What is meant by the idea of economic freedom? What factors are used in the Economic Freedom Index? For managers, what role does the Economic Freedom Index play in analyzing the potential of a country?
Answer:
a. Economic freedom is the "absolute right of property ownership, fully realized freedoms of movement for labor, capital, and goods, and an absolute absence of coercion or constraint of economic liberty beyond the extent necessary for citizens to protect and maintain liberty itself." Rather than the state, individuals decide how they wish to work, produce, consume, save, and invest. Importantly, that freedom is both protected by the state as well as unconstrained by the state.
b. The economic factors on which the index of economic freedom is based are trade freedom, business freedom, monetary freedom, investment freedom, freedom from corruption, freedom from government, property rights, financial freedom, and labor freedom.
c. The study is helpful in that it identifies ways that governments control economic activity and the degree to which they do so. Operationally, this index helps managers understand the degree to which the government of a country intervenes with the principles of free choice, free enterprise, and free prices for reasons that go beyond the basic need to protect property, liberty, citizen safety, and market efficiency. This information helps managers make better plans to invest funds and run operations in a particular country.