Economic freedom
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Neoliberalism |
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Economic freedom, or economic liberty, is reflected in the agency of people to make social/economic decisions. This is a term used in economic and
The liberal free-market viewpoint defines economic liberty as the freedom to produce, trade and consume any goods and services acquired without the use of force, fraud, theft or government regulation. This is embodied in the rule of law, 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.[3][6][7] There are several indices of economic freedom that attempt to measure free market economic freedom. Based on these rankings, correlative studies have found higher economic growth to be correlated with higher scores on the country rankings.[8][9] With regards to other measures such as equality, corruption, political and social violence and their correlation to economic freedom, it has been argued that the economic freedom indices conflate unrelated policies and policy outcomes to conceal negative correlations between economic growth and economic freedom in some subcomponents.[10]
Liberal viewpoint
Institutions of economic freedom
Private property rights
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According to the liberal free-market view, a secure system of private property rights is a necessary part of economic freedom. Such systems include two main rights, namely the right to control and benefit from property and the right to transfer property by voluntary means. David A. Harper argues that a system of private property is required for entrepreneurship, because "entrepreneurs would not be able to formulate or carry out their plans unless they were reasonably sure that the people with whom they trade have exclusive control over the relevant resources."[12] Bernard H. Siegan holds that a secure system of property rights also reduces uncertainty and encourages investments, creating favorable conditions for an economy to be successful.[13] According to Hernando de Soto, much of the poverty in Third World countries is caused by a lack of Western systems of laws and well-defined and universally recognized property rights. De Soto argues that because of legal barriers and because it is often unclear who owns what property, poor people in those countries cannot utilize their assets to produce more wealth.[14] David L. Weimer, surveying a series of empirical studies about economic growth, reports that "a number of economic historians have noted the importance of credible property rights, especially in terms of freedom from arbitrary seizures of property by governments, for understanding relative rates of growth in different time periods and regions," and concludes that countries with strong property rights systems have economic growth rates almost twice as high as those of countries with weak property rights systems.[15] At the same time, he notes that the risk of unexpected seizure, and not state ownership in and of itself, is responsible for this outcome, saying: "the degree of state ownership of property does not have a statistically significant effect on growth rates after controlling for the risk of seizure."[16]
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.[17] Disputes arising from contracts are typically resolved by the judiciary branch of government, but 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.[18] Negatively understood, freedom of contract is freedom from government interference and from imposed value judgments of fairness. The notion of "freedom of contract" was given one of its most famous legal expressions in 1875 by Sir George Jessel MR:[19]
[I]f there is one thing more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice. Therefore, you have this paramount public policy to consider – that you are not lightly to interfere with this freedom of contract.
The doctrine of freedom of contract received one of its strongest expressions in the
Critics of the classical view of freedom of contract argue that this freedom is illusory when the bargaining power of the parties is highly unequal, most notably in the case of contracts between employers and workers. As in the case of restrictions on working hours, workers as a group may benefit from legal protections that prevent individuals agreeing to contracts that require long working hours. In its West Coast Hotel Co. v. Parrish decision in 1937, overturning Lochner, the Supreme Court cited an earlier decision:
The legislature has also recognized the fact, which the experience of legislators in many States has corroborated, that the proprietors of these establishments and their operatives do not stand upon an equality, and that [p. 394] their interests are, to a certain extent, conflicting. The former naturally desire to obtain as much labor as possible from their employees, while the latter are often induced by the fear of discharge to conform to regulations which their judgment, fairly exercised, would pronounce to be detrimental to their health or strength. In other words, the proprietors lay down the rules and the laborers are practically constrained to obey them. In such cases, self-interest is often an unsafe guide, and the legislature may properly interpose its authority.[21]
From this point on, the Lochner view of freedom of contract has been rejected by US courts.[22]
Economic and political freedom
Some free market advocates argue that political and civil liberties have simultaneously expanded with market-based economies, and present empirical evidence to support the claim that economic and political freedoms are linked.[23][24]
In
In
Indices of economic freedom
The annual surveys Economic Freedom of the World (EFW) and Index of Economic Freedom (IEF) are two indices which attempt to measure the degree of economic freedom in the world's nations. The EFW index, originally developed by Gwartney, Lawson and Block at the Fraser Institute[30] was likely the most used in empirical studies as of 2000.[31]
The Economic Freedom of the World score for the entire world 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.[32] Using the 2008 Index of Economic Freedom methodology world economic freedom has increased 2.6 points since 1995.[33]
Members of the World Bank Group also use Index of Economic Freedom as the indicator of investment climate, because it covers more aspects relevant to the private sector in wide number of countries.[34]
Criticism
The nature of economic freedom is often in dispute. Robert Lawson, the co-author of EFW, even acknowledges the potential shortcomings of freedom indices: "The purpose of the EFW index is to measure, no doubt imprecisely, the degree of economic freedom that exists."[35] He likens the recent attempts of economists to measure economic freedom to the initial attempts of economists to measure GDP: "They [macroeconomists] were scientists who sat down to design, as best they could with the tools at hand, a measure of the current economic activity of the nation. Economic activity exists and their job was to measure it. Likewise economic freedom exists. It is a thing. We can define and measure it." Thus, it follows that some
Critics of the indices (e.g.
