Economic freedom is a critical element of human well-being and a vital linchpin in sustaining a free civil society. As the Index of Economic Freedom catalogues, the best path to prosperity is the path of freedom: letting individuals decide for themselves how best to achieve their dreams and aspirations and those of their families. Now in its 24th edition, the Index analyzes economic policy developments in 186 countries. Countries are graded and ranked on 12 measures of economic freedom that evaluate the rule of law, government size, regulatory efficiency, and the openness of markets.
The Profile of Global Economic Freedom
Economic freedom has taken an upturn in the majority of world economies. The global average economic freedom score of 61.1 is the highest ever recorded in the 24-year history of the Index.
Economic freedom improved globally for the sixth year in a row, with the average score up by two-tenths of a point from the previous year. The world average is now more than three points higher than in the first edition of the Index in 1995.
Of the 180 economies graded in the 2018 Index, the scores of 102 economies are better, the scores of 75 are worse, and the scores of three are unchanged.
Six economies have sustained very high economic freedom scores of 80 or more, putting them in the ranks of the economically “free.”
The next 28 countries have been rated as “mostly free” economies, recording scores between 70 and 80. With scores of 60 to 70, 62 countries have earned scores that place them in the “moderately free” category.
Thus, a total of 96 economies—more than half of all nations and territories graded in the 2018 Index—provide institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater economic development and prosperity.
At the other end of the spectrum, nearly half of the countries graded in the Index—84 economies—have registered economic freedom scores below 60. Of those, 63 have economies that are considered “mostly unfree” (scores of 50–60), and 21 have economies in which most aspects of economic freedom are “repressed” (below 50).
Average levels of economic freedom vary widely among the five regions of the world. Europeans on average enjoy the highest levels of economic freedom with an average score of 68.8, far higher than the world average of 61.1. The Middle East/North Africa, Asia–Pacific, and Americas regions have overall economic scores near the world average at 61.5, 61.0, and 60.1, respectively, while the Sub-Saharan Africa region falls significantly short at only 54.4.
The Proven Power of Economic Freedom
Economies rated “free” or “mostly free” in the 2018 Index enjoy incomes that are more than twice the average levels in all other countries and more than five times higher than the incomes of “repressed” economies.
Economic freedom is closely related to openness and limited government, advancing entrepreneurial activity. Given this relationship, it should be apparent that a government’s most effective stimulus activity is not increasing its own spending or putting in place more layers of regulation, both of which reduce economic freedom. The best results are often achieved instead through policy reforms that limit the size of government and create greater economic dynamism in the private sector.
There is a robust relationship between improvements in economic freedom and levels of economic growth per capita. Whether long-term (20 years), medium-term (10 years), or short-term (five years), the relationship between positive changes in economic freedom and rates of economic growth is consistent. This relationship holds over all levels of development.
Improvements in economic freedom are a vital determinant of whether or not countries will achieve rates of economic growth sufficient to reduce poverty. As the global economy has moved toward greater economic freedom over the life of the Index, the world economy has nearly doubled in size. This progress has lifted hundreds of millions of people out of poverty and cut the global poverty rate in half.
The link between economic freedom and overall human development is clear and strong. People in economically free societies live longer, have better health, are able to be better stewards of the environment, and push forward the frontiers of human achievement in science and technology through greater innovation.
Economically freer countries that open their societies to new ideas, products, and innovations have largely achieved high levels of social progress. It is not massive redistributions of wealth or government dictates that produce the most positive social outcomes. Instead, mobility and progress require lower barriers to market entry, freedom to engage with the world, and less government intrusion.