The Intangible Benefits of Economic Freedom
Societies are more prosperous when citizens produce and innovate without government intervention. Undoubtedly, regulations can slow the progress of innovation and by extension economic growth. Because economically free societies enable the efficient creation of wealth it is unsurprising that the Fraser Institute and the Heritage Foundation have documented a positive relationship between economic freedom and income growth.
However, less appreciated is that economic freedom improves well-being in ways not easily calculated on any ledger. Higher incomes afford people the opportunity to purchase high-quality amenities thereby enriching their quality of life. When increasing affluence allows people to secure better health care and superior schools they can expect to live longer and acquire lucrative jobs. Freed from worrying about the bare necessities of life makes it easier for people to pursue leisure and invest in building quality relationships.
As expected, Belasen and Hafer (2012) argue that across American states improvements in economic freedom led to higher levels of well-being even after controlling for other factors. Economic freedom gives people a sense of control over their affairs by ensuring the pursuit of entrepreneurial projects unfettered by government regulations. As such, economically free societies breed optimism. In a 2017 paper Boris Nikolaev and Daniel L. Bennett contend that people residing in economically free societies are more likely to report positive feelings. The authors further note that such people are also inclined to report feelings of excitement, success, and jubilation. Interestingly, those living in these societies are also less likely to feel restless, bored, or lonely.
Indeed, by boosting incomes, economic freedom avails us of new opportunities beyond mere material possessions. The truth is that having money increases our propensity to purchase worthwhile experiences. In fact, related research indicates that the degree of economic freedom in US states has a positive effect on both individual reported happiness and state average happiness. These findings are predictable since economic freedom boosts life satisfaction by directing people to chart their own course.
Another channel through which economic freedom improves society is tolerance. Open markets permit people to socialize and conduct business with outsiders thus engendering trust and respect for cultural differences. Nicolas Berggren and Therese Nilsson in the research article “Economic Freedom as a Driver of Trust,” posit that in economically free societies people are motivated to be trustworthy and entertain connections with outsiders in order to succeed in the marketplace. Moreover, doing business with outsiders forces us to become appreciative of diversity and embrace our universal humanity. Furthermore, it must be noted that the absence of government regulations ensures that people interact with each other as individuals with unique preferences and not as impersonal agents. In general, government regulations create barriers to commercial interactions.
Similarly, research by Thomas Coyle, Heiner Rindermann, and Dale Hancock shows that in free and open economies, innovative people are more productive with the human resources available.
Obviously, when government regulations do not hinder innovation, people are more likely to embark on risky ventures. Adam Thierer in Permissionless Innovation opines that the American start-up Free World Dialup (FWD) failed, because it sought approval from the FCC to operate whereas the founders of Skype bypassed U.S. regulatory approvals; therefore enabling the company to build a user base, so in the long-term it was able to outperform FWD.
But economic freedom is not only useful in the economic realm. Research reveals that it mitigates the effects of pandemics. Vincent Geloso and Jamie Pavlik in a fascinating paper exploring the effects of economic freedom on the Pandemic of 1918 submit that countries with higher levels of economic freedom tempered the damage induced by the pandemic because they were allowed to recover faster than regulated economies whose policies dampened recovery. Intriguingly, more recent research has confirmed the findings of Geloso and Pavlik by arguing that open economies in Europe demonstrate greater resilience in adjusting to the crisis of Covid-19.
Despite the rantings of regulators and politicians economic freedom is an ideal strategy for creating prosperous and resilient societies. Our failure to remained wedded to the principles of economic freedom will redound to our detriment, because it is the solution to ensuring a strong society, not the problem.