NCPA - National Center for Policy Analysis

Measuring Freedom And Prosperity

August 26, 1997

In recent decades it has become accepted that economic freedom produces prosperity, even though freedom is harder to measure. Nevertheless, Congress' Joint Economic Committee tried to do just that in a recent report drawing on five major studies of economic freedom around the world.

  • The JEC found that a 10 percent increase in economic freedom can make a nation's per-capita output grow by anywhere from 7.4 percent to 13.6 percent.
  • According to Canada's Fraser Institute, six of the world's freest countries -- Hong Kong, Switzerland, Singapore, the U.S., Canada and Germany -- achieved in 1995 an average gross domestic product per capita of $16,599 -- with average real annual growth per-capita over 15 years of 2.6 percent.
  • Nine nations rated poorly on the economic freedom scale recorded average per-capita GDP of only $1,954 -- which dropped by an average of 1.1 percent annually over 15 years.
  • The 17 nations that increased economic freedoms the most between 1975 to 1995 saw real GDP grow 2.7 percent annually.

New Zealand, for example, cut taxes and red tape, and privatized state-owned industries -- increasing economic freedoms by 33 percent since 1990. Consequently, real per-capita GDP has grown by more than 4 percent each year since 1992.

Five years ago, Gerald Scully, an economist at the University of Texas at Dallas, found that the share of income going to the middle class is 30 percent to 50 percent higher in nations defined as most-free than in those classified as least-free. The share going to the richest one-fifth of the population is 25 percent less in the most-free nations.

Source: Perspective, "Wealth Through Freedom," Investor's Business Daily, August 26, 1997.


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