Economic freedom delivers our most desired rewards

To build a successful, wealthy, and peaceful nation requires patience, courage, tenacity, and above all, policies based on well-founded and proven fundamental principles of law and economics. This is true for both the nation’s leaders as well as its people.

The people who inhabit the world’s most successful countries generally exhibit a greater sense of adventure. Living in a country which has a high and stable economic growth, a sound legal system, where there is security of persons and their property, sound money, and, most important, freedom to trade, means that they are able to reap those desirable benefits that come about almost as a natural consequence of such conditions. Benefits that every single person in South Africa would like to see existing here at home - low rates of unemployment, minimum levels of crime and violence, an absence of poverty, high average incomes, low taxes, open opportunity, political and civil liberties, and peace.

How can we achieve such conditions?

Research shows us that, without fail, the countries that provide their citizens with these desirable conditions also rank highest on the indices of economic freedom. The Index of Economic Freedom published by the Wall Street Journal and the Heritage Foundation, USA, and Economic Freedom of the World (EFW) published annually by the Fraser Institute, Canada, in co-operation with the Economic Freedom Network, are the best known measures of economic freedom.

Nations in the top quartile of the EFW index show a much greater average per-capita GDP than those in the bottom quartile and the average income of the poorest 10 per cent of the population is also much higher than for those in countries in the least-free quartile. It also clearly shows that, contrary to popular opinion, the poor get richer fastest in economically free countries. People in these countries enjoy a much higher level of life satisfaction as well.

In any country, without voluntary exchange and entrepreneurial activity coordinated through markets, modern living standards would be impossible. A trend towards greater economic freedom results in increased economic growth. According to the findings of Horst Feldmann from the University of Bath, in the EFW 2010 annual report, more economic freedom reduces unemployment and the magnitude of the effect is substantial, especially among young people.

With our high crime rate, we should take cognisance of the findings of Stringham and Levendis: high levels of economic freedom are associated with a more peaceful society. Increase economic freedom, they suggest, and the figures show that the number of homicides will decrease.

Where governments absorb a greater share of GDP and dominate the economy, incomes tend to be lower. Increases in the extent to which government takes control of economic resources, whether by taxation or nationalisation, bring about reductions in the consumer sovereignty that should reign in a healthy economy.

The EFW annual report makes it clear that when governments play a greater role in their country’s economies, they reduce the general welfare of the citizens. If we wish to enjoy the desired benefits that successful countries display and afford their peoples, the people of South Africa need to be allowed the freedom to live and work to their best ability and secure freedom and prosperity for themselves and future generations.

ADAPTED BY Joan Evans from Nationalisation, Chapter 6: Reward of Economic Freedom by Eustace Davie and Jasson Urbach. This article may be republished without prior consent but with acknowledgement to the authors. The views expressed in the article are the authors and are not necessarily shared by the members of the Foundation.

FMF Policy Bulletin/ 14 February 2012

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