Economic freedom is like freedom ... only economic

Generally, I find business people support economic freedom in broad terms, but in the case of their specific businesses, they think the government should establish huge barriers to trade because those terrible Brazilians or Estonians, or whomever, are just being unspeakable – dumping their goods in our beloved country, destroying jobs and so on. 

Yes, sometimes they are dumping, but often they are just better at making stuff, or giving it to us at lower prices.

People who are against economic freedom think that by supporting the notion, you are siding with those horrible capitalists and against the common good. But often there is an extraordinary consensus between business owners and workers – and consequently between capitalists and trade unions – against economic freedom and open competition. Go figure.

SA has once again slipped in the Fraser Institute’s Economic Freedom Index which was released on Thursday. It’s just inevitable. 

South Africa now ranks 99th out of 165 countries, which means the country has dropped by 50% under the ANC’s economic administration. 

I find ANC politicians almost completely disinterested in this calamitous fall – or they barely notice it. Opposition politicians are actually not much better, and are sometimes much worse. It’s not by chance that both groups are totally clueless about why SA’s economic performance is declining so precipitously.

There is another reason why the notion of supporting economic freedom is not the same as supporting capitalists. Economic freedom works for poor people just as it works for capitalists. It seems extraordinary to make that claim, but the data demonstrates this unequivocally (assuming the Canadian Fraser Institute is measuring it correctly).

The average income of the poorest 10% in the top quartile of economically free countries was about $14,204 in 2020. This compares to $1,736 in the bottom quartile (measured in Purchasing Power Parity at constant 2017 dollars). And this is the incredible part: the average income of the poorest 10% in the most economically free nations is more than twice the average per-capita income in the least free nations. Is that not incredible?

Of course, we have something of a “correlation is not causation” problem here, because most of the world’s economically free countries are also rich... because they are economically free. 

But this is not always the case; there are plenty of poorer countries in the top quartile. Africa’s most economically free country, Mauritius, sits at #9 – a fantastic achievement. But generally, the top quartile consists of the world’s richest countries, so we need to be cautious about the notion that economic freedom equates one-to-one with wealth.

But there are other indicators which strengthen the argument that the road to prosperity for poor people is to have more economic freedom. Not only is the absolute income earned by the poorest decile more in economically free countries (and when I say more, I mean seven times more; see above), but the income share for the poorest is higher. In other words, very poor people generally do better in economically free countries as a proportion of the total wealth available, whatever it is.