A week or so ago, Newsweek's Julia Baird pointed to my analysis of the connection between national happiness and tolerance. That reminded me and my MPI colleagues of the Heritage Foundation's Economic Freedom Index. The index, which covers 183 countries, is based on ratings for 10 specific factors: business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption, and labor freedom. Hong Kong topped the list overall, followed by Singapore, Australia, New Zealand, Ireland, and Switzerland. Canada came in 7th, the highest among North American nations and slightly ahead of the United States which ranked 8th.
To what extent is economic freedom associated with tolerance and happiness? Are freer nations also more tolerant? Are their residents happier than those of other nations? To what extent is economic freedom also associated with other factors like affluence and material well‑being, the level of human capital, and the transition to postindustrial economic structures? And what is the relationship between freedom and economic inequality?
We decided to take a look. We ran some bivariate correlations and a series of scatter-graphs which I summarize below. Lack of matching data for some of our indicators caused us to leave out African nations from our analysis. As usual, I point out that our analysis points to association between variables only. It does not imply causation, and other factors may complicate the picture. Still, the findings are interesting.
Source: Economic Output is measured as gross domestic product per capita, World Bank, World Development Indicators
It's not surprising that richer countries are, on average, freer -- the correlation between the conventional measure of economic well-being (that is, gross domestic product per capita) and the Economic Freedom Index being .71. The scatter-graph above shows that Hong Kong, Australia, New Zealand, the United States, Canada, Denmark, the Netherlands, and Ireland all do very well on both measures.
Source: World Bank, World Development Indicators
Freer countries also have higher levels of human capital (that is, more highly educated populations) -- the correlation here being .44. Again, Hong Kong, Singapore, Australia, New Zealand, the U.S., and Canada all do well on both.
Source: Global Competitiveness Index (PDF)
Freer countries score better on global competitiveness, according to the Global Competitiveness Index (PDF) developed by Harvard University professor Michael Porter for Davos. The correlation between the two is .7. Despite what some say about the rise of the Chinese state capitalist model, overall, economic freedom and competitiveness appear to go hand-in-hand.
Source: Definition based on Rise of the Creative Class; data are from the International Labour Organization.
One thing that's interesting: economic freedom is closely associated with the transition to postindustrialism. A key indicator of that transition is the percentage of workers in the creative class which spans science and technology; arts, culture and entertainment; and the knowledge-based professions. The correlation between the creative class and economic freedom is .45. Hong Kong, Singapore, Australia, New Zealand, Ireland, the U.S., Canada, Denmark, and the Netherlands do well on both measures. On the other hand, the correlation between economic freedom and the working class is negative, though not statistically significant.
Source: Tolerance is a combined index of attitudes toward racial and ethnic minorities and attitudes toward gays and lesbians. Data are from a Gallup Organization survey.
Freer countries are also more tolerant. We looked at the association between economic freedom and attitudes toward ethnic and racial minorities and gays and lesbians. Freer countries had more open-minded attitudes toward each. And, the association was even higher when we generated a combined measure of both -- the correlation being .59.