The Index of Economic Freedom

The Index of Economic Freedom

   The Wall Street Journal and the Heritage Foundation have spent over 10 years tracking economic freedom world wide, producing a yearly index delineating those freedoms. The Heritage Foundation website, www.Heritage.org, defines economic freedom this way:

Economic freedom is the fundamental right of every human to control his or her own labor and property. In an economically free society, individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state. In economically free societies, governments allow labor, capital and goods to move freely, and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself.

   Using a 1-100 scale, they measure economic freedom using the following 10 items for criteria: Business, trade, investment, fiscal, financial, labor and monetary freedom, plus government spending, property rights and freedom from corruption. The good news is that for the 183 economies studied, most made modest gains. Furthermore, the greatest gains occurred in emerging economies. That means more people are rising out of poverty and entering into the exchange of money for goods. This bodes well for future business, including small businesses.

   The Executive Summary of the report contains highlights of the salient points found in the survey. One claims that high levels of government spending have not equaled economic growth. The report states, “In light of the economic crisis, many advanced economies’ governments have stepped up their direct interference in the economy with government spending. Though volumes of evidence have highlighted the negative results of massive government spending, in a time of crisis, some have tried the Keynesian policy prescription of stimulating demand with government spending. That spending, more than any market factor, has posed the greatest risk to economic dynamism. Relying on government spending in the form of various stimulus packages not only has failed to promote growth and employment, but also has seemed to prolong the crisis by hampering private-sector investment. Bloated government debt has turned the economic slowdown into a fiscal crisis in many countries, with economic stagnation fueling a long-term employment crisis.”

   The report makes the correlation between economic health and overall well-being of the people living in nations with economic freedoms. It turns out that good business does good for more than business owners: all people in a nation live improved lives when they have healthy economic freedoms. All aspects of the citizens’ lives will revolve around the economic activity carried out in a free country.

   The report declares that the “principles of economic freedom emphasized in the Index are individual empowerment, non-discrimination, and the promotion of competition.” It should be self-evident that the more people can control their economic lives, the more they prosper.

   The Index charts the improvement over the past 18 months in economic conditions world wide. Despite a jobless recovery, continuing unemployment, and myriad other difficulties, economic conditions are slowly improving. More people are able to increase their purchasing power. For all business owners, this is welcome news. As more people are able to control their financial destinies, increased business here and abroad will bring new opportunities and eventually new jobs.

Have a terrific day!

Patricia