Eastlake High School Private Property Rights Matter Significant Sentence

Question Description

Need help with my Economics question – I’m studying for my class.

For this you are to post a significant sentence from Chapter 1and explain why.

1 attachmentsSlide 1 of 1attachment_1attachment_1.slider-slide > img { width: 100%; display: block; }
.slider-slide > img:focus { margin: auto; }

Unformatted Attachment Preview

CHAPTER 1
The Wealth of Nations:
Ownership and Economic
Freedom
Jupiterimages/Stockbyte/Getty Images
FUNDAMENTAL QUESTIONS
1. Why are some countries rich
while others are dirt poor?
2. What are private
property rights?
3. What is economic freedom?
Preview
The differences in wealth from one nation to another are really staggering. A map showtop: ª Carsten Reisinger/Shutterstock
ing each nation’s income appears in Figure 1. The countries shaded in dark blue on the
map are the richest, followed by lighter blue, turquoise, and so on to those shaded in
red, the poorest nations. A person in Malawi may have less than $1 a day to live on,
while the average person in the United States has more than $40,000 per year.
The income disparity has not always existed. In 1800 it would have been hard to
know whether you were living in Latin America, North America, or Europe; standards of
living were not very different. By 1900, a differential between wealthy and poor nations
was being created, and today the differences are huge.
1
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
FIGURE 1 Wealth of Nations
30,000!
12,000–30,000
6,000–12,000
3,500–6,000
2,000–3,500
1,000–2,000
500–1,000
0–500
GDP (Nominal) Per Capita
2007
Wealth of nations: The countries shaded in dark blue on the map are the richest, with a per capita
GDP exceeding $30,000, followed by lighter blue, turquoise, and so on to those shaded in red, the
poorest nations, with a per capita GDP ranging from zero to $500.
Source: http://data.worldbank.org/indicator/NY.GDP.MKTP.CD/countries?display=map; February 9, 2012.
According to the United Nations’ Food and Agriculture Organization, there are over
800 million people in the world who do not get enough to eat. Thirty percent of children
in Malawi are malnourished, and more than two of every 10 will die before their fifth
birthday. At the same time, the United States is rich. Even those in poverty in the United
States are in the top 7 percent of all people in the world in terms of wealth.
Why have all nations not progressed like the United States has? Canada has; it
is wealthy. Is it because Canada shares a 2,000-mile border with the United States? Sharing
the border must not be the cause since Mexico also shares a 2,000-mile border with the
United States, and its standard of living is less than half of that in the United States.
Design Pics / Carson Ganci/Getty Images
2
Which ones are owned and which are not? Perhaps hard to tell whether the shacks on the water are
actually owned or not, but their quality and structure would suggest not. Conversely, the mansions
behind the shacks are clearly taken care of and carefully constructed implying that people own them.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
3
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
1-1 Ownership
Ownership is crucial for economic success. Think about how you treat a car you own compared to a car you rent. Think about buying and selling anything. Can you buy something
no one owns? Can you sell something you do not own? Ownership allows trade to take
place, and ownership creates an incentive to take care of what is owned.
1-1a Anecdotes about Ownership
1. Why are some countries rich
while others are dirt poor?
During Mao Zedon’s reign, starvation was rampant in China. When Mao died in 1976,
Communist control of the country was in full force, and starvation continued. In 1978 in
Xiaogang, Anhui province—the heart of China’s rice-growing region—20 families held a
secret meeting to find ways to combat starvation. The system that the Communists had in
place across China was leading to a breakdown in food production. Everybody was collectively responsible for tilling the land, and everybody had a share in the land’s output.
Laborers got their rice share whether they worked hard or not, and as a result, people
hardly worked.
The villagers of Xiaogang decided they would divide up the land and farm it individually with each person keeping the output of his own land. They had to keep the arrangement
secret out of fear of the Communist authorities. But as rice production in Xiaogang rose dramatically, neighboring villages noticed. As other villages copied Xiaogang, their rice production increased as well. It was not long before the Communist authorities found out what the
farmers were doing. But, rather than clamping down and throwing the farmers in jail, the
Communist Party expanded the idea of allowing farmers to keep some of their produce. This
provided the incentive to work harder and produce more.
The first colonies established in North America—Jamestown and the Virginia colony, in
1607 and 1609, respectively—failed miserably. In each case, within a year, at least half of the
settlers had starved to death. The colonies had been established by profit-seeking entities,
and the settlers were indentured servants recruited on the streets of London. The indentured
servants had no financial stake in the outcome of the colony. Working harder or longer was
of no benefit to them. Everything produced by the settlers was sent to a company store
and then back to England. The people doing the work got nothing. Obviously, getting
no additional reward for working harder meant the indentured servants were not going
to work harder.
