Economic Freedom, Political Freedom: Their Meaning, Their Results
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The Declaration of Independence, the Constitution and the first ten amendments to the Constitution (the Bill of Rights) reflect the United States founders' desire for individual freedom and their opposition to the centralization of power. The Declaration contains the founders' belief that there are certain truths: that we are all created equal, that we have the unalienable right to life, liberty and the pursuit of happiness and that the right to govern comes from the consent of the governed. The Constitution spells out the separation of power among the administrative, legislative, and judicial branches of government and provides a system of checks and balances among these branches. Specific civil liberties and rights not mentioned in the Constitution are spelled out in the Bill of Rights. The ninth amendment in the Bill emphasizes that rights not mentioned in the Constitution shall be retained by the people. Finally, the tenth amendment specifies that powers not delegated to the federal government are reserved to the states or to the people. With provisions already enumerated in the Constitution, the tenth amendment establishes a system of federalism, the separation of power between the state and national governments.
These documents reflect the founders' fear of centralized power and their desire to preserve individual political freedoms. Among these freedoms are the freedom to worship, a free press, free elections, the right to organize, and the general notion that government must protect the basic freedoms of individuals. We also enjoy substantial economic freedom: the freedom to choose one's occupation and change that occupation, the freedom to join labor unions, the freedom to spend our resources, the freedom to divide one's time between work and leisure, and so on.
The dimensions of political and economic freedom go far beyond what is enumerated here. It is important to note that the United States is relatively unique in promoting these freedoms. They have served us well and have certainly contributed to the economic prosperity we have enjoyed throughout our history. It is also important to note that throughout the world today, many countries are moving from central control to economies that allow much more economic freedom. Their hope is that they will also enjoy the benefits that market economies seem to bestow upon their citizens.
Examination of the relation between economic freedom and economic growth is a major theme of this Economics Minute. Other more subtle relations will also be examined. For example, Nobel Laureate Milton Friedman and his wife Rose in their book, Free to Choose, emphasize their view of the relationship between economic freedom and political freedom.
Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised. In addition, by dispersing power, the free market provides an offset to whatever concentration of political power may arise. The combination of economic and political power in the same hands is a sure recipe for tyranny. (Free to Choose , pp. 2-3)
We turn now to an examination of the relation between measures of economic freedom, political freedom and social well-being.
In this lesson you will analyze the concepts of economic freedom and political freedom, and identify ways to measure economic freedom and political freedom. You will also explore the relation between measures of economic freedom, political freedom and social well-being and between measures of economic freedom and political freedom.
The Heritage Organization is a public research organization whose "mission is to formulate and promote conservative public polices based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense." Each year beginning in 1995, the Organization has published an index of economic freedom for all countries in the world. The index is based on how countries score on 50 economic criteria that are placed in 10 broad economic categories. Readers can look at an Executive Summary of the 2001 Heritage Organization/Wall Street Journal Index of Economic Freedom .
The 50 variables that are considered in these rankings are grouped in the following categories: trade policy, taxation, government intervention in the economy, monetary policy, capital flows and investment, banking, wage and price controls, property rights, regulation, and the extent of a country's black market. Clicking on the words "methodology chapter," just after the list of economic factors in the Executive Summary, will allow you to access the criteria used to compile the index.
Access the methodology chapter and determine if any of the 10 broad categories is weighed more heavily than the others in compiling a country's index.
What score results in a country being classified as free, mostly free, mostly not free, or repressed?
- Which country is currently classified as most free?
Scan the methodology chapter and make notes on why the various criteria are important for economic freedom. For example, free trade is important because it helps a country to maximize economic efficiency. Black (illegal) markets arise because of government bans on economic activities.
Determine which of the countries making the transition from central planning to capitalism (becoming more free economically) are experiencing greater economic freedom. Heritage's 2009 economic freedom index contains each country's index for each year, 1999 through 2009. Transitional economies are Albania, Armenia, Azerbaijan, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Czech Republic, Estonia, Georgia, Hungary, Kazakhstan, Kosovo, Kyrgyztan, Latvia, Lithuania, Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan. This list is from Nations in Transit 2009 .
- In which categories are these countries making the greatest progress to economic freedom? Are transitional countries with the greatest economic freedom generally more free in all categories, or are there specific categories that appear to be more important?
A graph of the relationship between economic freedom and a measure of wealth (per capita gross domestic product) shows a strong relationship between the two measures. Countries in the mostly free and free categories have much greater per capita wealth than countries in the mostly not free and repressed categories.
Choose a sample of 20 countries, five from each of the freedom categories. Construct graphs similar to the graph showing the relationship between economic freedom and per capita GDP for these 20 countries. Other commonly cited measures of social welfare include female illiteracy rates, the percent of children immunized against diseases, and infant mortality rates. Indexes of these and other measures of social development can be found at the World Bank data source Social Indicators of Development .
Scroll this site until you find "search interface." Click on "search interface." There you will be able to access numerous measures of social and economic welfare for the 20 countries you have chosen. Pick three or four measures and construct graphs between these measures and the measure of economic freedom. Determine if the relationships you have examined are similar to the relationship between economic freedom and per capita GDP.
Freedom House is a broad based, non-partisan organization with a Board of Directors composed of leading Democrats, Republicans, business and labor leaders, former government offices, scholars, writers and journalists. Eleanor Roosevelt, Wendell Willkie, and other Americans founded the organization to promote democratic values and oppose dictatorships of the right and the left. Each year, Freedom House ranks and publishes indexes of political freedom for all countries of the world. These indexes of can be found at the Freedom House Home Page .
Scroll down until you find Freedom House's country rankings since 1972. Note that the indexes are based on a 1 to 7 ranking, with 1 being the most politically free and 7 being the least politically free. Scroll to the section of the home page where you can enter the economies in transition site (see above). Choose a country and examine the methodology used to construct its ranking. Take notes on the criteria used to construct the index.
Determine whether countries making the transition from central planning to capitalism (becoming more free economically) more rapidly are also experiencing greater political freedom.
Return to the sample of 20 countries you chose in the previous exercise. Construct a graph to show the relationship between the indexes of political freedom and per capita GDP for these 20 countries. Construct graphs to show the relationship between political freedom and the other measures of social welfare used in the previous exercise. Are the relationships between political freedom and these attributes of economic and social welfare similar to the relationship between economic freedom and the welfare measures?
For the countries chosen, graph the relationship between the measures of economic freedom and political freedom. Are they related?
- Do the data show, as Friedman suggests, that "Economic freedom is an essential requisite for political freedom?" What is your opinion? Why?