Preface

It is long past time to put the American people first. For too long, the policy agenda in Washington has been defined by well-connected special interests that have severely undercut economic freedom for ordinary hardworking Americans. But on November 5, 2024, the American people spoke up and unambiguously rejected the failed liberal status quo. The reelection of Donald Trump has placed our country at the dawn of a new era. Today, by that dawn’s early light, we can already see the prosperous, cheerful, energetic future it portends.

We must take this window of opportunity to act with courage and confidence.

The moral and practical case for ordered liberty and free enterprise is as necessary today as it was when Ronald Reagan and Margaret Thatcher rescued their nations’ economies and won the Cold War. After four years of incompetence and corruption, the task before us is to unleash America from the red tape in which it has been bound and create an efficient economy that can conserve the true, the good, and the beautiful. Why? Because that is the only kind of economy that is worthy of a free people.

As we show year after year in the Index of Economic Freedom, an annual flagship publication of The Heritage Foundation, countries that support free markets, rule of law, private property, and limited government experience more prosperity, better education, and healthier environments. These countries also tend to produce better jobs, better goods and services, and better societies. The imperative to advance economic freedom and revitalize vibrant entrepreneurial growth is stronger than ever.

But markets and freedom don’t exist in a vacuum, and the measure of societal greatness involves more than merely economic factors. We should recognize that our most important task today is rebuilding the well-functioning and healthy institutions of civil society that we need and deserve. The free market is a vital part of that process but must always be in service to our values and not the other way around.

Now is the time for correcting course. Today, economic freedom is being attacked on all sides, both at home and abroad. The Chinese Communist Party (CCP) is working to constrain freedom not only within China’s own borders, but in nations around the world. Bureaucrats are more powerful than ever. They work with globalist organizations and multinational corporations alike to write regulations that stifle the freedom of the middle class while enriching the powerful under the guise of health emergencies and global warming.

If we want to pass on to our children and grandchildren a nation that is at least as free and prosperous as the one we inherited, we must focus our efforts on turning ordinary people away from the false promises of bigger government and sweeping economic programs while turning the rest of the world away from the CCP. The Index of Economic Freedom is a vital tool in this fight.

Kevin D. Roberts, PhD
President
The Heritage Foundation
February 2025

Executive Summary

The 2025 Index of Economic Freedom reveals just how fragile the world’s economy has become. The cumulative downward pressure on the world economy is marked by the lingering impact of ill-advised economic policy choices from the coronavirus pandemic period, higher inflation, Russia’s ongoing invasion of Ukraine, and a broader conflict in the Middle East, among other economic and geopolitical tensions.

The abrupt and shortsighted renunciation of the principles of economic freedom in many countries has further risked much-needed stronger economic recovery and long-term economic resilience and prosperity. For instance, many countries around the world are already burdened by higher debt that prolongs economic stagnation.

A return to business as usual will not suffice. In addition to the impact of the pandemic on public finances, countries face many long-term structural challenges in the policy areas of transparency, efficiency, openness, and government effectiveness.

Many countries are now at a crossroads. A nation’s true capacity for lasting growth and prosperity hinges on the quality of its institutions and economic system. The question is: How soon and decisively will they recognize the paramount need to correct their current policies and reinvigorate their commitment to preserving and advancing the economic freedom that has proven to be the key to human flourishing and lasting prosperity?

