Towards a Worldwide Index of Human Freedom

194 • Towards a Worldwide Index of Human Freedom
to be analyzed below) in China delivers much starker evidence about
the impact of insufficiently safe property rights and the corresponding
destruction of incentives than European economic history. My claim is
that no competing theory is compatible with (or even relevant for) all
three types of evidence at the same time.6
Although econometric evidence on the impact of economic freedom
is essentially cross-sectional rather than longitudinal, although it covers
the most recent decades only, econometric studies do support the
idea that economic freedom promotes economic growth and wealth
(Chauffour, 2011; de Haan and Sturm, 2000, 2009; Doucouliagos and
Ulubasoglu, 2006; Farr, Lord, and Wolfenbarger, 2003; Gwartney and
Lawson, 2004; Gwartney, Holcombe, and Lawson, 2006; Liu, 2007;
Norton and Gwartney, 2008; Vega-Gordillo and Alvarez-Arce, 2003;
Weede, 2006).7 The continuing debates among econometricians mostly
concern three issues: whether the level of economic freedom or the
rate of its improvement is more important; whether the relationship is
approximately linear or whether the first steps toward economic freedom
(or away from socialism) are much more important than later steps
or approaching perfect economic freedom; and whether “size of government”
should remain part of the economic freedom index or be treated
separately.
One may raise the following objection against the claim that econometric
evidence about the impact of economic freedom on growth and
economic history support essentially the same argument about the institutional
sources of growth: Although the effects of economic freedom
or its growth are usually significant, they are dwarfed by the much stronger
effects of the initial level of economic development or appropriate
measures of human capital formation (Weede, 2006). But one must
not conclude from these econometric findings that modest support for
cross-sectional effects of economic freedom should lead one to expect
only moderately strong freedom effects in the long run. What we observe
as the most robust effect in cross-sectional growth regressions from
recent decades, namely, the strong impact of the initial level of economic
6 Pomeranz’s (2000) explanation of the great divergence between China and the West illustrates
this perfectly. In his theory, the configuration of natural resource deposits (coal,
iron) in China and Britain plays a major role. Even if this is true, such a proposition is not
useful in understanding the misery produced by the great leap forward or econometric
findings about the impact of economic freedom. The wider the applicability of a theory,
the better its testability, and the more confidence we should place in it, if most test results
support the theory.
7 The benefits of economic freedom are not limited to better growth rates. Economic freedom
also reduces macroeconomic volatility (Dawson, 2010), unemployment (Feldmann,
2010) and even homicide rates (Stringham and Levendis, 2010).
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