Living in comfort in the West, we tend to forget that the main source of our high standard of living is economic freedom. According to the Fraser Institute’s most recent economic freedom index, Canada is the 10th freest country on the planet. Many people elsewhere in the world envy us, as they live with the poverty and political oppression that stem from a lack of freedom in general.
The most obvious benefit of economic freedom is that it is the system that is most conducive to widespread prosperity, that is to say, to high or rising income and consumption for the bulk of the population. Economic growth depends primarily on good institutions (including economic freedom), even in the absence of natural resources. A good example is Hong Kong, a tiny, resource-poor country that ranks as the economically freest in the world. This freedom has paid off in terms of economic growth: In 1950, Hong Kong’s GDP per capita amounted to 33 per cent of the Canadian level; by 1997 Hong Kong’s GDP per capita was 108 per cent of Canada’s.
Over the past few decades, the governments of many poor countries have fortunately allowed more economic freedom, letting billions of human beings benefit from the growth that it encourages. Thus, between 1981 and 2015, the proportion of the world population living in extreme poverty fell from 42 per cent to 10 per cent.
It’s not just about money. More production and income per capita helps individuals pursue the lifestyles they want — more materialistic for some, more spiritual for others. Some may choose to enjoy more leisure and consume less. The point is that high income per capita is indicative of more opportunities for more people.
The less economically free countries are also the ones that enjoy less political freedom, as economic freedom and other components of individual liberty generally go hand in hand. There is indeed a close correlation between the economic freedom index and Freedom House’s index of political freedom (political and civil rights).
Of course, economic freedom is not a sufficient condition for individual liberty in general, for there are some authoritarian countries (Singapore, for example) where a large measure of economic freedom exists. However, economic freedom appears to be a necessary condition of individual liberty: It is difficult to imagine meaningful individual liberty if individuals are told what to buy, what to sell, and where to work. In practice, individual liberty and economic freedom generally go together.
For example, the more government monopolizes both political and economic power, the more it is able, and tempted, to exploit unpopular minorities and to control dissent. Dissent is difficult if the government can prevent dissenters from buying, say, computers or smartphones, or finding gainful employment.
Obviously, a certain level of government intervention is inevitable, notably for exchanges that impose on third parties significant costs that are not compensated by larger benefits: so-called “negative externalities.” One example is cases of pollution that can’t be solved by freely tradable private property rights. Having said this, it is preferable to aim for a minimum of interventions correcting market failures in order not to lose the benefits of economic freedom.
To summarize, a social and political system based on economic freedom is morally defensible and economically beneficial for all in the long run. Public policy should therefore be based on a strong presumption in favour of economic freedom, to be overruled only in rare cases where an intervention benefits virtually everybody in society (as evaluated by individuals themselves), not just a portion or even a majority. When in doubt, economic freedom should be the rule.
Alexandre Moreau is a Public Policy Analyst at the Montreal Economic Institute. The views reflected in this op-ed are his own.