Appendix 1: Economic Freedom as Defined and Measured by the Heritage Foundation and the Fraser Institute

The measurements of the Heritage Foundations and the Fraser Institute are very similar and primarily directed at negative freedom. Economic freedom is defined as the freedom of individuals to engage in economic transactions without interference. Most indicators value specific types of institutional quality, e.g. rule of law, the protection of property and sound money. A few indicators value ‘small government’ by using levels of government activities as negative indicators. Many data come from the same sources. The scores for countries are based on available statistics and on the standardized assessments of experts. It is no surprise that the correlation in the outcomes is high; +.88 for averages in the years 2010–2012. If the measurements are improved this correlation goes up to +.91.

In Measurement by the Heritage Foundation and Measurement by the Fraser Institute information is summarized about the measurement of economic freedom by the Heritage Foundation and the Fraser Institute.

Measurement by the Heritage Foundation

Concept

Economic freedom is defined as the fundamental right of every human to control his or her own labor and property. Individuals are free to work, produce, consume, and invest in any way they please. Governments allow labor, capital, and goods to move freely, and refrain from coercion of liberty beyond the extent necessary to protect and maintain liberty itself.

Measurement

Economic freedom is measured with 10 indicators with equal weights, related to four broad categories.

A. Rule of Law: 1. Property rights. 2. Freedom from corruption. B. Limited government: 3. Fiscal Freedom (= total tax burden as % GDP). 4. Government spending (% GDP). C. Regulatory efficiency: 5. Business freedom. 6. Labor freedom. 7. Monetary freedom. D. Open markets: 8. Trade freedom. 9. Investment freedom. 10. Financial freedom.

For each indicator countries can get 0–100 points and a summary score for economic freedom in general, as the average score of the 10 indicators. More points indicate more freedom. Countries get higher scores if they have lower levels of Fiscal Freedom (indicator 3, = level of taxation as %GDP) and government spending (indicator 4, %GDP). These levels are used as negative indicators.

Data Source

The Heritage Foundation collects information from many specific sources, like the World Bank, IMF and Economist Intelligence Unit. Data are available in the Index of Economic Freedom of the Heritage Foundation. See: http://www.heritage.org/index.

Measurement by the Fraser Institute

Concept

Economic freedom implies that individuals are permitted to choose for themselves and engage in voluntary transactions, as long as they do not harm the person or property of others. The primary role of government is to protect individuals and their property from aggression. The index of economic freedom of the Fraser Institute is designed to measure the extent to which the institutions and policies correspond with a limited government ideal, where the government protects property rights and arranges for the provision of a limited set of ‘public goods’ such as national defence and access to money of sound value.

A country must provide secure protection of privately owned property, even-handed enforcement of contracts and a stable monetary environment. It also must keep taxes low, refrain from creating barriers to both domestic and international trade, and rely more fully on markets rather than government spending and regulation to allocate goods and resources. A country’s summary rating in the index is a measure of how closely its institutions and policies compare with the idealized structure implied by standard textbook analysis of microeconomics.

Measurement

Each year the Fraser Institute presents a report about economic freedom in nations: the annual ‘Economic Freedom of the World Report’ (EFWR). Economic freedom is measured in five major areas:

1. Size of Government, with four sub-indicators with equal weights: government consumption as a % of national consumption, transfers and subsidies, government enterprises and investments, and top tax-rate. 2. Legal structure and security of property rights. 3. Access to sound money. 4. Freedom to trade internationally. 5. Regulation of credit, labor, and business.

Within these five areas there are 23 components and many of them are made up of sub-components. Each component and sub-component is placed on a 0–10-scale. The sub-component ratings are averaged to determine each component and the component ratings are averaged to derive ratings for each major area. The final summary rating is the average of the five area ratings on a 0–10 scale; lower scores indicate lower levels of economic freedom. In area 1, Size of Government, countries get lower scores if they have higher levels of government consumption, transfers and subsidies, government enterprises and investments, and top tax-rates (=’bigger government’). These levels are used as negative indicators.

Data Source

The data-set of the EFWR-index is actualized each year with new data for the last year. The Fraser Institute collects information from more or less the same sources as the Heritage Foundation, e.g. the Doing Business dataset of the World Bank. See: http://www.freetheworld.com.

Appendix 2: Global Freedom, Personal Autonomy, and Press Freedom, as Measured by Freedom House

The freedoms as measured by Freedom House are also primarily directed at negative freedom; the autonomy of individuals and the independence of the press without interference by the state or other external forces. The ratings are based on assessments by analysts using a broad range of sources of information, including foreign and domestic news reports, academic analyses, nongovernmental organizations, think tanks, individual professional contacts, and visits to the region. In Global Freedom and Personal Autonomy information is summarized about the measurement of global freedom and personal autonomy. Next section is about Press Freedom.

Global Freedom and Personal Autonomy

Concept

Freedom House defines global freedom as the opportunity to act spontaneously in a variety of fields outside the control of the government and/or other centers of potential domination. It measures freedom according to two broad categories: political rights and civil liberties. The sum of the scores for political rights and civil liberties indicate the state of global freedom in nations as experienced by individuals.

Political rights enable people to participate freely in the political process through the right to vote, compete for public office and elect representatives who have a decisive impact on public policies and are accountable to the electorate. Civil liberties allow for the freedom of expression and belief, associational and organizational rights, rule of law, and personal autonomy without interference from the state. Personal autonomy is one of the indicators of civil liberties and is more specifically defined by the following aspects:

Do citizens enjoy the freedom of travel or choice of residence, employment, or institution of higher education?

Do citizens have the right to own property and establish private business? Is private business activity unduly influenced by government officials, the security forces, political parties/organizations, or organized crime?

Are there personal social freedoms, including gender equality, choice of marriage partners, and size of family?

