Foro Regulación Inteligente and Faes have just presented the XXV Edition of the Index of Economic Freedom. | Pixabay/CC/jarmoluk
Foro Regulación Inteligente and Faes have just presented in Spain the XXV Edition of the Index of Economic Freedom. This document, prepared in the United States by the Heritage Foundation, measures the degree of laissez faire in different countries around the world, considering data such as fiscal pressure, monetary stability, public debt, employment levels and regulatory efficiency.
As can be seen in the graph below, the twenty-five-year history of the Index has coincided with a progressive increase in economic freedom around the world. The average score in the report has risen from a low of 56.9 points out of 100 in the mid-1990s to a high of 61.1 points out of 100 just a year ago.
We know that the most economically liberal countries are Ireland, Australia, Switzerland, New Zealand, Hong Kong, Singapore... But what are the social benefits of emulating this paradigm? What does the application of the ideas defended by economists such as Milton Friedman or Friedrich Hayek mean in practice?
The graph below shows that countries significantly improve their entrepreneurship rates as they secure greater economic freedom. This also serves as a lever to achieve other improvements, since more businesses mean more employment, more investment, more innovation, etc.
Another issue we can look at to measure the welfare generated by the market is GDP per capita. This indicator is $63,588 in the most liberal economies, but barely reaches $7,716 in countries whose model is more closed and intervened. Therefore, this indicator is eight times higher in liberal paradigms than in socialist models.
In terms of development, there is also a clear differential in favor of countries with more open economies. In the last five decades, the countries that gained economic freedom grew by 2.6%, while the countries that lost ground increased their GDP by 1.5%. If we only analyze the last five years, the same dynamic is repeated: 2.3% versus 1%.
Globally, the generalized gain in economic freedom has coexisted with strong growth and an accelerated fall in poverty. To be precise, world GDP has risen from $40 trillion to $80 trillion and the percentage of people who do not have a minimum subsistence income has fallen from 35% to 10%.
In fact, if we compare the poverty rate of the most open countries with the levels of misery found in socialist systems, we can see that the former hover around 6% while the latter reach 19%, more than tripling the results of the countries that embrace capitalism.
The UN Human Development Index also confirms the welfare generated by the market. In less open economies, the average score per country ranges from 0.573 to 0.614 points, while in countries with more liberal economies, the range is 0.871 to 0.934.
If we look at environmental conservation, the indicators are also favorable to the liberal model. Yale University measures the ecological performance of countries according to variables referring to the quality of water, air, etc. Under this criterion, socialist models receive 49.5 points, while liberal models score 76.1 points.
The correlation is also notable if we compare economic freedom with the score received in the annual Democracy Index of the British magazine The Economist or with the score assigned to each country in the Social Progress Index, which measures issues such as education, health, or equality between men and women.