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Economic Freedom of The World 2000

Economic Freedom and Social Welfare

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Economists have been criticized, perhaps justifiably, for considering only the material side of things. This section presents some simple charts that relate the economic freedom ratings to nonmonetary aspects of human well-being. Exhibit 6 shows the relationship between the five economic freedom quintiles and cereal production per hectare. Again we see a clear positive relationship. Exhibit 7 looks at life expectancy, which is, in many ways, a summary statistic of the overall well-being of a group of people. Exhibit 7 shows the strong positive correlation between economic freedom and life expectancy. People living in the top economic-freedom quintile live 20 years longer, on average, than do those living in the bottom quintile. It should also be noted that these are not the only social statistics that are positively correlated with economic freedom. Other work has looked at infant mortality, literacy, access to safe drinking water, and corruption, all of which show better outcomes with higher levels of economic freedom.5

Without question, the most persistent criticism of the market economy is its supposed failure to achieve a “fair” distribution of income. Although the question of what a “fair” distribution of income actually means is not simple to answer, many people find apparent income inequality disturbing. The empirical question, however, is this: Do market- oriented economies actually show a more unequal distribution of income than other types of economies? Exhibit 8 is an attempt to answer that question. This exhibit shows the economic freedom quintiles related to a measure of income inequality. The measure used is the ratio of the income of the top 10 percent (decile) of income earners to the bottom 10 percent. A ratio of 1, for instance, would indicate perfect equality, as the top and bottom deciles would have the same amount of income. The further this ratio moves away from 1, the more unequal the distribution of income. Exhibit 8 clearly shows that the distribution of income is not closely related to economic freedom. It appears that non-market (i.e., less economically free) countries have a distribution of income just as unequal as the market-oriented nations or, in some cases, even more unequal. If anything, it seems that market-oriented economies have slightly more equal distributions of income.

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Last Modified: Monday, January 10, 2000