A Freer Country Means A More Prosperous People
Study shows economic progress depends on limits on state intrusion
A few years ago it was widely assumed that the collapse of communism and the repudiation of statist ideologies would usher in a period in which democratic capitalism would reign supreme as the organizing principle of economic life. We now know that that expectation was overly optimistic.
Although the universalist pretensions of communism have been abandoned, despotism and intrusive state intervention in the economy still hold sway over much of the world.
Yet communism's broad collapse does enable us to better grasp the relationship between economic freedom and the broader range of liberties. It is, in fact, increasingly clear that sustaining the idea that economic and political liberty advance together is sure to be one of the major themes in the global battle of ideas.
Freedom House, an organization best known for its annual survey of world political freedom, recently issued a new study, the World Survey of Economic Freedom, which should make an important contribution toward clarifying that debate.
The study, prepared with the help of leading economists and scholars, shows that those who live in the world's freest societies are also the most prosperous. The study concludes that this trend is especially true for those who live in societies where government control and regulation of economic affairs is the least intrusive. While one can debate various conclusions drawn by the study, what is clear is that political freedom, economic liberty, and prosperity go hand-in-hand.
A bad combination
Conversely, a society in which citizens are deprived of basic political and economic freedoms is highly unlikely to enjoy material well-being. Surely the most pernicious combination of all is a mixture of harsh restrictions on political freedom and massive state intrusion in economic affairs.
The survey shows that while two-thirds of the world's population live in societies that don't enjoy economic freedom, those who do live in such societies enjoy unparalleled prosperity. While only 27 of the 82 countries surveyed representing 17 percent of the world's population are judged as economically free, these countries produce an impressive 81 percent of total world output. This is not happenstance. It should and must be a powerful message for the other nations of the world.
Another key finding is that economic freedom isn't dependent on geography or local cultural tradition. Countries found to have free economies include those with a wide variety of histories and social structures, from Chile to Estonia and from Japan to South Africa. The Freedom House survey also finds that while the transition from socialist statism to economic freedom can be painful and bumpy, the effort will pay off in the long run in terms of prosperity and political stability.
Four countries found to have "free economies" - Poland, the Czech Republic, Estonia, and Latvia - are successfully making the transition from communism to freedom, adhering to free market reforms, and now registering significant gains in terms of the prosperity of their citizens.
The claim of the Marxists-Leninists - that the poor are poor because the rich are rich - is valid, but only when applied to unfree societies. This is especially true in socialist countries, which are characterized by a division between a privileged class of haves and a great mass of have-nots. The wealth of the elites - whether they go by the label of nomenklatura or new class - is predicated on a distribution of resources based on raw state power.
The survey demonstrates that the more freedom, the more opportunity for individuals to enhance their material condition. In economics, opportunity is a designation for liberty under law. Thus to truly measure economic freedom, it is necessary to measure not simply how well the market mechanisms function, but who has access to them.
Here the study takes issue with thinking that looks at the "free market" in purely economic terms, without paying attention to its social and political contexts. In this, some fall into the trap that ensnared socialist theorists for two centuries: They treat capitalism as a "system" instead of looking on it as a form of economic activity. The system against which socialism should be measured is not in fact capitalism, but liberty.
So the Freedom House study looks at whether the market "works" - of course it works - but also at who can work in it, and under what conditions. It asks whether citizens have access to credit, or enjoy the right to form a business, or whether these rights are denied to specific groups of people.
This survey reminds us that those who equate compassion with government economic intervention are generally off the mark. Prosperity and progress often depend on strict limits on the intrusion of the state.
The study should bolster the position of those who have been making the argument for free economies in societies where government intervention has been the rule. It should also place additional pressure on government officials to change policies that inhibit economic liberty.
Finally, reforms toward greater economic freedom that the Freedom House report will track and encourage may contribute to the burst of economic activity already evident in many countries. It should help transform conditions in societies where poverty or stagnation have been the rule.
The societies that are best equipped to take advantage of the opportunities presented by the global economy are precisely those most willing to discard the seemingly safe and reassuring yet ultimately failed ideas of the past.
The road to prosperity can be difficult in the short term, but the pay-off for those who follow the paths of political and economic freedom is well worth the bumps encountered along the way.
*Donald Rumsfeld is former Secretary of Defense and a trustee of Freedom House. He was chief executive officer of G.D. Searle Co. and General Instrument Inc.