Economists Dani Rodrik and Jeffrey Sachs have separately noted that there appears to be little correlation between measured economic freedom and economic growth when the least free countries are disregarded, as indicated by the strong growth of the Chinese economy in recent years.[38][39] Morris Altman found that there is a relatively large correlation between economic freedom and both per capita income and per capita growth. He argues that this is especially true when it comes to sub-indices relating to property rights and sound money, while he calls into question the importance of sub-indices relating to labor regulation and government size once certain threshold values are passed.[40] John Miller further observes that Hong Kong and Singapore, both only "partially free" according to Freedom House, are leading countries on both economic freedom indices and casts doubt on the claim that measured economic freedom is associated with political freedom.[37] However, according to the Freedom House, "there is a high and statistically significant correlation between the level of political freedom as measured by Freedom House and economic freedom as measured by the Wall Street Journal/Heritage Foundation survey."[41]
Choice sets and economic freedom
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Amartya Sen and other economists consider economic freedom to be measured in terms of the set of economic choices available to individuals. Economic freedom is greater when individuals have more economic choices available – when, in some technical sense, the choice set of individuals expands.
Positive and negative freedom
The differences between alternative views of economic freedom have been expressed in terms of
Freedom from want
Herbert Hoover saw economic freedom as a fifth freedom, which secures survival of Roosevelt's Four freedoms. He described economic freedom as freedom "for men to choose their own calling, to accumulate property in protection of their children and old age, [and] freedom of enterprise that does not injure others."[45]
Freedom of association and unions
The Philadelphia Declaration (enshrined in the constitution of the International Labour Organization[46]) states that "all human beings, irrespective of race, creed or sex, have the right to pursue both their material well-being and their spiritual development in conditions of freedom and dignity, of economic security and equal opportunity." The ILO further states that "The right of workers and employers to form and join organizations of their own choosing is an integral part of a free and open society."[47]
Socialist views
The
Socioeconomic impact of economic freedom
One of the ways to measure economic competitiveness is by comparing an extent of economic freedom that countries have, which as surveys show can also largely explain differences in economic well-being across the world. Generally, countries with higher economic freedom have higher gross domestic product per capita and its growth rates, as well as better health care, education quality, environment protection, income equality, and happiness results. These trends of increasing prosperity are confirmed even when we compare these indicators within territories of countries. Nevertheless, despite these benefits societies have to be aware that with increasing economic freedom they will have to face going through a phase of increasing inequality, which basically is a result of decreased redistribution, as well as other negative effects from economic liberalization, i.e., running of local enterprises out of business, takeover of competitive firms, enforcing of interests of foreign companies, dependence on foreign capital, deteriorating work rights, harmful manufacturing for the environment, introducing of commercial practices that are not favorable for consumers, as well as endangerment for survival of national cultures. However, these negative effects from economic freedom tend to be felt in a shorter term, and if countries use the opportunities of economic freedom in our increasingly globalized economy in a right way, as research shows their socioeconomic conditions will be significantly better than in a case of less economic freedom.[50]
See also
- Anglo-Saxon economy
- Capitalism and Freedom
- Economic liberalism
- Economic Freedom of the World
- Economic, social and cultural rights
- Free association
- Free to Choose
- Four Freedoms (European Union)
- Index of Economic Freedom
- Indices of economic freedom
- List of indices of freedom
- Laissez-faire
- List of countries by economic freedom
- Universal basic income
References
- ^ S2CID 144625406.
- ^ Sen, Amartya. "Rationality and Freedom": 9.
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- ^ "Franklin Roosevelt's Annual Address to Congress – The 'Four Freedoms'". January 6, 1941. Archived from the original on May 29, 2008. Retrieved November 10, 2008.
- ISBN 978-0-585-19030-3.
- ISBN 0-521-57583-4p. 205
- ISBN 0-415-15342-5pp. 57, 64
- S2CID 216347809.
- ^ Ayal, Eliezer B.; Karras, Georgios (Spring 1998). "Components of economic freedom and growth: an empirical study". Journal of Developing Areas. 32 (3). Western Illinois University: 327–338.
