Economic Freedom is a term that describes the level of liberty individuals have in making economic decisions.
This concept is closely associated with the ideas of free markets and laissez-faire governance (Gwartney et al., 2022).
The implication is that people can conduct their economic affairs without interference from government, and this state has often been linked to various desirable societal outcomes such as improved well-being and growth (Gehring, 2013; Williamson & Mathers, 2011).
Economic freedom can be measured through different indicators, including the size of government, legal environment, and security of property rights (Lawson et al., 2020), although the most authoritative index of economic freedom is the Fraser Insitute and Wall Street Journal’s annual index. In 2023, Singapore ranked first on the index (the top 10 are reproduced in a table at the end of this article).
Although the concept of economic freedom is widely studied, its impact and implications continue to be a subject of rigorous academic debate, with some arguing that traditional measures of economic freedom act as a proxy for freedom of corporations to exploit workers (Hall & Lawson, 2014).
Economic Freedom Examples
1. Minimal Government Intervention
In an economically free society, the government minimally interferes in business operations. The government does not unduly control the prices of goods and services. There is limited licensing required to conduct businesses. Industries are free from undue government mandates and regulations. As such, businesses and entrepreneurs can operate freely with few government constraints (Berggren, 2013).
2. Property Rights
Economically free societies strongly protect property rights. Property owners have the right to use their property as they see fit, within certain legal bounds. They have the freedom to sell, rent, or alter their property as they desire. Contracts are enforced and respected in economically free societies. This encourages investments as individuals and businesses can be confident in the legal protection of their property (Lawson, Murphy & Powell, 2020).
3. Free Trade
Free trade is a cornerstone of an economically free society. Businesses, as well as individuals, have the freedom to buy and sell goods and services internationally (Williamson & Mathers, 2011). There are no or minimal trade restrictions, such as tariffs, quotas or bans. This also encourages competition and efficiency. Consumers reap the benefits of this competition through lower prices and a wider variety of goods and services.
4. Secure Monetary System
An economically free society has a secure and sound monetary system. Inflation is kept under control and the value of currency remains stable over time (Williamson & Mathers, 2011). Monetary policies are clear, consistent, and transparent. This allows businesses to make long-term investment plans confidently. It also helps to maintain the purchasing power of consumers and protect their savings from eroding due to inflation.
5. Fiscal Health
In a society with economic freedom, fiscal health is a priority. The government maintains fiscal discipline, avoids extreme fiscal deficits, and maintains manageable debt levels. Taxation, while necessary for funding public services, is not excessive or burdensome. This allows private entities to save, invest, and expand. Thus, a strong fiscal position is a fundamental trait of an economically free society (Lawson, Murphy & Powell, 2020).
6. Regulatory Efficiency
Economically free societies are characterized by efficient regulations. These regulations are necessary to protect consumers, maintain ethical standards, and ensure fair competition (Gwartney et al., 2022). But they are not too burdensome or complex that they hamper business activities. Businesses have a clear understanding of what they need to do to comply with these regulations. This makes for a business-friendly environment that encourages innovation and growth.
7. Labour Freedom
In an economically free society, employers and employees have significant freedom in their employment decisions. Employers are free to hire or fire employees based on merit (Berggren, 2013). Employees can choose their employer, occupation, or resign at their discretion. Labour laws are balanced and do not unduly favour either employees or employers. This promotes efficiency, productivity, and prosperity in the labour market.
8. Investment Freedom
In economically free societies, there are few restrictions on investments (Lawson, Murphy & Powell, 2020). Both domestic and foreign investments are encouraged. There are no unfair advantages accorded to state-owned enterprises or local companies. Investment decisions are primarily driven by market conditions and not government policies or regulations. Thus, capital flows freely to where it can yield the highest returns.
9. Unhindered Market Access
Market access is unhindered in an economically free society. Businesses can enter or exit the market freely depending on market conditions (Williamson & Mathers, 2011). Monopolies and oligopolies are closely monitored to prevent any unfair practices. Market competition is encouraged and maintained. This promotes productivity, innovation, and efficiency.
10. Financial Freedom
Economically free societies are marked by strong financial freedom. The banking sector operates without undue government intervention. Rules and regulations protect the rights of depositors and investors, prevent fraud, and maintain the stability of the financial system. Credit is allocated based on market conditions and not government directions (Gwartney et al., 2022). Thus, economically free societies are marked by strong, stable, and responsive financial systems.
11. Transparent Governance
Transparent governance is key in an economically free society. Government operations, public decisions, and fiscal policies are conducted with openness (Berggren, 2013). This transparency allows businesses and individuals to plan accordingly, contributing to economic stability. Information is freely available, ensuring accountability from government officials. With responsible governance, public trust intensifies, and economic development is further facilitated.
