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Economic Freedom
Economic Freedom
Economic freedom
Economic freedom is a term used in economic and policy debates. As with freedom generally, there are various definitions, but no universally accepted concept of economic freedom.[1][2] One major approach to economic freedom comes from classical liberal and libertarian traditions emphasizing free markets and private property, while another extends the welfare economics study of individual choice, with greater economic freedom coming from a "larger" (in some technical sense) set of possible choices.[3] Another more philosophical perspective emphasizes its context in distributive justice and basic freedoms of all individuals.[4] Other conceptions of economic freedom include freedom from want[1][5] and the freedom to engage in collective bargaining.[6] The free market viewpoint defines economic liberty as the freedom to produce, trade and consume any goods and services acquired without the use of force, fraud or theft. This is embodied in the rule of law, property rights and freedom of contract, and characterized by external and internal openness of the markets, the protection of property rights and freedom of economic initiative.[3][7][8] There are several indices of economic freedom that attempt to measure free market economic freedom. Empirical studies based on these rankings have found higher living standards, economic growth, income equality, less corruption and less political violence to be correlated with higher scores on the country rankings.[9][10][11][12][13]
Economic freedom Private property rights According to the free market view, a secure system of private property rights is an essential part of economic freedom. Such systems include two main rights: the right to control and benefit from property and the right to transfer property by voluntary means. These rights offer people the possibility of autonomy and self-determination according to their personal values and goals.[18] Economist Milton Friedman sees property rights as "the most basic of human rights and an essential foundation for other human rights."[19] With property rights protected, people are free to choose the use of their property, earn on it, and transfer it to In the 1960s Alan Greenspan anyone else, as long as they do it on a voluntary basis and do not resort to force, argued that economic freedom fraud or theft. In such conditions most people can achieve much greater personal requires the gold standard for freedom and development than under a regime of government coercion. A secure protection of savings from [17] system of property rights also reduces uncertainty and encourages investments, confiscation through inflation. creating favorable conditions for an economy to be successful.[20] Empirical evidence suggests that countries with strong property rights systems have economic growth rates almost twice as high as those of countries with weak property rights systems, and that a market system with significant private property rights is an essential condition for democracy.[21] According to Hernando de Soto, much of the poverty in the Third World countries is caused by the lack of Western systems of laws and well-defined and universally recognized property rights. De Soto argues that because of the legal barriers poor people in those countries can not utilize their assets to produce more wealth.[22] Pierre Proudhon, a socialist and anarchist thinker, argued that property is both theft and freedom.[23] Many leftists dispute that private property means "economic freedom" and believe in a system where people can lay claim to things based on personal use.[24] Freedom of contract Freedom of contract is the right to choose one's contracting parties and to trade with them on any terms and conditions one sees fit. Contracts permit individuals to create their own enforceable legal rules, adapted to their unique situations.[25] Parties decide whether contracts are profitable or fair, but once a contract is made they are obliged to fulfill its terms, even if they are going to sustain losses by doing so. Through making binding promises people are free to pursue their own interests. The main economic function of contracts is to provide transferability of property rights. Transferability largely depends on the enforceability of contracts, which is enabled by the judicial system. In Western societies the state does not enforce all types of contracts, and in some cases it intervenes by prohibiting certain arrangements, even if they are made between willing parties. However, not all contracts need to be enforced by the state. For example, in the United States there is a large number of third-party arbitration tribunals which resolve disputes under private commercial law.[26] Negatively understood, freedom of contract is freedom from government interference and from imposed value judgments of fairness. The notion of "freedom of contract" was given one of its most famous legal expressions in 1875 by Sir George Jessel MR:[27]
[I]f there is one thing more than another public policy requires it is that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts when entered into freely and voluntarily shall be held sacred and shall be enforced by courts of justice. Therefore, you have this paramount public policy to consider that you are not lightly to interfere with this freedom of contract.
