Liberty & Wealth
The “Economic Freedom of the World” report by the Fraser Institute measures countries’ promotion of “economic freedom” — defined by low taxes, protection of private property, freedom of contract, free trade and monetary stability — on a scale from zero to ten.
Between 1980 and 2002, the average economic-freedom score rose from 5.1 to 6.5. Only 15 of the 104 countries surveyed in both years had double-digit rates of consumer-price inflation in 2002, compared with 76 in 1980. In 2002, no country in the survey had a marginal personal-income-tax rate of 60% or more. In 1980, 49 countries did. In 1980, 36 countries saw black-market exchange-rate premiums of 25% or more, a sure sign that the currency market is rigged. By 2002, only four countries suffered in this way.
James Gwartney and Robert Lawson, the report’s authors, found that the freest 20% of countries invest around $11,000 per worker, more than 12 times the figure for the least free 20%.
The freest fifth of countries attracted over $3,000 of foreign direct investment per worker, against $68 for the least free fifth. The authors estimate that investment is 70% more productive in the most free countries than in the least free.
After adjustment for differences in initial income, climate, the proportion of people near coastlines and human capital, countries with a freedom score below five saw growth of less than 0.4% a year, on average, between 1980 and 2000. Those scoring more than seven clocked up 3.4%.
“Liberty and investment,” The Economist