Key Findings of the 2025 Index of Economic Freedom

• The 2025 Index, which considers economic policies and conditions in 184 sovereign countries from July 1, 2023, through June 30, 2024, reveals a world economy that, taken as a whole, remains “mostly unfree.” The global average economic freedom score has increased by 1.1 points to 59.7 from the previous year’s 58.6.
• Globally, fiscal soundness has deteriorated significantly. Rising deficits and mounting public debt in many countries have undermined and likely will further undercut their overall productivity growth and lead ultimately to economic sluggishness rather than vibrant growth.
• There continues to be a clear relationship between improving economic freedom and achieving higher economic dynamism and greater overall well-being. No matter what their existing level of development may be, countries can measurably boost their economic growth and economic freedom by adopting policies that reduce taxes, rationalize the regulatory environment, open the economy to greater competition, and fight corruption.
• The standard of living, measured by incomes per capita, is much higher in economically freer countries. Countries rated “free,” “mostly free,” or “moderately free” in the 2025 Index generate incomes that are more than double the average levels in other countries and more than three times higher than the incomes of people living in economically “repressed” countries.
• As documented once again in the 2025 Index, economic freedom also correlates significantly with overall well-being, which includes such factors as health, education, the environment, innovation, societal progress, and democratic governance.
• As shown in the ranking table for the 176 countries rated in the 2025 Index, only three countries (down from four in the previous year) have earned a designation of economically “free” by recording scores of 80 or more; 26 earned a designation of “mostly free” by recording scores of 70.0 to 79.9; and an additional 58 were considered at least “moderately free” with scores of 60.0 to 69.9. Thus, a total of 87 countries, or slightly less than half of the 176 countries graded, have institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom in the pursuit of greater economic development and prosperity.
• On the opposite side of the spectrum, about 50 percent of the countries graded in the 2025 Index (89 economies) have registered economic freedom scores below 60. Of those, 60 economies are considered “mostly unfree” (scores of 50.0 to 59.9), and 29 countries, including China and Iran, are in the economically “repressed” category.
• Within the top 10 rankings, a notable reshuffling has taken place. Singapore continues to be the world’s freest economy, demonstrating a consistently high level of economic resilience and prosperity. Switzerland is the world’s second freest economy, followed by Ireland. Taiwan has maintained its fourth highest ranking, the highest the country has ever achieved in the Index of Economic Freedom.
• Especially notable is the continuing decline within the “mostly free” category of the United States, whose score plummeted to 70.2, one of the lowest levels in the history of the Index. The U.S. is now the world’s 26th freest economy. The major causative factor in the erosion of America’s economic freedom is excessive government spending, which has resulted in mounting deficit and debt burdens over the past four years. On the other hand, Argentina recorded one of the largest score improvements, moving out of the bottom tier of economic freedom in the 2025 Index. Providing concrete momentum for the revitalization of Argentina’s economy, various fiscal and regulatory measures adopted as part of reform-minded President Javier Milei’s decisive economic reform agenda have already generated notable progress.

All in all, the ongoing recovery remains uneven and uncertain with strikingly different outcomes across countries, sectors, and demographic groups. Output and employment gaps remain in many countries, particularly in emerging markets and developing economies, suggesting that countries face vastly different policy challenges in recovery and beyond.

The 12 Economic Freedoms: Key to Unleashing Choice and Opportunity

Economic freedom is perhaps best understood as a philosophy of governance that rejects dogma and embraces a diverse range of strategies for economic advancement. When governments inject themselves into economic decision-making, their actions may be well-intentioned in theory, but in practice, they tend toward coercion, standardization, and the gradual yet eventual restriction of freedom. They cannot possibly account for the needs and preferences of individuals as effectively as a free marketplace can. They also are nearly certain to promote the waste of resources and effort by undermining efficiency.

The Index of Economic Freedom, an annual cross-country benchmark report, provides practical and compelling evidence that economic dynamism and growth are held back by the counterproductive policies that governments all too often put in place, not by the freedom-based policies we fail to implement.

For more than three decades, the Index has explored many critical aspects of the relationship between individuals and governments. In measuring economic freedom, we have focused on a comprehensive but far from exhaustive range of policy areas in which governments typically act for good or ill. However, by its very nature, the concept of freedom resists narrow definition, and each year seems to bring new challenges from those who seek to impose their own views on or control the economic actions of others.

Understanding Economic Freedom

At its heart, economic freedom is about individual autonomy: the freedom of choice that individuals enjoy in acquiring and using economic goods and resources. The underlying assumption of those who favor economic freedom is that individuals know their own needs and desires best and that a self-directed life, guided by one’s own philosophies and priorities rather than those of a government or technocratic elite, is the foundation of a fulfilling existence—the “good life.” Independence and self-respect flow from the ability and responsibility to take care of oneself and one’s family and are invaluable contributors to human dignity and equality.

Because we live together with others in societies, individual autonomy obviously is not absolute: For many individuals, their own well-being and that of their families and communities are equally important, and the personal rights enjoyed by one person may therefore end at his or her neighbor’s doorstep. Decisions and activities that can affect others are rightly constrained by societal norms and, in the most critical areas, by government laws or regulations.

In a market-oriented economy, societal norms, not government laws and regulations, are the primary regulators of behavior. Such norms grow organically out of society itself and reflect its history, its culture, and the experience of generations as they have learned how to live with one another. They guide our understanding of ethics, the etiquette of personal and professional relationships, and consumer tastes.

