Fraser Forum

Economic freedom—it’s good for what ails you

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Earlier this year, one of the Fraser Institute’s flagship publications, the Economic Freedom of the World Index, found once again that economic freedom strongly correlates with “quality of life” improvements. For example:

  • Countries in the top quartile of economic freedom had an average per-capita GDP of $40,376 in 2016 compared to $5,649 for bottom quartile countries (PPP constant 2011 US$).
  • In the top quartile, the average income of the poorest 10 per cent was $10.660 compared to $1,345 in the bottom quartile in 2016 (PPP constant 2011 US$).
  • Interestingly, the average income of the poorest 10 per cent in the most economically-free countries is almost twice the average per-capita income in the least-free countries.
  • Life expectancy is 79.5 years in the top quartile compared to 64.4 years in the bottom quartile.
  • Political and civil liberties are considerably higher in economically free countries than in unfree countries.
  • Gender equality is greater in economically free countries.
  • Happiness levels are higher in economically free countries.

Economic freedom also has another benefit—it protects the environment.

In a 2014 study published by the Fraser Institute, researchers Joel Wood and Ian Herzog examined the relationship between rankings on the Economic Freedom of the World Index, with relation to ambient concentrations of a key pollutant (PM10), sometimes referred to as “soot.” These are small particles resulting from combustion that measure 10 micrometres or less and are believed to be carcinogenic and irritants to pre-existing lung disorders.

Wood and Herzog found that:

…a permanent one-point increase in the Economic Freedom of the World index results in a 7.15% decrease in concentrations of fine particulate matter in the long-run, holding all else equal. This effect is robust to many different model specifications and is statistically significant. This effect is in addition to a general 36% decrease over time due to unidentified factors.

This is consistent with what economists call the “Environmental Kuznets Curve,” which shows, for a broad range of pollutants, that wealthier societies tend to go through a cycle of pollution and then mitigation as incomes increase and people prioritize environmental quality and can afford to pay for it.

As shown in this 2004 report, Canada has largely made the transition for nearly all environmental trends whether air, water, solid waste generation, land protection and wildlife protection. This is, of course, not necessarily true of all pollutants in all places or all environmental challenges everywhere. We will always have some troubled places that need special attention. And not all pollutants or environmental overutilization may follow the Kuznets curve. Wood and Herzog, for example, did not find a relationship between economic freedom and greenhouse gas emissions.

However, as a rule of thumb, as noted by Aaron Wildavsky in his seminal book on public policy Searching for Safety, wealthier is healthier, richer is cleaner. Both trends are brought to us by economic freedom.