Globalisation and freedom

The prosperity league
How economic freedom is good if you're poor
From The Economist print edition

PROTESTERS from the richer bits of the world are preparing to descend on the Canadian Rockies next week, to make mischief at and around the G8 summit. They, along with the world's political leaders and others concerned with economic growth, would do well to give their custom to one locally sourced product: the Fraser Institute's Economic Freedom of the World report, an annual publication that aims to measure economic freedoms in 123 countries. It ranks each country according to how seriously various factors are taken, including small government and low taxes, protection of private property from expropriation and monetary debasement, and the ability to trade freely with other countries.

It is no longer news that these things correlate with wealth and economic growth, but it was once. At a conference in the 1980s, Milton Friedman, a Nobel laureate, asserted that economic freedoms led to greater wealth creation. A colleague stood up and challenged him to prove it. Thus was born the report, which relies on detailed assessments of 37 variables of economic freedom.

This year, some of the usual suspects occupy the top slots, based on 2000 data: Hong Kong, Singapore and America are the top three. At the bottom come such impoverished states as Guinea-Bissau, Myanmar and Congo. Cuba and North Korea, which are almost certainly even less economically free than these, are unranked, for lack of data. Meanwhile, one African country, Botswana, has climbed up the rankings and is now reckoned to be as economically free as France. As you might expect, the countries with the greatest economic freedom saw much higher growth rates, between 1990 and 2000, than their less free peers.

One myth of the anti-free-trade crowd is quickly debunked by the authors. Anti-globalisers, and those merely scornful of Anglo-Saxon capitalism, argue that in liberal countries wealth is concentrated in the hands of a privileged few. Globalisation may lead to riches, but it also leads to such vast inequality that the poor are excluded. The report shows this to be nonsense.

As it turns out, the poorest fifth of the population in all the countries studied receives around 2-3% of national income. This is true (see chart) both for more laisser-faire economies and for more restrictive places where policies are designed, say their leaders, to protect the poor from the forces of globalisation.

Economic Freedom and WealthThe poor themselves are not likely to give thanks for the protection. For the less economically free a country, the worse off are its poorest members. In 2000 the income of the poorest tenth in the least free countries was around $728. Meanwhile, the poorest 10% in the freest countries did nearly ten times as well, with an average income of $7,017. And the elites in the most closed economies take as large a share of national income as those in the freest.

The authors note that, beyond making people richer, economic freedoms also make them politically freer, citing a strong link between economic freedoms and democracy. Hong Kong, as ever, is the exception—though not a willing one—to the rule.

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