Is there equality of opportunity and absence of economic exploitation?

This personal autonomy is comparable to Veenhoven’s ‘private freedom’; measured with an index for the absence of restrictions to travel, religion, marriage, divorce, euthanasia, suicide, homosexuality, and prostitution (using data of the World Values Surveys).

Measurement

Each country or territory is assigned two numerical ratings from 1 to 7 for political rights and civil liberties. Global freedom is the average of the two averages, also ranging for 1–7. Higher scores indicate less freedom. Countries with 1 or 2 points are ‘free’; with 3, 4 or 5 points ‘partly free’ and with 6 or 7 points ‘not free’. In the tables the scores are reversed to make them more consistent with the other scores. Higher scores for personal autonomy, on a scale ranging from 0 to16 points, indicate more autonomy.

Data Source

The Freedom of the world survey provides an annual evaluation of the state of global freedom as experienced by individuals. Legal rights are considered, but more emphasis is placed on whether these rights are implemented in practice. Rights and liberties can be affected by both state and non-state actors. In this analysis findings are used for the year 2010 and 2012 and are retrieved from the report ‘Freedom in the World 2015’. The data are stable over the years and there is always a high correlation between the scores for political rights and civil liberties; +.92 in 2012. See https://freedomhouse.org.

Press Freedom

Concept, Measurement and Data

The Freedom of the Press report measures the level of media independence in 197 countries and territories. Each country receives a numerical score from 0 (the most free) to 100 (the least free) on the basis of combined scores from three subcategories:

A. The legal environment. B. The political environment. C. The economic environment.

For each category, a lower number of points is allotted for a more free situation, while a higher number of points is allotted for a less free environment. Here again this is reversed in the tables to make them more consistent and understandable. Data are available in: https://freedomhouse.org/report/freedom-press/freedom-press-2011#.VcN4j3kw_AU.

Appendix 3: Happiness, and Freedom to Make Life Choices, as Measured by the Gallup World Poll

Happiness

Concept

Following Veenhoven (2008) I define happiness as ‘the degree to which someone evaluates positively the overall quality of his or her present ‘life-as-a-whole’. In other words: ‘how much one likes the life one lives’.

Measurement

Since happiness is something that an individual has in mind, it can be measured using questions. Many different questions are used; for an overview see the collection of Happiness Measures that is part of the World Database of Happiness (Veenhoven 2014). The present analysis draws on responses to a survey question, developed by Cantril (1965), which reads as follows:

Suppose we say that the top of the ladder represents the best possible life for you and the bottom of the ladder represents the worst possible life for you. Where on this ladder do you feel you personally stand at the present time? Please use this card to help you with your answer.

0 1 2 3 4 5 6 7 8 9 10 Worst possible life Best possible life

The formulation best and worst possible life invites respondents to take into account all relevant domains of their life, like social relations, work, housing, leisure and so on. This question invites a comparative appraisal of life and measures the cognitive dimension of happiness in the first place.

Data available in the World Happiness Report; edited by Helliwell et al. (2015): http://worldhappiness.report/wp-content/uploads/sites/2/2015/04/WHR15_Sep15.pdf.

Freedom to Make Life Choices, or ‘Satisfaction with Freedom’

Freedom to make life choices is not about actual freedom, like the previous types of freedom, but about the satisfaction with actual freedom. It is defined as the average of responses in a nation to the question:

“Are you satisfied or dissatisfied with your freedom to choose what you do with your life?”

The formulation ‘Freedom to make life-choices’ is somewhat misleading. In the text and in the tables the formulation ‘Satisfaction with freedom’ or ‘Freedom Satisfaction’ is used. Higher scores indicate more satisfaction. Data available in the World Happiness Report 2015; see site in 3.1.

Appendix 4: Quality of Governments as Measured by the World Bank

The World Bank evaluates every year six aspects of the quality of governments:

1. Voice and accountability 2. Political stability and absence of violence 3. Government effectiveness 4. Regulatory quality 5. Rule of law 6. Control of corruption.

It is possible to discern the democratic and the technical or delivery quality of governments. The democratic quality is the average score for the first two aspects and the technical or delivery quality is the average of the last four. (Helliwell and Huang 2008; Ott 2010). The correlation between the last four aspects is very high (> + .9). The correlation between the technical quality of governments and average happiness in nations is high and universal (Ott 2010).

Scores are standardized scores with an average of 0 and a standard-deviation of 1 in the original sample of the World Bank of almost 200 nations. Higher scores indicate a better quality. Data available in the World Happiness Report 2015; see site in 3.1. More information about the Worldwide Government Indicators is available at the World Bank site: http://info.worldbank.org/governance/wgi/index.aspx#home

Appendix 5: Descriptive Statistics Key-Variables Related to Freedom, Government Quality, and Happiness

Variable N Min. Max. Mean Std. Global freedom 1–7 122 +1 +6.83 +3.1 1.77 Personal autonomy 1–16 120 +2 +16 +10.2 3.7 Press freedom 0–100 123 +10 +92 +46 21.4 Satisfaction with freedom 0–1 127 +.37 +.95 +.73 .14 Heritage Index 0–100 127 +23.2 +89.8 +62.0 10.1 Heritage Index Imp. a0–100 127 +19.4 +90.3 +60.0 13.5 Fraser Index 0–10 127 +4.0 +9.0 +6.9 .78 Fraser Index Imp. a0–10 127 +3.7 +8.9 +7.0 .98 Technical gov. quality −2,5 to + 2,5 127 −1.59 +2.06 +.09 .92 Happiness (life-ladder) 0–10 127 +2.94 +7.68 +5.48 1.11

Appendix 6: Correlations Between Key-Variables Related to Freedom, Government Quality and Happiness