- ^ Carlsson, Fredrik; Lundström, Susanna. "Economic Freedom and Growth: Decomposing the Effects" (PDF). Archived (PDF) from the original on 2017-08-11. Retrieved 2016-05-26.
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(help) - ISBN 0-471-48130-0p. 137
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- ISBN 0-415-15342-5pp. 82–88
- ISBN 1-84376-495-4p. 44
- ^ Lochner v New York Archived 2017-10-14 at the Wayback Machine.
- ^ "West Coast Hotel Co. v. Parrish et ux". LII / Legal Information Institute. Archived from the original on 2024-01-23. Retrieved 2024-02-06.
- ^ "The Supreme Court . Capitalism and Conflict . Landmark Cases . Lochner v. New York (1905) |PBS". PBS. Archived from the original on 2017-10-14. Retrieved 2017-08-26.
- ISBN 0-7658-0675-4p. 12
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- Ludwig Von Mises. Planning for Freedom. Libertarian Press. 1962. p. 38
- ISBN 0-226-32061-8p. 95
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- ^ Tullock, Gordon (1988). Walker, Michael A. (ed.). Freedom, Democracy and Economic Welfare. Vancouver, B.C., Canada: The Fraser Institute. pp. 60–64. Archived from the original on 2009-07-14. Retrieved 2008-12-13.
- ^ Gwartney, L., R. Lawson, and W. Block (1996). Economic Freedom of the World, 1975–1995. Vancouver: Fraser Institute.
- .
- ^ "Economic Freedom of the World: 2005 Annual Report". freetheworld.com. Archived from the original on 14 March 2016. Retrieved 7 April 2018.
- ^ "Economic Freedom Holding Steady". reuters.com. Archived from the original on 7 December 2008. Retrieved 7 April 2018.
- ISBN 0-8213-6282-8pp. 221–224
- ^ Lawson, Robert A. 2006. "'On Testing the Connection between Economic Freedom and Growth." Econ Journal Watch 3(3): 398–406. [2] Archived 2016-04-22 at the Wayback Machine
- ^ http://www.thomhartmann.com/index.php Archived 2008-12-05 at the Wayback Machine option=com_content&task=view&id=183
- ^ a b "Free, Free at Last | Dollars & Sense". www.dollarsandsense.org. Archived from the original on 2023-10-23. Retrieved 2024-02-06.
- ^ Jeffrey Sachs, The End of Poverty; How We Can Make It Happen In Our Lifetime (Penguin Books, 2005), pp. 320–321.
- ^ "Dani Rodrik's weblog: Is there a growth payoff to economic freedom?". Archived from the original on 2021-06-07. Retrieved 2008-11-23.
- ^ Morris Altman, "How Much Economic Freedom is Necessary for Economic Growth? Theory and Evidence," Economics Bulletin, Vol. 15 (2008), no. 2, pp. 1–20.
- ISBN 978-0-7658-0101-2. p. 11
- .
- ISBN 978-0-521-70951-4. Chapter 1 and 2 discusses the context and validity of the new measure.
- ^ Friedman, Milton (1962). Capitalism and Freedom. University of Chicago Press. p. 4.
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- ^ "Constitution of the International Labour Organization". Archived from the original on 2009-12-22.
- ^ "Freedom of association and the right to collective bargaining – Themes". Archived from the original on 2008-12-04.
- ^ Bhargava. Political Theory: An Introduction. Pearson Education India, 2008. p. 249.[ISBN missing]
- ^ Barbara Goodwin. Using Political Ideas. West Sussex, England: John Wiley & Sons, Ltd., 2007. p. 107.[ISBN missing]
- ^ Rožāns, Edgars, "The Socioeconomic Impact of Economic Freedom". Humanities and Social Sciences, pp. 105–125, 2015. Available at SSRN: http://ssrn.com/abstract=2683493
Further reading
- Cebula, R., & Clark, J. (2014). Impact of Economic Freedom, Regulatory Quality, and Taxation on the Per Capita Real Income: An Analysis for OECD Nations and Non-G8 OECD Nations, MPRA Paper 56605, University Library of Munich, Germany.
- Cebula, R. (2013). Effects of Economic Freedom, Regulatory Quality, and Taxation on Real Income, MPRA Paper 55421, University Library of Munich, Germany.
- Friedrich Hayek, The Constitution of Liberty
- Friedrich Hayek, The Road to Serfdom
- Milton Friedman, Capitalism and Freedom
- Amartya Sen, Development as Freedom
- Li, Kui-Wai (2012). Economic Freedom: Lessons of Hong Kong. Hackensack, New Jersey: World Scientific. p. 804. S2CID 153177821.
External links
- John Miller, "Free, Free at Last" in Dollars & Sense magazine
- The Protection Of Economic Rights & Freedoms