12. Rule of Law
The rule of law is foundational to an economically free society. Laws are fair, consistently enforced, and apply to all citizens, including those in authority (Williamson & Mathers, 2011). Such a legal environment offers certainty to businesses and individuals, which helps to maintain economic stability. A jurisdiction with robust rule of law offers more significant credibility, attracting investments. This respect for rule of law hence underpins economic freedom and promotes prosperity.
13. Equality of Opportunity
Economic freedom entails the equality of opportunity that underpins true meritocracy. Everyone has the fair chance to use their skills and resources to succeed. There are no institutional barriers that favor certain groups over others (Williamson & Mathers, 2011). This fairness is critical to maintaining a healthy competitive market. A society that embraces equality of opportunity encourages entrepreneurship, innovation, and economic growth (Berggren, 2013).
14. Freedom to Innovate
Economically free societies encourage innovation (Gwartney et al., 2022). There are limited regulations or barriers to entry that dampen creative business ideas. Intellectual property rights are respected and protected, encouraging individuals and businesses to innovate. The freedom to innovate results in a thriving entrepreneurial ecosystem and a dynamic economy. These factors, in turn, often spur technological advancement and economic improvement.
15. Free Competition
In an economically free society, free competition exists. Barriers to entry and exit in the market are minimal, allowing new businesses to freely compete, without monopolistic markets (Hall & Lawson, 2014). Companies compete based on price, quality, and customer service, pushing for innovation and efficiency. This competition ultimately benefits consumers with better products and services. Thus, free competition is a significant aspect of economic freedom and consumer welfare.
16. Respect for Private Property
Respect for private property is a key trait of economically free societies. Property rights are fully protected by the law (Gwartney et al., 2022). The right to own, use, exchange, or dispose of property is crucial for supporting individual freedom. Respecting private property rights encourages investment, innovation, and economic growth. Therefore, a society that respects these rights also enables a prosperously free economy.
17. Citizen Participation
In an economically free society, citizen participation is encouraged. Individuals take initiative and freely participate in the economy, such as, starting businesses, investing in markets, or trading goods and services (Berggren, 2013). This active participation contributes positively to economic growth and development. Governments facilitate this participation by maintaining low barriers to entry. Hence, citizen participation is a critical element of economic freedom. (Note a flaw in the Heritage Foundation’s index, where Singapore tops the list despite absence of truly free speech in the city-state).
18. Minimal Tax Burden
An economically free society aims to minimize the tax burden on its citizens. While taxes are necessary to fund public services, they are not excessively burdensome or inhibiting economic activity (Lawson, Murphy & Powell, 2020). The tax structure is transparent and predictable, encouraging businesses to invest and grow. The average citizen finds the taxation system fair and manageable. This responsible fiscal management promotes economic freedom and fosters a healthy business environment.
19. Financial Privacy
Financial privacy is respected in an economically free society. Citizens and businesses have the right to privacy in their financial affairs, free from unwarranted government interference. Government agencies may only access personal financial data for legitimate and defined purposes, with proper checks in place. Protecting financial privacy promotes trust, encourages economic participation, and supports the secure and free operation of financial markets (Williamson & Mathers, 2011).
20. Freedom of Occupational Choice
In societies with economic freedom, individuals enjoy the freedom of occupational choice. They have the liberty to choose their career path based on their skills, experience, and interests. There are no unreasonable barriers such as onerous licensing requirements or restrictive trade union practices. This freedom ensures that the labor market is efficient and competitive, contributing to a diverse and dynamic economy (Lawson, Murphy & Powell, 2020).
21. Economic Resilience
Economic freedom fosters economic resilience. Economically free societies tend to be more adaptable to changes and better able to recover from economic shocks (Gwartney et al., 2022). This resilience is primarily due to the diversity and flexibility inherent in free markets. Businesses and individuals can swiftly adjust to changing circumstances, minimize losses, and seize new opportunities. This resilience underscores the sustainability of economically free societies.
22. Freedom from Compulsory Sharing
In an economically free society, individuals are free from compulsory sharing. They have the right to reap the fruits of their labor and decide how and when to share their wealth (Hall & Lawson, 2014). The government does not forcefully redistribute wealth. Instead, it ensures a fair environment where everyone has an opportunity to gain wealth by their own efforts. This respect for individual rights is instrumental to economic freedom.
23. Voluntary Exchange
A society characterized by economic freedom encourages voluntary exchanges. Individuals and businesses can freely exchange goods, services, and labor on terms they mutually agree upon. Compulsion or coercion in trade is minimal or absent, and contractual agreements are respected and enforced by law. This voluntary exchange stimulates economic activity and contributes to overall economic prosperity (Hall & Lawson, 2014).
24. Consumer Sovereignty
In economically free societies, consumer sovereignty prevails. Consumers have the freedom to choose the goods and services they buy, which in turn influences what producers create and sell (Berggren, 2013). This consumer-driven approach leads to a market that better caters to the needs and desires of the population. It also encourages innovation and quality improvement as businesses seek to meet ever-evolving consumer demands.
