It matters in its own right, as part of the basic bundle of civic, economic, and personal freedoms that we all should be able to enjoy. The State has no place in the bedrooms of the nation, and it shouldn’t have much place in its boardrooms either. So long as everything that’s going on in either venue is voluntary among consenting adults.
It also matters because of its consequences. If you follow former Chinese leader Deng Xiaoping’s dictum that a cat’s colour matters far less than whether it can catch mice, economic freedom just works.
The latest edition of the Fraser Institute’s Economic Freedom of the World index, released this week, tallies the scores. New Zealand holds its fourth-place position, but we’ll come back to that. Let’s first show that this cat catches mice.
The index weighs size of government, legal systems and property rights, sound money, trade openness and regulation. The difference in outcomes between the freest quarter of countries and the least-free quarter is stark.
Countries with greater economic freedom have stronger economic performance. The most-free have per capita GDP 6.9 times higher than the least-free.
The share of overall income earned by the bottom 10% is similar for top-ranking and bottom-ranking countries. Freer countries are richer, so the poorest have higher incomes in more-free countries. Incomes for the poorest are about seven times higher in the most-free countries, on a measure that accounts for cost of living. And absolute poverty levels in the least-free countries are about twenty times higher.
Economic freedom also means more leisure. Those in the least-free countries work, on average, about six hours more per week.
Infant mortality in the most-free countries is about a seventh of infant mortality in the least-free countries, and life expectancy is 14 years longer.
Perhaps unsurprisingly, measures of life satisfaction are higher in the most-free countries than in the least-free and perceptions of government corruption are better too. Economic and personal freedoms also tend to go hand-in-hand.
This year’s report looked more closely at measures of environmental quality. George Mason University economist Vincent Geloso found that stronger economic freedom improved measured environmental quality, after adjusting for income.
Cross-country comparisons like this always wind up being a bit out of date; some countries take a long time to put up their data. This year’s index reports figures from 2024. The authors used 2025 American data to provisionally assess the first year of Trump’s second term: worse scores on economic freedom overall, driven by increases in the size of government, erosion of the legal system and property rights, and diminished freedom to trade internationally.
But it is hard to use the index to assess how our current government has performed.
New Zealand does rather well overall.
Only Switzerland now beats us on both economic and personal freedoms. No country did on average from 2000 through 2023.
But the country’s scores and ranking have slipped over the past quarter-century. In 2000, we ranked second in the world and our overall score would have rounded up to 9 out of 10. This year’s ranking, using 2024 data, has us in fourth place, with a score that rounds down to 8.
From 2000 through 2019, global overall scores improved considerably. Pandemic-era expansions in government spending, regulation, and inflation meant sharp reductions in economic freedom that are far from fully unwound. Despite that setback, global scores from 2000 through 2024 improved overall while New Zealand’s worsened.
As compared to a quarter-century ago, New Zealand earns a lower score for its size of government. The score for the quality of the legal system and property rights overall improved, but with some slipping in the perceived independence and impartiality of our courts and legal system. The soundness of our money has worsened. And so has our measured freedom to trade internationally, with non-tariff trade barriers, higher costs of importing and exporting, and overseas investment restrictions worth worrying about.
Credit market regulation, labour market regulation, and business regulation all show worse scores for 2024 than in 2000. Unfortunately, regulatory measures that particularly matter in New Zealand, like resource consenting, are not tallied in the index. And while our overall score on regulation slipped by about a third of a point on a 10-point scale over that quarter-century, our ranking remains best in the world – other leading countries also slipped on that measure.
All of it makes this year’s election campaign just a little depressing. Economic freedom brings higher income, stronger environmental quality, and greater personal wellbeing. Or at least is strongly associated with each of those measures.
And both potential coalitions seem to be competing to see who can do the best job of driving down New Zealand’s scores.
To read the article on the NZ Herald website, click here.