Economic freedom fell for three straight years

In 2022, global economic freedom fell for the third year in a row. That hasn’t happened before.

This is according to the Economic Freedom of the World report, published this week by the Fraser Institute. The annual report is coauthored by the late economist James Gwartney of Florida State University, and Robert Lawson and Ryan Murphy, both of Southern Methodist University.

When people have more economic freedom, they are allowed to make more of their own economic choices—choices about work, about buying and selling goods and services, about acquiring and using property, and about contracting with others.

The authors of the index measure economic freedom across countries by looking at the ways that government policies and institutions either prevent people from making their own choices or enable those choices by protecting people and their property. The index comprises 45 indicators grouped into five major categories: size of government, legal system and property rights, access to sound money, freedom to trade internationally, and regulation.

For as long as the index has been published (nearly three decades), it has told us that the world was getting more economically free. Averaging across countries, global economic freedom rose in each year it was measured from 1980 through 2007. From Scandinavia to North America, governments were reducing spending, cutting taxes, deregulating, and taming inflation. At the same time, from Eastern Europe to Southeast Asia, formerly communist countries were privatizing state enterprises, lowering trade barriers, and increasingly protecting the private property of citizens.

And as people were liberated, they prospered.

From the fall of communism in 1991 through today, about 110,000 people have been lifted out of extreme poverty (defined as earning less than $2.15/day) every day. That bears repeating: on a typical day in a typical year, for more than three decades, as many people as live in Thunder Bay, Ontario, escape the ravages of poverty.

At the same time, researchers increasingly used the Economic Freedom of the World index to shed light on prosperity. Nearly 1,000 peer-reviewed papers later, we now know that more economic freedom is associated with higher income, faster growth, a cleaner environment, higher life satisfaction, more tolerance, longer life, lower infant mortality, less corruption, less work, and less violence. And despite what one might expect, economic freedom seems to be unrelated to inequality.

But just as this evidence was accumulating, the world turned away from economic freedom. After the turn of the century, global economic freedom continued to increase but at a slower clip. Then, after the financial crisis in 2008, global economic freedom fell precipitously. It began growing again in 2009, but it didn’t return to pre-crisis levels until 2012.

Then the pandemic hit. Governments around the world imposed new regulations, raised barriers to international trade and migration, and drastically restricted the economic choices that people were allowed to make. As economies collapsed, policymakers boosted spending and introduced new government programs, piling on debt and siphoning more money from the private sector. In the first year of the pandemic, global economic freedom fell in four of the five measured areas, led by decreases in the freedom to trade and size of government scores (in the latter, governments earn lower scores when they tax and spend more).

Then, in 2021 and 2022, governments financed this new spending by printing money, allowing inflation to spike to levels not seen in decades, causing sound money scores to collapse in 146 out of 165 countries.

The collapse in economic freedom was widespread: Between 2019 and 2022 measured economic freedom fell in 86 percent of countries. By 2022, the average person enjoyed less economic freedom than he or she had in 2007. A decade and a half of progress had been erased.

The decline in economic freedom touched every major region of the globe, but it was most pronounced in Europe and Central Asia, followed by Latin America and the Caribbean. In general, those places that didn’t curtail their citizens’ economic freedom during the pandemic were those like Libya, Sudan and Venezuela that permitted their people little freedom to begin with.

There is some good news, however. Though still below pre-pandemic levels, freedom to trade internationally rebounded in 2022 and size of government scores are up slightly from 2021, indicating governments have begun to shrink a bit. Even better, governments did not seem to significantly undermine their legal systems or property rights regimes during the pandemic. This is especially welcomed given that this area of economic freedom matters a great deal for prosperity. We can also take comfort in the fact that many nations seem to have gotten inflation under control in 2024 and this will likely cause the sound money area to return to normal soon.

Around the world, governments responded to COVID-19 in unprecedented ways. And scientists will debate the efficacy of those responses for years to come. Whether these measures saved lives or not, one thing is certain: the world paid a price in lost economic freedom.