The Most Prosperous Nations

The Most Prosperous Nations
by Liam Joeseph Thornback

The principles of free enterprise can been successfully argued by the rationalist method, using a priori knowledge of reason and logic to invalidate the fundamental tenets of economically collectivist ideologies. Arguments from pure reason can be persuasive, but only to individuals who are otherwise receptive to your ideas. If your arguments rely too heavily on pure reason, you may simply face a wall of emotionalism and counter-arguments that are detached from reality. While those who are themselves completely detached from reality deserve no attention, many rational individuals may not have confidence simply in your reasoning. For an argument to be persuasive to any rational mind, it must make reference to reality in some way or another. The correlation between economic freedom and a countries economic prosperity is one of the many empirical examples of free enterprise theory in reality.

Firstly, general trends are important, because they are not cherry picked comparisons or random correlations, but universal evidence of the effects of free enterprise. The economic freedom indexes by the Heritage foundation (1) and the Fraser institute (2) cover all sections of economic freedom, including trade freedom, financial freedom and business freedom. The ease of doing business index (3), published by the world bank, is also an important indicator, but only discusses regulations for businesses and has recently moved in favor of modest labor market regulations (4). As for another specific index, the Enabling Trade Index (5), published by the World Economic Forum, deals solely with ease of trade across borders. While these indexes have received criticism from leftists (6), those criticisms are targeted at the correlation of those indexes with important measures of economic success, rather than what the indexes actually measure.

Why not consider taxation and government spending directly? This comes down to one of the many fundamental distinctions between so called “Libertarians” and Objectivists; in simple terms, most Libertarians are looking for an appropriate SIZE of government, while Objectivists look for the appropriate PURPOSE of government. Would it be right to consider dysfunctional countries like Libya as more free than countries such as New Zealand, because the Libyan government collects less taxes (7)? The lack of government taxation and spending is in many cases the result of the simple lack of government altogether. While after a certain point, taxation and spending by the government goes beyond anything needed for the protection of rights (ex, 50%+ in Norway), it would likely take its own article to find that point and examine it. It should be noted that the first two indexes used, from the Heritage foundation and the Fraser institute, both consider taxation and government spending in their calculations.

Below, the four indexes above are compared with four prosperity measures, GDP per capita (8), median income per capita (9), the national unemployment rate (10), and GDP growth (11). The median score for each of the four prosperity measures was taken for the top 10 and bottom 10 scoring countries of each index. When information was not available for a particular country, the next free or least free country was used instead.

Heritage Foundation economic freedom index:

GDP per capita:

-10 most free countries: $46340

-10 least free countries: $6070

Median income per capita:

-10 most free countries: $10926

-10 least free countries: $1062

National unemployment rate:

-10 most countries: 6.4%

-10 least free countries: 10.7%

GDP growth rate (annual):

-10 most free countries: 2.5%

-10 least free countries: 2.2%

Fraser Institute economic freedom index:

GDP per capita:

-10 most free countries: $42466

-10 least free countries: $2150

Median income per capita:

-10 most free countries: $12273

-10 least free countries: $377

National unemployment rate:

-10 most countries: 6.1%

-10 least free countries: 9.25%

GDP growth rate (annual):

-10 most free countries: 2.5%

-10 least free countries: 4.4%

World Bank ease of doing business index:

GDP per capita:

-10 most free countries: $52086

-10 least free countries: $944

Median income per capita:

-10 most free countries: $13713

-10 least free countries: $674

National unemployment rate:

-10 most countries: 5%

-10 least free countries: 13.5%

GDP growth rate (annual):

-10 most free countries: 2.5%

-10 least free countries: 2.4%

World Economic Forum trade freedom index:

GDP per capita:

-10 most free countries: $48584

-10 least free countries: $1162

Median income per capita:

-10 most free countries: $13249

-10 least free countries: $749

National unemployment rate:

-10 most countries: 5.75%

-10 least free countries: 7.9%

GDP growth rate (annual):

-10 most free countries: 2.1%

-10 least free countries: 4%

The results from the first three indicators of prosperity seem to support greater economic freedom in spades, but what about GDP growth? The correlation was either very weak or even negative. If one takes a closer look at the data however, they would find the GDP growth rate of many of the least free countries to fluctuate enormously; for example South Sudan's GDP grew 36.2% in 2014, but two years earlier in shrunk by 46.1% (almost cut in half). More likely than not, this “growth” is the result of foreign aid, debt relief and temporary investment from foreign developed nations; considering the high unemployment rates and tiny median incomes, a domestic source of double digit growth is very unlikely. On top of that, there is no other indication that any developing country with low measure of economic freedom has transitioned into developed status; all of the countries that have transitioned from developing status to developed status (Honk Kong, Israel, Estonia, etc.) have above average economic freedom measures.

