Economic Freedom“Why are some nations wealthier than others?”

Economic Definitions:


Economic Freedom:
Economic freedom refers to the freedom for consumers to decide how to spend or save their incomes, for workers to change jobs or join unions, for people to establish new businesses or close old ones, and similar opportunities to make economic decisions for themselves.

All economies have economic goals and one of these goals is economic freedom. Different economies place different emphases on economic freedom. Market economies tend to place more emphasis on economic freedom, allowing consumers and producers to make their own decisions.

In general, laws that restrict economic freedom have a negative impact on standards of living and the welfare of citizens.

Countries with MORE economic freedom tend to have higher rates of GDP and economic growth, and their citizens seem to have higher standards of living and better health.

With economic freedom, people are free to make their own decisions about spending and saving, where to work, when to start and close businesses. With economic freedom, government regulation is usually limited.

Market economies or CAPITALISM, tend to have high levels of economic freedom and a better quality of life for the citizens.


Economic Freedom of the World This is an interesting site with a good description of economic freedom and an interactive map of economic freedom around the world.

The following readings are helpful because they discuss the differences between Free Market and Command/Centrally Planned Economic Systems. Free Market Economic systems allow a high degree of economic freedom compared to Command economics that generally restrict economic freedom.
Free Market Economic Systems Reading:
Command/Centrally Planned Economic Systems Reading:


Standard of Living:
The amount of goods and services available per person in any economy. The standard of living is measured by per capita GDP, among other things like income per person, poverty rate, access and quality of health care and education, literacy rates, infant mortality rate, etc.

Generally, countries with high degrees of economic freedom have higher rates of per capita GDP, and their citizens tend to have a higher standard of living, thus a higher quality of life.

With economic freedom, people are free to make their own decisions about spending and saving, where to work, when to start and close businesses. With economic freedom, government regulation is usually limited.


Gross Domestic Product (GDP):
The total market value of all final goods and services produced in an economy in a year.


GDP per Capita:
A country’s GDP divided by the number of people who live there.


*GDP data measures only material goods and services. These indicators do not measure factors such as health and education that affect the welfare of a country’s citizens. One way of measuring a country’s health and welfare is looking at infant mortality rate and literacy rate.

Infant Mortality Rate:
The number of babies who die out of every 1,000 live births.


Literacy Rate:
The percentage of people over the age of 15 who can read and write.


Development:
Development is the process of improving people’s material conditions by gaining more knowledge, education and technology.

More-Developed Countries: Generally more economic freedom
< Usually technologically advanced
< Highly urbanized and wealthy
< High percentage of the population is employed in services (tertiary) and manufacturing (secondary) jobs/industries
< Relatively low rates of infant mortality and high rates of literacy

Less-Developed Countries: Generally less economic freedom
< Changing from uneven growth to more-constant economic conditions
< Generally characterized by low rates of urbanization – or people living in cities
< Relatively high rates of infant mortality and low literacy rates
< A high percentage of the population works in agricultural industries (primary industries)


Primary Industries/Agriculture:
These are industries where people are mainly working in agricultural/faming jobs. Collect and produce raw materials and agricultural products. Examples: raising cattle, fishing, growing grains, mining ore, etc.


Secondary Industries/Manufacturing:
These are industries where people are mainly working in manufacturing products. Examples: processing beef, making steel, producing automobiles, shoes or bread, etc.


Tertiary Industries/Services:
These are industries where people are mainly providing services. Examples: restaurants, dry cleaning, car repair, etc.