When representatives of the government and investors arrived in the colonies to find
out why there were problems, the basic issue quickly became evident. People were not working. Why should they? The produce they raised would not keep them alive; instead, it had to
go to the company store. As a result, settlers did not devote their efforts to planting and producing. Instead, they played games and loafed. Once the problem was identified, the solution
was simple: Each settler was given title to a few acres of land, and only a small amount of
their output was required to provide returns to investors. The colonies prospered from that
point on.
1-1b Private Property Rights
These anecdotes suggest that a primary reason that some nations are rich and others poor is
private ownership. It is pretty clear that systems without private ownership do not fare as
well as those with such ownership. Figure 2 lists several countries and their per capita
incomes in 1850, 1900, 1950, and 2000. Incomes do not differ all that much in 1850, as
shown by the red bars. But for 2000 (the crosshatched bars), the differences are staggering.
Countries such as India, China, Albania, Hungary, and Poland, where very little private
ownership was allowed, did not fare as well as countries where private ownership was
2. What are private
property rights?
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
4
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
FIGURE 2 Per Capita Income in Several Nations
Hong Kong
Japan
India
Per Capita Income, 1850, 1900, 1950, 2000
China
UK
Germany
France
Sweden
US
Canada
Australia
Poland
Hungary
Albania
Venezuela
Uruguay
Peru
Mexico
Colombia
Chile
Brazil
Argentina
0
10,000
20,000
30,000
Note: Red is 1850, green 1900, blue 1950, and cross-hatched 2000.
Source: Data come from A. Maddison, The World Economy: Historical Statistics, OECD, 2003.
private property rights
Ownership; the right to do
anything you want with what
you own as long as it does
not harm the property of
others.
allowed. It is interesting to note that Hong Kong, which was nothing but a rock with no natural resources other than a port, was able to make itself one of the wealthiest ‘‘countries’’ in
the world because it allowed private ownership. (If you have difficulty reading and interpreting charts, you might find the Appendix to Chapter 1 of value.)
When you own something, that something is yours to do with as you want—at least as
long as you do not harm others. That this leads to success and wealth seems like a simple
idea, but it is a powerful one.
This situation is known as private property rights. Private property rights mean that
people can own things, and they can pretty much do what they want with what they own as
long as they do not infringe on the private property rights of others. Private property rights
exist and are relatively secure in the richest nations. People or governments cannot take your
property without just compensation. In poor nations, either there are no private property
rights or what private property rights do exist are not secure. If private property rights are not
secure, people may damage or steal property or assault others without penalty; corruption and
bribes might be necessary to carry out trades or to otherwise use so-called private property.
When private property rights are not secure, people are unlikely to be able to sell the
things they own, to use them for collateral on a loan, or to pass them along to family. And
they have much less incentive to improve the property because they are not assured of a
return on any investments they make.
Until 1800, life everywhere was brutal and very short. The average life expectancy was only
about 35 years in most nations. But something occurred around the turn of the nineteenth
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
century that led to a rapid rise in the standard of living among Western nations. Notice in
Figure 3 how the standard of living (measured as GDP per capita)1 in the United Kingdom, the world’s richest nation at that time, begins to rise only around 1800. What
occurred to create the rising standard of living? The answer has to do with private property rights and the Industrial Revolution. It is a long story, but the short version is that
about 1688, new laws in England enabled entrepreneurs to know that what they invented
or created would benefit them, and that they would be able to retain profits and property.
This system of private property rights laid the foundation for the Industrial Revolution.
FIGURE 3 GDP Per Capita in the United Kingdom, 1500–2000
GDP Per Capita
20,000
18,000
16,000
14,000
12,000
10,000
8000
6000
4000
2000
0
1500
1600
1700
1820
1870
1913
2000
From the beginning of humanity, living standards were bare subsistence at best. This did not improve
until the tail end of the eighteenth century.
Until just recently in China, everything was owned by government; in Pakistan,
Afghanistan, Bolivia, Venezuela, and other countries, no one could be sure that whatever
they claimed as theirs would remain theirs. In Zimbabwe, the government takes property
whenever it wants. As president since Zimbabwe gained independence, Robert Mugabe has
confiscated property and given it to those he favored.