Unfortunately, once you put in the effort into a water tight argument, the average person has already been bombarded with endless random exceptions and cherry picked examples from leftists who brand “pure” free-market intellectuals and activists as “fundamentalists” (12), and who have argued endlessly for a “principled” pragmatism (13) rather than an extreme ideology like socialism or communism. One so called example of this form of policy is mentioned more than the rest, Scandinavia (14). The example of Scandinavia as a success story of so called “moderate/pragmatic” economic policy is ridiculous to anyone who is committed to understanding the actual facts.

It should be noted that ALL Scandinavian countries (Denmark, Norway, Sweden, Finland and Iceland) rank at least in the top ten or the top twenty of all of the economic freedom indexes I used for my research. The only reason these countries are characterized as socialist or social democratic is for their welfare systems. If one was actually interested in looking deeper into the facts, they would find that the social welfare policies of Scandinavia have held their economies back (15), and very high government spending strongly correlates with lower rates of economic growth (16). On one hand, you have socialist polices proven to fail time and time again, and on the other, economic freedom proven again and again to correlate with stable growth and wealth. Which makes more sense as the reason for the success of Scandinavian countries?

There are many more such “examples” of statist economic success, but are not worth entertaining because they are just abstract examples without any context; praise of the Cuban heath care system (17), frivolous job growth statistics under Obama (18), etc, etc. These “facts” are not presented for the sake of understanding reality, but for the sake of self-vindication and intellectual intimidation; while it can be said that “Scandinavian socialism” is a complete concept, just not a consistent one or one that facts support.

It is important to know that simply having more facts than your opponent does not itself prove your argument; a leftist may throw twenty different facts at you which they say proves that governments are better at managing the economy than private individuals, but may not himself have any consistent theory that explains why. A modern leftist may through around concepts like “pragmatism” and Keynesian economics, those do not constitute larger theories of society the same way that Communism and Free Enterprise are; while, say, Keynesian economics is a specific theory of economics which appeals to leftist, Communism is an larger body of ideas, which combines moral, legal, political and economic concepts.

While leftist theories and ideology are not directly part of this discussion, it is important when giving weight to presented facts to observe if those facts contribute to a larger understanding of a given topic or simply argument for the sake of argument. Observable facts are man's only means of understanding the universe, but if he surrenders the power to give those observations meaning and structure, he surrenders their value.

The simple truth is that Free Enterprise wins, and that comes from a wide number of facts and a equally wide body of economic, moral, and other ideas which form consistent theories to explain those facts. One can just as easily choose to ignore the important facts and depend on those which it conferrable within his agenda; but he cannot ignore the obvious consequences, no matter how hard he tries to pin them on his intellectual enemies.

1.) “2015 Index of Economic Freedom World Rankings”

(from: http://www.heritage.org/index/pdf/2015/book/executivehighlights.pdf, pages 4-9).

2.) Fraser Institute Economic Freedom of the World 2014 Annual Report

(from: http://www.freetheworld.com/release.html).

3.) World Bank Group ease of doing business June 2014 rankings

(from: http://www.doingbusiness.org/rankings).

4.) “From 2009 to 2011 the World Bank Group worked with a consultative group — including labor lawyers, employer and employee representatives, and experts from the ILO, the OECD, civil society and the private sector — to review the methodology of the labor market regulation indicators and explore future areas of research.”

(from: http://www.doingbusiness.org/data/exploretopics/labor-market-regulation).

5.) The Global Enabling Trade Report 2014 by the World Economic Forum

(from: http://www.weforum.org/reports/global-enabling-trade-report-2014).

6.) The Left Business Observer measured the Heritage Foundation's economic freedom index (2005) against economic growth, and concluded “the relationship is as good as random”

(from: http://www.leftbusinessobserver.com/FreedomIndex.html).

7.) Heritage foundation macro-economic data

(from: http://www.heritage.org/index/explore?view=by-variables)

8.) World Bank GDP per capita data from 2014 (2013 for some countries)

(from: http://data.worldbank.org/indicator/NY.GDP.PCAP.CD/countries?display=default).

9.) Gallup Poll median income per capita data from 2013

(from: htp:t //www.gallup.com/poll/166211/worldwide-median-household-income-000.aspx).

10.) Trading Economics's unemployment rate data from 2015

(from: http://www.tradingeconomics.com/country-list/unemployment-rate).

11.) World Bank GDP growth data 2014 (2013 for some countries)

(from: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/countries?display=default).

12.) “What is market fundamentalism?”