Economic Freedom

Economic Freedom

Economic freedom refers to the quality of a free private market in which individuals voluntarily carry out exchanges in their own interests. Political freedom means freedom from coercions by arbitrary power including the power exercised by the government. Political freedom consists of two basic elements: political rights and civil liberties. Sufficient political rights allow people to choose their rulers and the way in which they are ruled. The essence of civil liberties is that people are free to make their own decisions as long as they do not violate others' identical rights. Ayal (1998) points out the historical fact that economic freedom and political freedom are inextricably connected. However, the relationships among economic freedom, civil liberties, and political rights are complex (Ayal, 1998).

In a free private market, individuals have the freedom to choose what to consume, to produce, and to give. The invisible hand leads free economic agents to pursue their own interests and voluntarily cooperate with others. Economic freedom and civil liberties are clearly related. A society whose civil liberties are incomplete is unlikely to sustain a free private market since civil liberties and economic freedom have in common the freedom from coercions by other individuals or governments. A free private market is characterized by voluntary transactions among individuals who are left alone to pursue their own ends for their economic objectives. The value of political freedom to economic freedom exactly lies in the fact that civil liberties are defined as including guarantees to limit governmental power and to protect individual autonomy.

The importance of political rights to economic freedom, however, is less clear. Dawson (1998) points out that “political freedom, once established, has a tendency to destroy economic freedom.” He basically believes that the process of political competition, as determined by political rights, may generate policies that negatively affect economic freedom. Public choice scholars have long argued that competitively elected politicians and their agents in the bureaucracy are self interested and may intervene and disturb the free market to please their constituencies and sponsors. Individuals enjoying political rights use democratic forms of government to redistribute wealth from others often by interfering with the free market, by restricting competition or limiting sales through the manipulation of prices, or otherwise creating rents. The misuse of political freedom in democracies has caused an expansion of services and activities by governments far beyond the appropriate scope in which economic and human ...