Definition: Economic freedom is the independency experienced by individuals within a given society to pursue their interests. It is the liberty to engage and make choices about economic activities and endeavors.
What Does Economic Freedom Mean?
Economic freedom is a characteristic that a particular economic system might posses or not. For example, capitalist systems are normally the ones that promote more economic freedom, compared with communist or socialist systems. This freedom can be practiced through free markets with a low level of government participation, free trade and adequate private property protection. On the other hand, economic freedom can also be guaranteed by having a diversified market where consumers have many options to choose from to fulfill a particular need.
Also, the labor market must be free, as to allow individuals to pursue any careers they want, according to their talents and wishes, not limiting the scope of their options to government policies or any other restriction. Private institutions, such as NGOs, provide measures for country’s economic freedom, like the Index of Economic Freedom, designed by The Heritage Foundation, or the Economic Freedom of the World Index, measured by the Fraser Institute. The degree of economic freedom of a country is said to be one of the crucial elements that can increase economic growth and development.
Example
Mark and Henry Lawson are brothers and they are interested in pursuing a given business venture. They are both engineers and they have an idea to create a wireless microphone for computers. In a country where economic freedom is supported and promoted, they will have plenty room to act on this desire, since the resources will be fully available, without having to go through government permissions to start the project, and there’s also a free market that will self-regulate the price of the product they intend to sell.
On the other hand, a more restricted economic system, where economic freedom is not supported, will create many obstacles for the Lawson brothers, since the government might require from them a justification or might even step in the process to regulate how much they will charge for the product. In some cases, if the project is considered strategic, the government might even nationalize it, to protect the country’s interests. In this case, economic freedom doesn’t really exists.
