RICHARD J GRANT: The benefit of economic freedom transcends cultures

The benefit of economic freedom transcends cultures. This is not to suggest that the culture of a region is not important to economic outcomes. It is, and the character of that culture will interact with any given level of economic freedom in both directions. Just as the political institutions and policies are shaped by the public character and the predominant worldview that produced them, so will those institutions affect the development and life experiences of the people who live within that society.

Greater levels of economic freedom allow people to experience a wider range of life options, to take responsibility for their actions and to be entrepreneurial in their approach to life within their families and communities. Those who prosper, and are seen to prosper, will be those who find the best and most economical ways to serve others through businesses and volunteer community groups. They will have the right to trade for their services, thereby acquiring resources to maintain and grow their businesses and, by example, to encourage others to be similarly entrepreneurial and respectful of those who serve.

Communities in which people come to respect the lives and property of others will also respect those who devote their time and resources to the production and trading of life-enhancing goods and services. When people are free to try new business ideas, and to benefit from their trade, they will create new specialised goods and services and test them in the market. In so doing they bring wider choice and complexity to the network of human relations that we call “the market”. With this comes greater human interdependency, which makes each of us more valuable to one another, whether in “mere business” relations or in friendships and families.

Any society you visit will have evolved political structures and laws shaped by the worldview and consequent culture of its people — and each society will live with the results and limitations of its culture and political choices. If they have chosen simple laws that respect and protect families, individuals, and their property, that society will prosper economically and flourish culturally.

All societies have developed laws and methods to discourage and minimise theft, fraud and violence. Any society that fails in these basics will also fail to survive. But it is not enough to discourage such behaviour only in the wider population: it is also essential to minimise it in the actions of politicians and in all operations of the government and bureaucracy. Failure in this regard will build a culture in which wealth is obtained through power rather than service, where power is obtained through deception rather than merit, and order is maintained through threat rather than civil co-operation.

That which gets rewarded gets done. If power brings reward, whether through wealth or social status, then more people will seek power or political influence rather than productive service. But it is only through productive service and mutually respectful exchange that wealth is created, and a healthy culture is nourished. Over time the societal characteristics become obvious and only ideological blindness can prevent historians from recognising the correlation of these characteristics with the patterns of economic freedom throughout the world.

We can measure these patterns. The Economic Freedom of the World: 2022 Annual Report (EFW) offers us insights and warnings about the state of our world. It draws on consistent data from 165 countries to produce objective measures of economic freedom. Each country is given a score and a ranking in five broad categories as well as an overall score. This year’s EFW compiles the latest data, which are from 2020, and gives us insight into not only how we were positioned to recover from the events of 2020 and 2021, but also how we could have been better positioned both then and now.

This year’s report shows that SA’s EFW score of 6.55 (out of 10) and ranking of 99th (out of 165) have both fallen to their lowest levels in 20 years. That means South Africans have lost economic freedom not only in absolute terms but relative to most other countries. Worse, 2020 marked a precipitous decline in economic freedoms worldwide.

The rank of 99th pulls SA further down into the bottom half of all countries, tied with Tanzania. Among continental African countries, that is a ranking of 10th place, down from sixth last year — and that does not count Mauritius, Cabo Verde and the Seychelles, all of which rank higher.

Higher EFW scores are correlated with higher levels of prosperity, higher incomes, less poverty, longer life expectancy, lower infant mortality and greater general civility and happiness. The widespread lockdowns of 2020 were accompanied by massive interventions in the medical and general health choices of people around the world. In the hysteria, businesses were shut down and people’s livelihoods were destroyed. People were denied medical and health treatments of their choosing and mandated (forced under threat of job loss or other punishment) to accept treatments that they did not want and that might be harmful.

Throughout history, emergencies (especially wars) have presented opportunities for governments to expand their powers for the duration, and to relinquish some but not all those powers when the emergency passed. That is the danger now.

The EFW report gives us detail into five broad areas of economic freedom that enable researchers and policymakers to target specific areas and to prioritise actions. SA’s score for “government consumption” has been deteriorating over the past decade. This happened while “protection of property rights” was also declining, and “reliability of police” had collapsed to literally frightening low levels. This mix of rising government spending and waning respect for other people’s property is one of the warning signs for rising corruption and the now increasingly overt examples of state capture.

The report shows us that, for a society seeking to reduce unemployment and poverty, tax rates are too high and business regulations are too complex and restrictive. Labour market regulations are also so restrictive that they promote conflict rather than co-operation — and this should remind us of the reciprocal relationship between economic freedom and the general culture. As we lose one, we will lose the richness of the other.

• Dr Grant is professor of finance & economics at Cumberland University, Tennessee, and a Free Market Foundation senior consultant. He writes in his personal capacity.