When private property rights are not universal among citizens, or when property rights
are not secure, a nation will not prosper. An abundance of a natural resource such as oil
may distort this fact for a while, but the abundance cannot carry over to all citizens unless
private property exists. In most oil-producing nations, the resource (oil) is owned by the
government, and only a very few benefit from it. But when private property rights prevail,
nations prosper even without abundant resources. As noted previously, Hong Kong had
nothing, no natural resources except a harbor, and it emerged as one of the wealthiest countries in the world in a just a few decades (Hong Kong is not actually a country, as it was
never independent—it was developed as part of the British Empire and then reverted to
China). Similarly, Singapore is wealthy, and it, like Hong Kong, is a small island without
natural resources. The wealthiest nations have a system of private property rights where
people can own property and be secure in their ownership. The poorest nations do not.
In Figure 4, the GDP per capita of the United States and a few Asian nations over time
is presented. China and India did not begin to progress until they began allowing private
ownership—about 1990 or so. Although China still allows only limited private property,
those parts of the economy that have been freed have done very well. In India, private ownership is now encouraged, and India too has experienced rising standards of living. As a
result of India’s and China’s progress in the past couple of decades, a billion people have
1
GDP per capita is gross domestic product per person; GDP is the total value of output created in a country during
one year.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
5
6
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
FIGURE 4 Per Capita GDP in the United States, China, India, Japan, and Indonesia
Japan began growing after the United States established a system of private property rights
following World War II. China, Indonesia, and India had followed the Soviet Union in adopting
communism and government-run economies. When the Soviet Union collapsed in 1989, these
countries began moving toward free markets and private property rights.
Source: Catherine Mulbrandon, VisualizingEconomics.com.
risen from dire poverty with a life expectancy of less than 35 years to comfortable prosperity
with a life expectancy that exceeds 72 years.
Private property may seem like a right just for the rich, but it is crucial for the poor. If
people do not own property, they cannot rent it to others, subdivide it, sell it, use it for
collateral, or pass it on to family. The farmers in Xiaogang who agreed to divide up the
land for cultivation could not sell their land or even pass it along to family. Nevertheless,
the amount of rice raised on the so-called private plots was significantly greater than when
everything was communal. But it could have been so much more had the farmers owned
the property.
Private property rights matter. They matter because they create incentives that enable
people to improve their standards of living. When you own something, you have the incentive to take care of it—that is, you have the incentive to increase its value and to invest in it.
If farmers can raise corn and that corn is theirs, they can take the corn to market and sell it.
They will invest in ways to provide better quality and more abundant corn, and they will
ensure that they have seeds remaining to grow more corn next year. Similarly, when you
offer to work, you are taking your own labor, something you own, and exchanging it for
pay. The higher the quality of your work, the more valuable you are to your employers, the
more you will be paid.
When no one owns something, no one has an incentive to take care of it. Workers who
were forced to work in shipbuilding factories in Gdansk, Poland, during the communist regime would show up and then loaf. They had no incentive to be productive because they
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
7
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
received the same pay no matter what they did. When you own your own labor or property,
you have the incentive to make it as valuable as possible because then you can trade for
other things you want. When no one owns something, problems arise; for instance, no one
owns the fish in the oceans, so no one takes care of them. Overfishing and, in some cases,
extinction of species result.
1-1c Title to Property
In 1981, about 1,800 families took over a piece of wasteland in San Francisco Solano in the
province of Buenos Aires, Argentina.2 The occupants were landless citizens organized by a
Catholic chapel. The Church and the squatters believed the land belonged to the state, so
they assumed they could simply plop themselves down and enjoy the land. Once situated,
the squatters had to resist several attempts at eviction, but eventually, the military government lost track of them.
When the military government was replaced by a democracy, the squatters brought the
issue of ownership to the attention of the government, requesting that they be given the
land. It was then discovered that the land was not state property; the area was composed of
different tracts of land, each with a different legal owner. So the congress of the province of
Buenos Aires ordered the transfer of the land from the original owners to the state in
exchange for a monetary compensation. About 60 percent of the land was sold to the government, and these parcels were deeded to the squatters; legal titles secured the property of
the parcels. The rest of the property was not deeded to the squatters. Either original owners
could not be identified or other original owners refused to give up the land, arguing that the
compensation was too low. They contested the government’s compensation in the Argentine
courts—a contest that continued for more than 20 years.
As a result, there are two divisions of land in the occupied region, as is illustrated in
Figure 5. Some of the squatters obtained formal land rights, titles to their properties,
whereas others lived in the occupied parcels without paying rent but without legal titles.