At their best, democratic political systems reflect societal norms in their laws and regulations, but if they are not constrained by constitutional or other traditional limits, even democratic governments can pose substantial threats to economic freedom. Majority rule is no less a constraint than one imposed by an absolute ruler or oligarch. It is thus not so much the type of government that determines the degree of economic freedom as it is the extent to which government has limits beyond which it may not (or at least does not) go.

Inevitably, any discussion of economic freedom must focus on the critical relationship between the individual and government. In general, state action or government control that interferes with individual autonomy limits economic freedom.

However, the goal of economic freedom is more than the absence of government coercion or constraint: The ultimate goal is creation and maintenance of a mutual sense of liberty for all. Some government action is necessary for the citizens of a nation to defend themselves and promote the peaceful evolution of civil society, but government action that goes beyond the minimal necessary level inevitably infringes on someone’s economic or personal freedom.

Throughout history, governments have imposed a wide array of constraints on economic activity. Sometimes they have imposed these constraints in the name of equality or some other ostensibly noble societal purpose; most often, however, they have imposed them to benefit elites or special interests.

Government’s excessive intrusion into wide spheres of economic activity comes at a high cost to society as a whole. By substituting political judgments for those of the marketplace, government diverts entrepreneurial resources and energy from productive activities to rent-seeking: the quest for economically unearned benefits. As a result, society experiences lower productivity, economic stagnation, and declining prosperity.

Assessing Economic Freedom

The Index of Economic Freedom takes a comprehensive view of economic freedom. Some aspects of this freedom that are evaluated (for example, the extent of an economy’s openness to global investment or trade) are concerned with a country’s interactions with the rest of the world. Most, however, focus on policies within a country, assessing the liberty of individuals to use their labor or finances without undue restraint and government interference.

Each of the measured aspects of economic freedom plays a vital role in promoting and sustaining personal and national prosperity, but all are complementary in their impact, and progress in one area can easily reinforce or even inspire progress in another. Similarly, repressed economic freedom in one area (for example, a lack of respect for property rights) can make it much more difficult to achieve high levels of freedom in other categories.

The 12 aspects of economic freedom measured in the Index are grouped into four broad pillars:

• Rule of law (property rights, judicial effectiveness, and government integrity);
• Government size (tax burden, government spending, and fiscal health);
• Regulatory efficiency (business freedom, labor freedom, and monetary freedom); and
• Market openness (trade freedom, investment freedom, and financial freedom).

Each measured aspect of economic freedom has a significant relevance to economic growth and prosperity. Policies that allow greater freedom in any of the measured areas tend to encourage growth, which translates into more opportunities for people to advance themselves economically—advancement that leads in turn to measurable progress and lasting prosperity.

Rule of Law

Property Rights. In a fully functioning market economy, the ability to accumulate private property and wealth is a central motivating force for both workers and investors. Private property rights and an effective rule of law to protect them are vital features of any such economy. Secure property rights give citizens the confidence to undertake entrepreneurial activity, save their income, and make long-term plans because they know that their income, savings, and property (both real and intellectual) are safe from unfair expropriation or theft.

Property rights are a primary factor in the accumulation of capital for production and investment. Secure titling is key to unlocking the wealth embodied in real estate, making natural resources available for economic use, and providing collateral for investment financing. It is also by extending and protecting property rights that societies avoid the “tragedy of the commons”—the phenomenon that leads to the degradation and exploitation of property that is held communally and for which no one is accountable.

A key aspect of the protection of property rights is the enforcement of contracts. The voluntary undertaking of contractual obligations is the foundation of the market system and the basis for economic specialization, gains from commercial exchange, and trade among nations. Evenhanded government enforcement of private contracts is crucial to ensuring equity and integrity in the marketplace.

Judicial Effectiveness. Effective legal frameworks protect the rights of all citizens against infringement of the law by others, including infringement by governments and powerful non-governmental parties. Judicial effectiveness requires efficient and fair judicial systems to ensure that laws are fully respected and appropriate legal actions are taken against violations.

Especially for developing countries, judicial effectiveness may be the area of economic freedom that is most important in laying the foundations for economic growth. In advanced economies, deviations from judicial effectiveness may be the first signs of serious problems that will lead to economic decline.

