I found a interesting critique of the Heritage Foundation’s Economic Freedom Index written by left-wing economist John Miller. On some issues he actually agrees with my critique and he does actually make a reference to me, but on other issues he is a bit confused.One thing that did surprise me was that he did not try to argue that the welfare state actually increases economic freedom, which many left-liberals and socialists argue.
But that still does not mean he does not have a libertarian definition of economic freedom . Indeed he refers to the libertarian conception of economic freedom as “Economic freedom for corporations”.
His primary critique of the index seems to be that economic freedom is not defined as adherence to democratic principles, illustrated by the fact that the two freest countries according to the index are
Hong Kong and Singapore, neither of whom are fully democratic. They are according to a index measuring the degree of democracy (and which defines democracy as freedom) both only “half-free”.
But for one thing it is hardly self-evident that democracy should be equated with freedom and even if we for the sake of the argument accepted that, democracy could hardly be classified as economic freedom , much less the only criteria of economic freedom.
He then agrees with my critique of the bizarre methodology in calculating the burden of government spending as the change in government spending and the equating of the burden of taxation with only 2 arbitrarily selected tax rates, completely neglecting to what extent these rates are applied and the tax rates on the things which the selected tax rates are not applied.
And he also agrees with my critique of the neglect of so-called industrial policy, although in that segment he falsely asserts that the success of the East Asian tiger economies can be attributed to that, a assertion which has no valid theoretical or empirical (The most successful East Asian economy is Hong Kong, which has had no industrial policy) grounding.
He also agrees with my critique of the informal market category and in that paragraph he does make a reference to me: “Even right-wing economist Stefan Karlsson of the libertarian Ludwig Von Mises Institute has criticized the index on this point.”.
In the final paragraph he points out that the correlation between economic growth and the economic freedom index ranking is non-existent or even negative, that is that countries considered unfree probably have a higher average growth rate. He points to the high growth rates of “unfree” economies like China, India and Vietnam. This finding however does not disprove that economic freedom boosts growth because for one thing the Heritage institute ranking is very flawed and underestimate the relative level of economic freedom in China, India and Vietnam and other poor countries. And secondly there are of course other factors than economic freedom which is relevant. In particular, poorer countries generally have higher growth than rich countries not because they necessarily have better economic policies, but because they can benefit from western technology already utilized by the west and given their current low income levels their percentage gains from increased trade will be bigger than for richer countries.
The funniest error of his text is however when he tries to give a empirical example of a free economy with slow growth. His example is: Estonia!?! Say what? Estonia has during the latest 5-year period had a average annual growth rate of 6.5%. That may be slower growth than in China and a handful or so other countries, but it is higher than in the vast majority of countries, particularly if you take into account the fact that Estonia’s population is shrinking, making Estonia’s relative GDP/capita growth even higher.
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Here is a different take on the report
Ashish, the blog entry you link to confuses two separate studies. The Fraser Institute study is not the same study as the Heritage Foundation study.
The blog entry clearly points out that article at swaminomics.com comments on a similar report and not the same report.
See another article at swaminomics.com on the same issue.
Very interesting. While I’ve noticed that free government and free markets tend to go together, due to reciprocating benefits, the most interesting countries to me are the ones that are not particularly politically free (like the ones you point out) but have a high level of growth.
It would be my guess that in the long run, the two are incompatible. How will countries like China try to handle the eventual situation where a key growth policy conflicts with their idea of central control. The most fascinating point in a country’s governmental evolution is when they have to choose between economic success and power (which is usually phrased in a “how can we balance rising inequality with our economic success”). To me, there seems to be 3 possible results:
1. They throw in the towel and let economic freedom triumph
2. repression leading to un-free government
3. repression inciting rebellion
At some point, those countries you mention will have to make that decision. Considering that two of them, China and India, house nearly a third of the world’s population, their choices will have massive impact on all our futures. I fear that some countries have already go down path #2, like Russia. I believe that India will choose 1, but I am not so optimistic about China.
No fan of this Web site would confuse democracy with freedom for one minute. Some, like Fareed Zakaria in The Future of Freedom, would argue the opposite.
And a roughly equal proportion of us can distinguish economic freedom from other types of freedom in most cases.
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