Although the groups shared the same household characteristics (size of family, education,
skills, health, etc.) before the government transferred ownership to some of the residents,
NOW YOU TRY IT
In college today, when you
want to take a class, you must
register, and if there is room
available and you have taken
the prerequisites you can take
the class. The college owns
the access to classes. What
would occur if no one owned
the right to sign up for a class?
Those on the left were given title to the property. Those on the right had no title.
2
The complete story and some empirical examinations are presented in Sebastian Galiani and Ernesto Schargrodsky,
‘‘Property Rights for the Poor: Effects of Land Titling’’ (Coase Institute Working Paper, August 9, 2005).
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Florian Kopp/imagebroker/age fotostock
Glow Images, Inc/getty images
FIGURE 5 Illustration of the Squatter Results in Argentina
8
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
NOW YOU TRY IT
and although they lived next to each other for 20 years, the outcome of their ownership
arrangements was dramatically different. Owners with title invested in their properties,
whereas residents without title did not. There is a significant difference in the quality of
housing between the titled and untitled properties. The titled properties have been
upgraded, expanded, and improved. The untitled properties remain shanties that are run
down and crumbling. Not only is the housing different, but those with title have behaved
differently than those without title: They had fewer children, and the children have experienced more education and better health.
While the squatters in Buenos Aires lived on their properties for several years, they
could not consider themselves owners until they had titles to their property, that is, legal
documents specifying all aspects of the ownership. The title to property is typically a registration with the government specifying the location of the property and who owns the property. The title allows the owner to sell the asset or to use it to obtain loans or mortgages. In
the United States, when you sell or purchase property, a ‘‘title search’’ must be undertaken
to be sure that the title is given to the correct owner.
Insecure property rights—property rights without ownership title or without security
from confiscation—weaken the incentives for owners to make long-term investments and
hinder the ability of owners to use their property as collateral to secure loans. Without
access to credit, economic growth is hindered. In order to achieve secure property rights, a
country must ensure that property rights are protected by law and that any informal, unarticulated rights are incorporated into a written, formal, legal property rights system.
Peruvian economist, Hernando de Soto has spent years examining insecure property rights systems.3 He notes that citizens of most poor countries do not lack entrepreneurial energy nor do they lack assets. But because they have no title over these assets,
they cannot use them to improve their lives. From countryside to urban shantytown,
ownership is informal. Mr. Jones knows that Mr. Assalt down the road owns the farm
he works, but Mr. Assalt has no title to his property. Owners like Mr. Assalt are locked
out of the formal, legal economy—they have houses, crops, and businesses but no titles
of ownership. Citizens lacking formal legal title to their property are unable to use their
assets as collateral. They cannot get bank loans to expand their businesses or improve
their properties.
Private property rights are crucial for economic success. The property rights must be
legally acknowledged and secure. People have to be able to buy and sell property and to use
property for collateral on loans in order to feel secure in improving the property and making
other investments.
Explain why those families
who acquired title to property
behaved differently than those
families who had no title.
Explain why the houses are of
different quality. Explain why
those with title had fewer
children and more of those
children acquired an education.
RECAP
1. Much of the economic success of nations is
dependent on ownership.
2. A system of private property rights enables
people to do what they want with what they
own as long as they do not harm the private
property of others.
ownership comes the incentive to improve the
asset that is owned.
4. Legal recognition of ownership—titles—are
necessary to ensure that owned property can
be freely bought and sold and used as collateral
for loans.
3. With ownership comes the incentive to invest
in or take care of the asset that is owned. With
3
Hernando de Soto is the economist focusing most on titling. See his book The Mystery of Capital: Why Capitalism
Triumphs in the West and Fails Everywhere Else (2000), Basic Books, New York.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
9
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
1-2 Economic Freedom
Economic freedom is important to the success of a nation. Economic freedom refers to the degree
to which private individuals can carry out voluntary exchange. People can buy or sell things without government involvement or without getting the permission of some king or commission. People can work for whom they want at a wage the employer is willing and able to pay. A communist
system is the opposite of economic freedom; it is one in which there is no economic freedom.