There is abundant evidence from countries around the world that an honest, fair, and effective judicial system is a critical factor in empowering individuals, ending discrimination, and enhancing competition. In the never-ending struggle to improve the human condition and achieve greater prosperity, an institutional commitment to the preservation and advancement of judicial effectiveness is indispensable.

Government Integrity. In a socially and culturally diverse world, practices that are regarded as corrupt in one place may simply reflect traditional interactions in another. For example, small informal payments to service providers or even government officials may be regarded variously as a normal means of compensation, a “tip” for unusually good service, or a corrupt form of extortion. Such practices may indeed constrain an individual’s economic freedom, but their impact on the economic system as a whole is likely to be modest.

Of far greater concern is the systemic corruption of government institutions by such practices as bribery, nepotism, cronyism, patronage, embezzlement, and graft. Not all of these practices are crimes in every society or circumstance, but all erode the integrity of government wherever they are found. By allowing some individuals or special interests to gain government benefits at the expense of others, they are grossly incompatible with the principles of fair and equal treatment that are necessary for an economically free society.

There is a direct relationship between the extent of government intervention in economic activity and the prevalence of corruption. In particular, excessive and redundant government regulations provide opportunities for bribery and graft, which in turn undermine economic growth and development. In addition, government regulations or restrictions in one area may create informal or black markets in another. For example, by imposing such burdensome barriers to the conduct of business as regulatory red tape and high transaction costs, a government can incentivize bribery and encourage illegitimate and secret interactions that compromise the transparency that is essential to the efficient functioning of a free market.

Government Size

Tax Burden. All governments impose fiscal burdens on economic activity through taxation and borrowing. Governments that permit individuals and businesses to keep and manage a larger share of their income and wealth for their own benefit and their own use help to maximize economic freedom.

The higher the government’s share of income or wealth is, the lower the individual’s reward for his or her economic activity—indeed, the lower the incentive to undertake work at all—will be. Higher tax rates reduce the ability of individuals and firms to pursue their goals in the marketplace and thereby also reduce the overall level of private-sector activity.

Individual and corporate income tax rates are an important and direct constraint on an individual’s economic freedom and are reflected as such in the Index, but they are not by themselves a comprehensive measure of the tax burden. Governments impose many other indirect taxes, including payroll, sales, and excise taxes, as well as tariffs and value-added taxes (VATs). The Index of Economic Freedom captures the burden of these taxes by measuring the overall burden from all forms of taxation as a percentage of total gross domestic product (GDP).

Government Spending. The cost, size, and intrusiveness of government taken together are a central economic freedom issue that the Index measures in a variety of ways. Government spending takes many forms, not all of which are equally harmful to economic freedom. Some government spending (for example, to provide infrastructure, fund research, or improve human capital) may be considered investment. Government also spends on public goods, the benefits of which accrue broadly to society in ways that markets cannot price appropriately.

All government spending, however, must eventually be financed by higher taxation and entails an opportunity cost—the value of the consumption or investment that would have occurred had the resources involved been left in the private sector.

Excessive government spending can easily crowd out private economic activity. Even if government spending helps to promote faster economic growth, such economic expansion tends to be only temporary, distorting the market allocation of resources and private investment incentives. Even worse, a government’s insulation from market discipline often leads to bureaucracy, lower productivity, inefficiency, and mounting public debt that imposes an even greater burden on future generations.

Fiscal Health. One of the clearest indicators of the extent to which a society respects the principle of limited government is its government’s budget. By delineating priorities and allocating resources, a budget signals unmistakably both the areas in which government will intervene in economic activity and the likely extent of that intervention. A budget also reflects a government’s commitment (or lack of commitment) to the sound financial management of resources, which is both imperative for dynamic long-term economic expansion and critical to the advancement of economic freedom.

Widening deficits and a growing debt burden, both of which are direct consequences of poor government budget management, erode a country’s overall fiscal health. Deviations from sound fiscal positions often limit economic freedom by disturbing macroeconomic stability and inducing economic uncertainty.

Debt is an accumulation of budget deficits over time. In theory, debt financing of public spending could contribute to productive investment and economic growth. Debt could also be a mechanism for positive macroeconomic countercyclical interventions or even long-term growth policies. On the other hand, high levels of public debt can lead to higher interest rates, crowd out private investment, and limit government’s flexibility in responding to economic crises. Mounting public debt driven by persistent budget deficits—particularly deficits caused by spending that merely boosts government consumption or transfer payments—often undermines overall productivity growth and leads to economic stagnation rather than economic growth.