The doctrine of freedom of contract received one of its strongest expressions in the US Supreme Court case of Lochner v New York which struck down legal restrictions on the working hours of bakers. [28] Critics of the classical view of freedom of contract argue that this freedom is illusory when the bargaining power of the parties is highly unequal, most notably in the case of contracts between employers and workers. As in the case of restrictions on working hours, workers as a group may benefit from legal protections that prevent individuals
Economic freedom agreeing to contracts that require long working hours. In its West Coast Hotel Co. v. Parrish decision in 1937, overturning Lochner, the Supreme Court cited an earlier decisions
The legislature has also recognized the fact, which the experience of legislators in many States has corroborated, that the proprietors of these establishments and their operatives do not stand upon an equality, and that [p394] their interests are, to a certain extent, conflicting. The former naturally desire to obtain as much labor as possible from their employes, while the latter are often induced by the fear of discharge to conform to regulations which their judgment, fairly exercised, would pronounce to be detrimental to their health or strength. In other words, the proprietors lay down the rules and the laborers are practically constrained to obey them. In such cases, self-interest is often an unsafe [29] guide, and the legislature may properly interpose its authority.
From this point on, the Lochner view of freedom of contract has been rejected by US courts.[30]
Economic freedom According to the creators of the indices, these rankings correlate strongly with higher average income per person, higher income of the poorest 10%, higher life expectancy, higher literacy, lower infant mortality, higher access to water sources and less corruption.[40][41] The people living in the top one-fifth of countries enjoy an average income of $23,450 and a growth rate in the 1990s of 2.56 percent per year; in contrast, the bottom one-fifth in the rankings had an average income of just $2,556 and a -0.85 percent growth rate in the 1990s. The poorest 10 percent of the population have an average income of just $728 in the lowest ranked countries compared with over $7,000 in the highest ranked countries. The life expectancy of people living in the highest ranked nations is 20 years longer than for people in the lowest ranked countries.[42] Higher economic freedom, as measured by both the Heritage and the Fraser indices, correlates strongly with higher self-reported happiness.[43] Erik Gartzke of the Fraser Institute estimates that countries with a high EFW are significantly less likely to be involved in wars, while his measure of democracy had little or no impact.[44] The Economic Freedom of the World score for the entire world has grown considerably in recent decades. The average score has increased from 5.17 in 1985 to 6.4 in 2005. Of the nations in 1985, 95 nations increased their score, seven saw a decline, and six were unchanged.[45] Using the 2008 Index of Economic Freedom methodology world economic freedom has increased 2.6 points since 1995.[46] Members of the World Bank Group also use Index of Economic Freedom as the indicator of investment climate, because it covers more aspects relevant to the private sector in wide number of countries.[47] The nature of economic freedom is often in dispute. Robert Lawson, the co-author of EFW, even acknowledges the potential shortcomings of freedom indices: "The purpose of the EFW index is to measure, no doubt imprecisely, the degree of economic freedom that exists."