1-2a Index of Economic Freedom
Most countries are somewhere between 100 percent economic freedom and no economic freedom. In an economically free society, individuals are free to work, produce, consume, and
invest in any way they please, with that freedom both protected by the state and unconstrained
by the state. In economically free societies, governments allow labor, capital, and goods to
move freely, and they refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself. Higher taxes mean less economic freedom because,
in general, people have to be coerced into paying taxes. Most would not pay taxes unless they
were required to. Similarly, more rules and regulations mean less economic freedom. Regulations requiring that you obtain a license to be a beautician limit some people from being beauticians. Regulations on emissions from automobiles restrict what kinds of cars people can
drive. Restrictions on travel mean less economic freedom. Having to obtain a passport limits
some travel. Having to go through security at airports takes time and effort. Restrictions on
international trade mean less economic freedom. Japan might not allow citizens to purchase
meat from elsewhere, which limits the freedom of its citizens. Even the paperwork necessary
to comply with government rules and regulations means less economic freedom.
The Wall Street Journal and the Heritage Foundation coauthor an annual measure of
economic freedom called the Index of Economic Freedom (a similar measure is provided by
the Fraser Institute). The authors of the Index attempt to measure how much free, voluntary
trade is affected by government. In 2008, the United States was ranked 5, the fifth most economically free country. Today it is ranked 10th. According to the Index of Economic Freedom, the United States slipped in 2010 from the group of countries called ‘‘free’’ to the
group of countries called ‘‘mostly free’’ because the role of the U.S. government in the economy expanded from 2009 on. The top 10 economically freest nations are listed in Table 1.
3. What is economic freedom?
economic freedom
The ability to engage in
voluntary trade without
interference or restrictions by
government or outside
parties.
NOW YOU TRY IT
What is the difference
between economic freedom
and voluntary trade?
TABLE 1 The Ten Most Economically Free Countries in 2013
Each year, the Heritage Foundation and the Wall Street Journal calculate the list of the most and least
economically free nations. Shown here are the 10 most economically free countries in 2013.
World Rank
Country
Overall Score
Change From Previous
1
Hong Kong
89.9
0.2
2
Singapore
87.5
0.3
3
Australia
83.1
0.6
4
New Zealand
82.1
5
Switzerland
81.1
!0.2
6
Canada
79.9
7
Chile
78.3
8
Mauritius
77.0
0.8
9
Ireland
76.9
10
United States
76.3
!1.8
!0.8
!0.9
0.9
!1.5
Note: Definition: Free, 80–100; Mostly free, 60–79.9.
Source: http://www.heritage.org/Index/
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1 The Wealth of Nations: Ownership and Economic Freedom
1-2b Economic Freedom and Standards of Living
In general, the greater a nation’s economic freedom, the higher its standard of living. This
should make sense because if people are not free to work where they want at what they want
and to purchase what they want, then they have few if any private property rights, and we
know that private property rights lead to wealth. People in the unfree and repressed economies, those with few or no private property rights, average less than one-eighth of the
income of people in the freest nations, as shown in Figure 6.4
You would expect that with more income comes a better quality of life, and in general that is true. Having more income means there is more money for health care, for
better education, for living in locations more free from diseases and natural disasters,
and, in general, to support a better and longer life. The Human Development Index created by the United Nations rates nations on the basis of quality of life. It is obvious in
Figure 7 that, indeed, economic freedom and human development are strongly related.
The ‘‘free’’ countries have a much higher index of human development than do the
‘‘repressed’’ countries.
Secure private property rights and economic freedom are the most important
explanations for the wealth of nations. Bad government is important, but bad government means no or at least, few secure private property rights and very little if any economic freedom. Natural resources are important to a nation’s wealth, but as noted
earlier, simply having abundant natural resources is not likely to lead to national wealth.
Along with the resources, private property rights and economic freedom are needed.
Given that we know what leads to the wealth of nations, why isn’t every country wealthy? Is there more to the story? Looking for answers to these questions is why we study
economics.
FIGURE 6 Top Ten Highest Standards of Living
Economic Freedom and Standard
of Living, 2012
50,000
GDP Per Capita,
2012 U.S. Dollars
10
40,000
30,000
20,000
10,000
0
Free
Mostly Moderately
Free
Free
Mostly
Unfree
Repressed
Source: http://www.heritage.org/index/download
4
The average Index of Economic Freedom (IEF) score for a country with GDP growth of over 10 percent is 10 percent
higher than the IEF score for the countries with GDP growth of 3 percent or less. These numbers are for 2005. Libya,
which had the lowest score where reliable GDP growth figures are available, had a growth rate of 3.5 percent in a year
that the average growth rate was almost 5 percent. Zimbabwe, which had the second lowest IEF score, had a 6.5 percent
GDP decline.
Copyright 2016 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.
Chapter 1 The Wealth of Nations: Ownership and Economic Free