Regulatory Efficiency

Business Freedom. An individual’s ability to establish and run an enterprise without undue interference from the state is one of the most fundamental indicators of economic freedom. Burdensome and redundant regulations are the most common barriers to the free conduct of entrepreneurial activity. By increasing the costs of production, regulations can make it difficult for entrepreneurs to succeed in the marketplace.

Many regulations hinder business productivity and profitability, but those that most inhibit entrepreneurship are often those that are associated with the licensing of new businesses. In some countries, as well as many states in the United States, the procedure for obtaining a business license can be as simple as mailing in a registration form with a minimal fee. In Singapore, it takes only a day and a half and two procedures to start a business, and there is no minimum-capital requirement. In other economies—for example, India and parts of South America—obtaining a business license can involve endless, time-consuming trips to government offices and repeated encounters with officious and sometimes corrupt bureaucrats.

Once a business is open, government regulation may interfere with the normal decision-making or price-setting process. Significantly, two countries with the same set of regulations can impose different regulatory burdens with different consequences. A country that applies its regulations evenly and transparently can lower the regulatory burden by facilitating long-term business planning, but a country that applies regulations inconsistently adds to the regulatory burden by creating an unpredictable business environment.

Labor Freedom. The ability of individuals to find employment opportunities and work is essential to the advancement of economic freedom. By the same token, the ability of businesses to contract freely for labor and dismiss redundant workers when they are no longer needed is essential to the achievement of enhanced productivity and sustained economic growth.

The core principle of any economically free market is voluntary exchange. This is just as true in the labor market as it is in the market for goods.

State intervention generates the same problems in the labor market that it produces in any other market. Government labor regulations take a variety of forms: minimum wages or other wage controls, limits on hours worked or other workplace conditions, restrictions on hiring and firing, and other constraints. In many countries, unions play an important role in regulating labor freedom and, depending on the nature of their activity, may either encourage greater freedom or impede the efficient functioning of labor markets.

Onerous labor laws penalize businesses and workers alike. Rigid labor regulations prevent employers and employees from freely negotiating changes in terms and conditions of work, and the result is often a chronic mismatch of labor supply and demand.

Monetary Freedom. Monetary freedom requires a stable currency and market-determined prices. Whether acting as entrepreneurs or as consumers, economically free people need a steady and reliable currency as a medium of exchange, unit of account, and store of value. The lack of monetary freedom seriously limits their ability to create long-term value or amass capital.

The value of a country’s currency can be influenced significantly by the monetary policy of its government. A monetary policy that endeavors to fight inflation, maintain price stability, and preserve the nation’s wealth enables people to rely on market prices for the foreseeable future. They can invest, save, and make other longer-term plans more confidently. An inflationary policy operates like an invisible tax to confiscate wealth and distorts prices, misallocates resources, and raises the cost of doing business.

There is no single accepted theory of the right monetary policy for a free society. At one time, the gold standard enjoyed widespread support. What characterizes almost all monetary theories today is support for low inflation and an independent central bank. It is also widely recognized that price controls corrupt market efficiency and lead to shortages or surpluses.

Market Openness

Trade Freedom. Many governments restrict their citizens’ ability to interact freely as buyers or sellers in the international marketplace. Impediments to trade include tariffs, export taxes, trade quotas, outright trade bans, and nontariff barriers related to various licensing, standard-setting, and other regulatory actions. Given the development of global supply chains and cross-border production processes, businesses increasingly value stability in trade policy. Government actions that create uncertainty about future trade conditions may therefore have a negative impact on trade freedom that goes beyond their immediate economic effect.

The degree to which government hinders the free flow of foreign commerce has a direct bearing on the ability of individuals to pursue their economic goals and maximize their productivity and well-being. Tariffs, for example, in addition to increasing the prices that local consumers pay for foreign imports, distort production incentives for local producers, causing them to produce either a good in which they lack a comparative advantage or more of a protected good than is economically ideal. This undermines overall economic efficiency and growth.

In many cases, restricting trade also means limiting the productive development of local entrepreneurs by putting advanced-technology products and services beyond their reach.

