the certainty of law does not mean absence of any change but absence of perpetual and unpredictable changes in laws. Absence of such changes is highly important for the efficient running of a free society and economic coordination. For example, prominent economist and political philosopher Friedrich Hayek had argued that the certainty of law contributed to the prosperity of the West more that any other single factor. Other important principles of the rule of law are the generality and equality before the law, which require that all legal rules apply equally to everybody. These principles can be seen as safeguards against severe restrictions on liberty, because they require that all laws equally apply to those people who have political and coercive power and to those who are governed. Principles of the generality and equality of the law exclude special privileges and arbitrary application of law, i.e. favoring one group at the expense of other citizens.David A. Harper. Foundations of Entrepreneurship and Economic Development p.66-71 According to Friedrich Hayek, equality before the law is incompatible with any activity of the government aiming to achieve the material equality of different people. He asserts that a state's attempt to place people in the same (or similar) material position leads to an unequal treatment of individuals and to a compulsory redistribution of income.Daniel Rauhut, Neelambar Hatti, Carl-Axel Olsson. Economists and Poverty. Vedams eBooks (P) Ltd. ISBN 8179360164, p.204-205 Both of those actions are contributing to a decline in economic freedom.

Private property rights has argued that economic freedom requires gold standard for protection of savings from confiscation through inflation.Addision Wiggin, William Bonner. Financial Reckoning Day: Surviving the Soft Depression of the 21st Century. (2004). John Wiley and Sons. ISBN 0471481300 p.137

Secure system of private property rights is an essential part of economic freedom. That system is represented by two main rights, the right to control and benefit from property and the right to transfer property by voluntary means. These rights offer people the possibility of autonomy and self-determination according to theirs personal values and goals.David A. Harper. Foundations of Entrepreneurship and Economic Development. (1999). Routledge. ISBN 0415153425 p.74 Milton Friedman sees property rights as "the most basic of human rights and an essential foundation for other human rights."Rose D. Friedman, Milton Friedman. Two Lucky People: Memoirs. (1998). University of Chicago Press. ISBN 0226264149 p.605 With property rights protected, people are free to choose the use of their property, earn on it, and transfer it to anyone else, as long as they do it on a voluntary basis and do not resort to force, fraud or theft. In such conditions most people can achieve much greater personal freedom and development than under a regime of government coercion. Secure system of property rights also reduces uncertainty and encourages investments, creating favorable conditions for economy to be successful.Bernard H. Siegan. Property and Freedom: The Constitution, the Courts, and Land-Use Regulation. Transaction Publishers. (1997). ISBN 1560009748 p.9, 230 Empirical evidence suggests that countries with strong property rights systems have economic growth rates almost twice as high as those of countries with weak property rights system, and that a market system with significant private property rights is an essential, although not only, condition for democracy.David L. Weimer. The political economy of property rights. Published in The Political Economy of Property Rights. Cambridge University Press. (1997). ISBN 052158101X p.8-9 According to Hernando De Soto, much of the poverty in the Third World countries is caused by the lack of Western systems of laws and well-defined and universally recognized property rights. De Soto argues that because of the legal barriers poor people in those countries can not utilize their assets to produce more wealth.Hernando De Soto. The Mystery of Capital. Basic Books. (2003). ISBN 0465016154 p.210-211

Freedom of contract Freedom of contract is the right to choose one's contracting parties and to trade with them on any terms and conditions one sees fit. Contracts permit individuals to create their own enforceable legal rules, adapted to their unique situations.John V. Orth. Contract and the Common Law. Published in The State and Freedom of Contract. (1998). Stanford University Press ISBN 0804733708 p.64 Parties decide whether contracts are profitable or fair, but once a contract is made they are obliged to fulfill its terms, even if they are going to sustain losses by doing so. Through making binding promises people are free to pursue their own interest. Main economic function of contracts is to provide transferability of property rights. Transferability largely depends on the enforceability of contracts, which is enabled by the judicial system. In Western societies the state does not enforce all types of contracts, and in some cases it intervenes by prohibiting certain arrangements, even if they are made between willing parties. However, not all contracts need to be enforced by the state. For example, in the United States there is a large number of third-party arbitration tribunals which resolve disputes under private commercial law.David A. Harper. Foundations of Entrepreneurship and Economic Development. (1999). Routledge. ISBN 0415153425 p.82-88 Negatively understood, freedom of contract is freedom from government interference and from imposed value judgments of fairness. Notion of 'freedom of contract' was given one of its most famous legal expression in 1875 by Sir George Jessel (jurist) Master of the Rolls:Hans van Ooseterhout, Jack J. Vromen, Pursey Heugensp. Social Institutions of Capitalism: Evolution and Design of Social Contracts. (2003). Edward Elgar Publishing. ISBN 1843764954 p.44

