ECONOMIC FREEDOM OF THE WORLD: AN ACCOUNTING OF THE LITERATURE

I. INTRODUCTION AND HISTORICAL BACKGROUND The Economic Freedom of the World (EFW) index was first produced by Gwartney. Block, and Lawson (1996) and has been updated annually since. (1) The EFW index has found a place as one of the top resources for academics. policy makers, and journalists who are looking for indicators on national economic policies around the world. Academically, the EFW index has been cited in hundreds of articles. Many. but not all, of these articles have a strong economic policy component to them and thus should be of interest to the readers of this journal. Here, we provide an accounting and description of this literature. The EFW index is designed to measure the consistency of a nation's policies and institutions with economic freedom. The EFW index places the concept of economic freedom within the classical liberal tradition that emphasizes the importance of private property, rule of law, free trade, sound money, and a limited role for government. Higher scores are accorded to nations with more secure property, freer trade, more stable money and prices, less government spending, and fewer regulations. The EFW index was conceived as a result of a 1984 Mont Pelerin Society meeting session in which George Orwell's book, 1984, was being discussed. (2) The question of the session was whether Orwell's dystopic depiction of the future had come true. Some discussants at the meeting thought Orwell was clearly wrong as democracy and human rights were well protected, at least in the Western nations that concerned Orwell. Others, most notably Michael Walker, the founder and then-Executive Director of Canada's Fraser Institute, countered that while that might be true of political and civil liberties, economic liberties are under increasing attack. According to Walker, economic life was becoming increasingly Orwellian. Further, he argued even our political and civil liberties were not out of the woods just yet. Walker quoted Milton Friedman, who wrote in Capitalism and Freedom (1962, p. 9): Historical evidence speaks with a single voice on the relation between political freedom and a free market. I know of no example in time or place of a society that has been marked by a large measure of political freedom, and that has not also used something comparable to a free market to organize the bulk of economic activity. Among the participants at this meeting was Milton Friedman himself, who noted that the debate on the floor about whether economic freedom was growing or eroding suffered from a critical lack of empirical data. The debaters employed little more than isolated anecdotes to make their points. As a result of this experience. Walker and Rose and Milton Friedman organized a meeting sponsored by Liberty Fund to discuss the prospects for creating some kind of measure of economic freedom. This first meeting ultimately led to a series of six meetings. The participants at these early meetings included a veritable Who's Who of classical-liberal scholars including Armen Alchian, Peter Bauer, Gary Becker, Arthur Denzau, Stephen Easton, David Friedman, John Goodman. Herb Grubel, Ronald Jones, Richard Rahn, Henri LePage, Henry Manne. Charles Murray, and Douglass North. At the fourth conference, held in Sea Ranch, California, Gwartney, Block, and Lawson (1992) presented a prototype index for 79 countries. The organizers briefly pursued the idea of doing a survey-based economic freedom index, but that effort failed, and they eventually asked Gwartney, Block, and Lawson to complete a publishable index. The index was finally released in 1996, 10 years after the original conference, as Economic Freedom of the World: 1975-1995. (3) Milton Friedman's "Foreword" in the first volume is worth reprinting here: Freedom is a big word, and economic freedom not much smaller. To talk about economic freedom is easy; to measure it, to make fine distinctions, assign numbers to its attributes. …