[48] He likens the recent attempts of economists to measure economic freedom to the initial attempts of economists to measure GDP: "They [macroeconomists] were scientists who sat down to design, as best they could with the tools at hand, a measure of the current economic activity of the nation. Economic activity exists and their job was to measure it. Likewise economic freedom exists. It is a thing. We can define and measure it." Thus, it follows that some economists, socialists and anarchists contend that the existing indicators of economic freedom are too narrowly defined and should take into account a broader conception of economic freedoms. Critics of the indices (e.g. Thom Hartmann) also oppose the inclusion of business-related measures like corporate charters and intellectual property protection.[49] John Miller in Dollars & Sense has stated that the indices are "a poor barometer of either freedom more broadly construed or of prosperity." He argues that the high correlation between living standards and economic freedom as measured by IEF is the result of choices made in the construction of the index that guarantee this result. For example, the treatment of a large informal sector (common in poor countries) as an indicator of restrictive government policy, and the use of the change in the ratio of government spending to national income, rather than the level of this ratio. Hartmann argues that these choices cause the social democratic European countries to rank higher than countries where the government share of the economy is small but growing.[50] Economists Dani Rodrik and Jeffrey Sachs have separately noted that there appears to be little correlation between measured economic freedom and economic growth when the least free countries are disregarded, as indicated by the strong growth of the Chinese economy in recent years.[51][52] Morris Altman found that there is a relatively large correlation between economic freedom and both per capita income and per capita growth. He argues that this is especially true when it comes to sub-indices relating to property rights and sound money, while he calls into question the importance of sub-indices relating to labor regulation and government size once certain threshold values are passed.[53] John Miller further observes that Hong Kong and Singapore, both only "partially free" according to Freedom House, are leading countries on both economic freedom indices and casts doubt on the claim that measured economic freedom is associated with political freedom.[50] However, according to the Freedom House, "there is a high and statistically significant correlation between the level of political freedom as measured by Freedom House
Economic freedom and economic freedom as measured by the Wall Street Journal/Heritage Foundation survey."[54]
References
[1] Bronfenbrenner, Martin (1955). "Two Concepts of Economic Freedom". Ethics 65 (3). JSTOR2378928. [2] Sen, Amartya. Rationality and Freedom. p. 9. [3] "Economic Freedom and its Measurement". The Encyclopedia of Public Choice. 2. Springer. 2004. pp. 161 (http:/ / books. google. com/ books?id=YUVMr-aFYwYC& printsec=frontcover#PRA1PA161,M1)-171. ISBN978-0-7923-8607-0. [4] Freeman S. (2003). The Cambridge Companion to Rawls p. 4 (http:/ / books. google. com/ books?id=ipMVcT5R2zwC& printsec=frontcover#PPA4,M1). Cambridge University Press. [5] "Franklin Roosevelt's Annual Address to Congress - The "Four Freedoms"" (http:/ / web. archive. org/ web/ 20080529235759/ http:/ / www. fdrlibrary. marist. edu/ od4freed. html). January 6, 1941. Archived from the original (http:/ / www. fdrlibrary. marist. edu/ od4freed. html) on May 29, 2008. . Retrieved November 10, 2008. [6] Jacoby, Daniel (1998). Laboring for Freedom: A New Look at the History of Labor in America (eBook). Armonk, NY: ME Sharpe. pp.89,148,166167. ISBN978-0-585-19030-3.
Economic freedom