Economic and political freedom Economic and political freedom both include the freedom from coercion from other individuals and the government. The political and civil liberties have simultaneously expanded with market-based economies, and there are growing empirical evidence that economic and political freedoms are linked.Freedom in the World. (1999). Transaction Publishers. ISBN 0765806754 p.12 Milton Friedman has argued that economic freedom, while itself an extremely important component of total freedom, is a necessary condition for political freedom. Friedman has commented that centrally planned economy was always accompanied with political repression. In his view, voluntary character of all transactions in a free market economy and wide diversity that it permits are fundamental threats to repressive political leaders and greatly diminish power to coerce. Through elimination of centralized control of economic activities, economic power is separated from political power, and the one can serve as counterbalance to the other. Economic freedom, embodied by impersonal market forces, also protects people from discrimination in their economic activities for reasons unrelated to their productivity, and because of that Friedman feels that economic freedom of competitive capitalism is especially important to minority groups, who could otherwise be too easily affected by the hostility of the majority.Milton Friedman. Capitalism and freedom. (2002). The University of Chicago. ISBN 0226264211 p.8-21 Friedman shared his view on economic freedom with Friedrich Hayek who reasoned that "Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."Friedrich Hayek, The Road to Serfdom, University Of Chicago Press; 50th Anniversary edition (1944), ISBN 0226320618 p.95

Indices of Economic Freedom .The annual surveys Economic Freedom of the World and Index of Economic Freedom are two indices which attempt to measure the degree of economic freedom, using a definition for this similar to laissez-faire capitalism, in the world's nations. These surveys have shown that economic freedom correlates strongly with higher average income per person, higher income of the poorest 10%, higher life expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption. Economic Freedom of the World: 2004 Annual Report (pdf) The people living in the top one-fifth of the most free countries enjoy an average income of $23,450 and a growth rate in the 1990s of 2.56 percent per year; in contrast, the bottom one-fifth in the rankings had an average income of just $2,556 and a -0.85 percent growth rate in the 1990s. The poorest 10 percent of the population have an average income of just $728 in the least economically free countries compared with over $7,000 in the freest countries. The life expectancy of people living in the freest nations is 20 years longer than for people in the least free countries. Economic Freedom Needed To Alleviate Poverty According to the Economic Freedom of the World 2005, the world economic freedom score has grown considerably in recent decades. The average score has increased from 5.17 in 1985 to 6.4 in 2005. Of the nations in 1985, 95 nations increased their score, seven saw a decline, and six were unchanged.

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See also

Futher reading

Friedrich Hayek, The Constitution of Liberty
Friedrich Hayek, The Road to Serfdom
Ludwig von Mises, Economic Freedom and Interventionism
Milton Friedman, Capitalism and Freedom

References

Economic freedom - Wikipedia, the free encyclopedia
Economic freedom is freedom to produce, trade and consume any goods and services acquired without the use of force, fraud or theft. Economic freedom is embodied in the rule of law ...

Index of Economic Freedom - Wikipedia, the free encyclopedia
The Index of Economic Freedom is a series of 10 economic measurements created by the Wall Street Journal and The Heritage Foundation to measure the degree of economic freedom in ...

World Audit Economic Freedom
Learn about worldaudit.org, the World Democracy Audit, corruption, press freedom, the rule of law, human rights, and political rights. We examine the human condition. We monitor ...

IEA Blog » economic freedom
Yesterday marked the UK release of the 2008 Economic Freedom of the World Report, produced by the Fraser Institute in Canada in association with the IEA.

The Economic Freedom of the World Project
A network committed to bringing economic freedom and growth to all the countries of the world. The purpose of the Economic Freedom Network Index is to bring the often forgotten ...

Tasting freedom: Happiness, religion and economic transition
i Tasting freedom: Happiness, religion and economic transition Orsolya Lelkes Contents Introduction ...

Economic Freedom of the World: 2005 Annual Report
Economic Freedom of the World: 2005 Annual Report 45 Chapter 3: Country Data Tables This chapter presents detailed data on the component variables used in constructing the EFW ...

Hong Kong Tops the 2008 Index of Economic Freedom | Nubricks
Hong Kong tops the index for the most economically friendly country. ... THE online launch pad for international property developments, overseas property news alerts and real ...

Index of Economic Freedom
The 2008 Index of Economic Freedom covers 162 countries across 10 specific freedoms such as trade freedom, business freedom, investment freedom ...

Economic Freedom Fund