25. Freedom to save and invest
Societies with economic freedom empower their citizens to save and invest. Individuals can retain a significant portion of their income, which they can save, invest, or spend as they see fit (Gwartney et al., 2022). The legal and regulatory environment encourages and facilitates savings and investments. Economic freedom, therefore, is not just about earning money but also about having the freedom to use it in ways that individuals deem most beneficial.
How is Economic Freedom Measured?
Economic freedom is quantitatively gauged through several key metrics.
Fraser Institute’s “Economic Freedom of the World” report is a comprehensive study that evaluates countries on five major dimensions (Gwartney et al., 2022). These include the size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation.
Each of these dimensions is further broken down into several components:
- Size of Government comprises government spending, taxes, and enterprises (Lawson et al., 2020).
- Legal System and Property Rights incorporates judicial independence, impartial courts, and protection of property rights, among other things (Lawson, Murphy, & Powell, 2020).
- Sound Money evaluates the country’s money supply growth, standard deviation of inflation, and inflation (Berggren, 2003).
- Freedom to Trade Internationally covers tariffs, regulatory trade barriers, and controls of the movement of capital and people (Gwartney et al., 2022).
- Regulation comprises credit market regulations, labor market regulations, and business regulations (Hall & Lawson, 2014).
By evaluating these components and calculating a country’s score on each, it becomes possible to measure and compare the level of economic freedom between nations. Note, however, that each of these models directly assesses how neoliberal, hands-off, and libertarian countries are, not how well they protect workers and consumers.
The Economic Freedom Index
The Heritage Foundation creates an Economic Freedom Index manually. This index serves as an authoritative ranking of nations’ economic freedoms.
The 2023 rankings are as shown below:
- New Zealand
- South Korea
- Czech Republic
- United Arab Emirates
- United States
These 27 nations are positioned as “economically free or mostly free.” From 28 onward, nations are ranked as “moderately free” or below.
These rankings should be looked at with a critical eye, however (Heckelman & Stroup, 2000; Keseljevic, 2013). The first observation would be that the Heritage Foundation is an unabashedly right-wing group, and their ranking methodology would likely mirror this.
For example, the rankings’ focus on “economic freedom” blatantly ignores more holistic ideas about freedom, such as the fact Singapore – the most economically free nation according to this index – is a one-party state whose control over state media and gerrymandering practices render the nation undemocratic in all but name. The ruling elite rule the nation like an economy, not a society, which is why the nation ranks at the top of this list, but this comes at the expense of civil society in the city-state. The rankings conveniently ignore this fact.
Similarly, high-ranking Switzerland and Ireland are positioned as “economically free,” but such nations also act as tax and banking havens and for large corporations – here, freedom is freedom for corporations and elites.
At the same time, it seems rather absurd that the United Kingdom and Japan rank as “moderately free” and are off the list of free nations (above), presumably because they have regulations restricting corporate exploitation.
Economic freedom, a multifaceted concept, is characterized by free markets, secure property rights, minimal governmental interference, unfettered competition, and voluntary exchanges. It transcends mere economic transactions, involving elements of personal liberty, empowerment, and social fairness. Economically free societies tend to exhibit higher resilience, responsiveness, and adaptability, supporting their citizens’ entrepreneurial aspirations and enabling robust economic growth.
While it’s essential to respect individual rights and freedoms, maintaining a balanced approach to regulation and oversight is also crucial to preserve fairness, protect consumer interests, and ensure widespread prosperity. Thus, economic freedom holds a profound significance in creating a dynamic, inclusive, and prosperous society.
Berggren, N. (2003). The benefits of economic freedom: a survey. The independent review, 8(2), 193-211.
Gehring, K. (2013). Who benefits from economic freedom? Unraveling the effect of economic freedom on subjective well-being. World Development, 50, 74-90.
Gwartney, J., Lawson, R., Hall, J., Murphy, R., Djankov, S., & McMahon, F. (2022). Economic freedom of the world: 2022 annual report. Fraser Institute.
Keseljevic, A. (2013). Why Indexes of Economic Freedom Cannot Be Sufficient Indicators of Economic Freedom and Future Economic Prosperity?. Available at SSRN 2238765.
Lawson, R. A., Murphy, R., & Powell, B. (2020). The determinants of economic freedom: A survey. Contemporary economic policy, 38(4), 622-642.
Hall, J. C., & Lawson, R. A. (2014). Economic freedom of the world: An accounting of the literature. Contemporary Economic Policy, 32(1), 1-19.
Heckelman, J. C. and Stroup, M. D. (2000), Which Economic Freedoms Contribute to Growth?, Kyklos, 53(4), 527–44.
Williamson, C. R., & Mathers, R. L. (2011). Economic freedom, culture, and growth. Public Choice, 148, 313-335.
Dr. Chris Drew is the founder of the Helpful Professor. He holds a PhD in education and has published over 20 articles in scholarly journals. He is the former editor of the Journal of Learning Development in Higher Education. [Image Descriptor: Photo of Chris]