[7] Surjit S. Bhalla. Freedom and economic growth: a virtuous cycle?. Published in Democracy's Victory and Crisis. (1997). Cambridge University Press. ISBN 0-521-57583-4 p. 205 [8] David A. Harper. Foundations of Entrepreneurship and Economic Development. (1999). Routledge. ISBN 0-415-15342-5 p.57, 64 [9] Pei, Minxin (2001). "Political Institutions, Democracy, and Development". Democracy, Market Economics, and Development. World Bank Publications. ISBN978-0-8213-4862-8. [10] Easton, Stephen T.; Walker, Michael A. (May 1997). "Income, growth, and economic freedom". American Economic Review (American Economic Association) 87 (2): 328332. [11] Ayal, Eliezer B.; Karras, Georgios (Spring 1998). "Components of economic freedom and growth: an empirical study". Journal of Developing Areas (Western Illinois University) 32 (3): 327338. [12] Scully, Gerald (2002). "Economic Freedom, Government Policy, and the Trade-Off Between Equity and Economic Growth". Public Choice (Kluwer Academic Publishers) 113 (1-2): 7796. doi:10.1023/A:1020308831424. [13] Berggren, Niclas (1999). "Economic Freedom and Equality: Friends or Foes?". Public Choice (Kluwer Academic Publishers) 100 (3-4): 203223. doi:10.1023/A:1018343912743. [14] Ralph V. Turner. Magna Carta. Pearson Education. (2003). ISBN 0-582-43826-8 p.1 [15] David A. Harper. Foundations of Entrepreneurship and Economic Development p.66-71 [16] Daniel Rauhut, Neelambar Hatti, Carl-Axel Olsson. Economists and Poverty. Vedams eBooks (P) Ltd. ISBN 81-7936-016-4, p.204-205 [17] Addision Wiggin, William Bonner. Financial Reckoning Day: Surviving the Soft Depression of the 21st Century. (2004). John Wiley and Sons. ISBN 0-471-48130-0 p.137 [18] David A. Harper. Foundations of Entrepreneurship and Economic Development. (1999). Routledge. ISBN 0-415-15342-5 p.74 [19] Rose D. Friedman, Milton Friedman. Two Lucky People: Memoirs. (1998). University of Chicago Press. ISBN 0-226-26414-9 p.605 [20] Bernard H. Siegan. Property and Freedom: The Constitution, the Courts, and Land-Use Regulation. Transaction Publishers. (1997). ISBN 1-56000-974-8 p.9, 230 [21] David L. Weimer. The political economy of property rights. Published in The Political Economy of Property Rights. Cambridge University Press. (1997). ISBN 0-521-58101-X p.8-9 [22] Hernando De Soto. The Mystery of Capital. Basic Books. (2003). ISBN 0-465-01615-4 p.210-211 [23] Pierre-Joseph Proudhon. No Gods, No Masters: An Anthology of Anarchism. Edited by Daniel Guerin, translated by Paul Sharkey. 2005. AK Press. ISBN 1-904859-25-9 p. 55-56 [24] Anarchist Essays, pp. 22-23 and p. 40 Freedom Press, London, 2000. [25] John V. Orth. Contract and the Common Law. Published in The State and Freedom of Contract. (1998). Stanford University Press ISBN 0-8047-3370-8 p.64 [26] David A. Harper. Foundations of Entrepreneurship and Economic Development. (1999). Routledge. ISBN 0-415-15342-5 p.82-88 [27] Hans van Ooseterhout, Jack J. Vromen, Pursey Heugensp. Social Institutions of Capitalism: Evolution and Design of Social Contracts. (2003). Edward Elgar Publishing. ISBN 1-84376-495-4 p.44 [28] http:/ / www. pbs. org/ wnet/ supremecourt/ capitalism/ landmark_lochner. html [29] "West Coast Hotel Co. v. Parrish" (http:/ / www. law. cornell. edu/ supct/ html/ historics/ USSC_CR_0300_0379_ZO. html). . [30] "The Supreme Court . Capitalism and Conflict . Landmark Cases . Lochner v. New York (1905) |PBS" (http:/ / www. pbs. org/ wnet/ supremecourt/ capitalism/ landmark_lochner. html). . [31] Freedom in the World. (1999). Transaction Publishers. ISBN 0-7658-0675-4 p.12 [32] Lewis F. Abbott. British Democracy: Its Restoration & Extension, ISR/Google Books, 2006, 2010. Chapter Five: The Legal Protection Of Democracy & Freedom: The Case For A New Written Constitution & Bill Of Rights. (http:/ / books. google. co. uk/ books?id=xwN-MIMtE6sC& dq=isbn:090632131X) [33] Milton Friedman. Capitalism and freedom. (2002). The University of Chicago. ISBN 0-226-26421-1 p.8-21 [34] Ludwig Von Mises. Planning for Freedom. Libertarian Press. 1962. p. 38 [35] Friedrich Hayek, The Road to Serfdom, University Of Chicago Press; 50th Anniversary edition (1944), ISBN 0-226-32061-8 p.95 [36] Hayek, Friedrich (2007). The Road to Serfdom: Text and Documents. University of Chicago Press. pp.5357. ISBN978-0-226-32055-7. [37] Tullock, Gordon (1988). Walker, Michael A.. ed. Freedom, Democracy and Economic Welfare (http:/ / fraser. stg. devlin. ca/ commerce. web/ publication_details. aspx?pubID=2942). Vancouver, B.C., Canada: The Fraser Institute. pp.6064. . [38] Gwartney, L., R. Lawson, and W. Block (1996). Economic Freedom in the World, 1975-1995. Vancouver: Fraser Institute. [39] Heckelman, Jac C.; Stroup, Michael D. (2000). "Which Economic Freedoms Contribute to Growth?". Kyklos 53 (4): 52744. [40] Economic Freedom of the World: 2004 Annual Report (http:/ / www. freetheworld. com/ 2004/ efw2004ch1. pdf) (pdf) [41] Index of Economic Freedom - Executive Summary (http:/ / www. heritage. org/ research/ features/ index/ chapters/ pdf/ index2008_execsum. pdf) (pdf) [42] Economic Freedom Needed To Alleviate Poverty (http:/ / www. buckeyeinstitute. org/ article/ 318) [43] In Pursuit of Happiness Research. Is It Reliable? What Does It Imply for Policy? (http:/ / www. cato. org/ pub_display. php?pub_id=8179) The Cato institute. April 11, 2007 [44] Chapter2: Economic Freedom and Peace (http:/ / www. cato. org/ pubs/ efw/ efw2005/ efw2005-2. pdf), Economic Freedom of the World 2005 [45] Economic Freedom of the World: 2005 Annual Report (http:/ / www. freetheworld. com/ release_2005. html) [46] Economic Freedom Holding Steady (http:/ / www. reuters. com/ article/ pressRelease/ idUS49743+ 15-Jan-2008+ PRN20080115)
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[47] Improving Investment Climates (http:/ / psdblog. worldbank. org/ psdblog/ 2006/ 08/ our_effectivene. html), World Bank Publications, 2006. ISBN 0-8213-6282-8 p.221-224 [48] Lawson, Robert A. 2006."'On Testing the Connection between Economic Freedom and Growth." Econ Journal Watch 3(3): 398-406. (http:/ / econjwatch. org/ issues/ volume-3-number-1-september-2006) [49] http:/ / www. thomhartmann. com/ index. php option=com_content&task=view&id=183 [50] "Free, Free at Last | Dollars & Sense" (http:/ / www. dollarsandsense. org/ archives/ 2005/ 0305miller. html). . [51] Jeffrey Sachs, The End of Poverty; How We Can Make It Happen In Our Lifetime (Penguin Books, 2005), pp. 320-321. [52] "Dani Rodrik's weblog: Is there a growth payoff to economic freedom?" (http:/ / rodrik. typepad. com/ dani_rodriks_weblog/ 2007/ 10/ is-there-a-grow. html). . [53] Morris Altman, "How Much Economic Freedom is Necessary for Economic Growth? Theory and Evidence," Economics Bulletin, Vol. 15 (2008), no. 2, pp. 1-20. [54] Adrian Karatnycky. Freedom in the World: The Annual Survey of Political Rights and Civil Liberties. Transaction Publishers. 2001. ISBN 978-0-7658-0101-2. p. 11 [55] Sen, Amartya K. (1993). "Markets and Freedoms: Achievements and Limitations of the Market Mechanism in Promoting Individual Freedoms". Oxford Economic Papers 45 (4). [56] Goodin, Robert E.; Rice, James Mahmud; Parpo, Antti; Eriksson, Lina (2008). Discretionary Time: A New Measure of Freedom (http:/ / www. cambridge. org/ catalogue/ catalogue. asp?isbn=9780521709514). Cambridge: Cambridge University Press. pp.154. ISBN978-0-521-70951-4. . Chapter 1 and 2 discusses the context and validity of the new measure. [57] Whisenhunt, Donald W. (2007). President Herbert Hoover. Nova Publishers. pp.128. ISBN978-1-60021-476-9. [58] "Constitution of the International Labour Organization" (http:/ / www. ilo. org/ ilolex/ english/ iloconst. htm#annex). . [59] "Freedom of association and the right to collective bargaining - Themes" (http:/ / www. ilo. org/ global/ Themes/ Freedom_of_Association_and_the_Right_to_Collective_Bargaining/ lang--en/ index. htm). .
Further reading
Friedrich Hayek, The Constitution of Liberty Friedrich Hayek, The Road to Serfdom Milton Friedman, Capitalism and Freedom Ludwig von Mises, Economic Freedom and Interventionism (http://www.mises.org/efandi.asp) Amartya Sen, Development as Freedom
External links
Economic Freedom (http://www.econlib.org/library/Enc/EconomicFreedom.html) by Robert A. Lawson of the Fraser Institute at the Concise Encyclopedia of Economics John Miller, " Free, Free at Last (http://www.dollarsandsense.org/archives/2005/0305miller.html)" in Dollars & Sense magazine The Protection Of Economic Rights & Freedoms (http://industry.sharepoint.com/Pages/ NewBritishBillofRights.aspx)
License
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