Investment Freedom. A free and open investment environment provides more entrepreneurial opportunities and incentives for expanded economic activity, greater productivity, and job creation than any other. The benefits of such an environment flow not only to the individual companies that take the entrepreneurial risk in expectation of greater return, but also to society as a whole. An effective investment framework is characterized by transparency and equity, supporting all types of firms rather than just large or strategically important companies, and encourages rather than discourages innovation and competition.

Restrictions on the movement of capital, whether domestic or international, undermine the efficient allocation of resources and reduce productivity, thereby distorting economic decision-making. Restrictions on cross-border investment can limit both inflows and outflows of capital, thereby shrinking markets and reducing opportunities for growth.

By contrast, when individuals and companies are free to choose where and how to invest, capital can flow to its best uses: to the sectors and activities where it is most needed and the returns are greatest. State action to redirect the flow of capital and limit choice restricts both the freedom of the investor and the freedom of the person seeking capital. The greater the number of restrictions a country imposes on investment is, the lower its level of entrepreneurial activity will be.

Financial Freedom. An accessible and efficiently functioning formal financial system ensures the availability of diversified savings, credit, payment, and investment services to individuals and businesses. By expanding financing opportunities and promoting entrepreneurship, an open banking environment encourages competition, which works in turn to provide the most efficient financial intermediation between households and firms as well as between investors and entrepreneurs.

Through a process driven by supply and demand, markets provide real-time information on prices and immediate discipline for those who have made bad decisions. This process depends on market transparency and the integrity of the information that is made available; a prudent and effective regulatory system, through disclosure requirements and independent auditing, ensures both.

Increasingly, the central role played by banks is being complemented by other financial services that offer alternative ways to raise capital or diversify risk. As with the banking system, the useful role for government in regulating these institutions lies in ensuring transparency and integrity and in promoting disclosure of assets, liabilities, and risks.

State banking and financial regulation that goes beyond assuring transparency and honesty in financial markets can promote inefficiency, increase the costs of financing entrepreneurial activity, and limit competition. If the government intervenes in the stock market, for instance, it contravenes the choices of millions of individuals by interfering with the pricing of capital—the most critical function of a market economy.

Human Flourishing Through Better Economic Governance

Economic freedom is an essential aspect of human dignity, autonomy, and personal empowerment. Equally important, it provides a proven formula for economic progress and success.

Economic freedom is also about much more than a business environment in which entrepreneurship and prosperity can flourish. With its far-reaching impacts on various aspects of human development, it empowers people, unleashes powerful forces of choice and opportunity, nourishes other liberties, and improves the overall quality of life. Greater economic freedom really means better economic governance.

No other system—among the many that have been tried—comes close to free-market capitalism in promoting growth and enhancing the human condition. The undeniable link between economic freedom and prosperity is a striking demonstration of what people can do when they have the maximum opportunity to pursue their own interests within the rule of law.

Why Economic Freedom Matters

A recurring theme in human history has been resilience and revival. The results of the 2025 Index of Economic Freedom demonstrate that by building on what works, countries can accelerate their progress against even the most difficult challenges and chart ever greater economic success.

Since 1995, the Index has measured economic freedom’s advances and retreats around the globe, country by country, and has correlated those changes with fundamental measures of economic well-being like economic growth, reductions in poverty, various social indicators like longevity and health, and environmental protection. The weight of the cumulative evidence is clear: Economic freedom, buttressed by the rule of law, fiscal responsibility, market openness, and sound regulatory environments, remains the surest pathway to resilience and prosperity.

The need to advance economic freedom and vibrant entrepreneurial growth is more imperative now than ever before. No other economic system has demonstrated the ability of free-market capitalism, built on the principles of economic freedom, to adapt to new challenges. The dispersed information-gathering processes and price-setting power of free markets guide change far more efficiently than centralized political processes—typically slow and often biased toward the status quo—ever can.

Free markets and free enterprises, sustained by economic freedom, stimulate both the innovation and the practical solutions that are necessary for progress and sustainable recovery in all areas of human endeavor, thereby enabling better jobs, better products, and healthier, cleaner, and safer societies for all.

Advancing Economic Freedom: The Key to Human Flourishing and Resilience

Economic Freedom’s most fundamental benefit stems from its strong positive relationship to levels of per capita income. As indicated in Chart 1 and Chart 2, countries show increasingly high levels of average income as they move up the economic freedom scale. For countries achieving scores that reflect even moderate levels of economic freedom (60 or above), the relationship between economic freedom and per capita gross domestic product (GDP) is highly significant. Economies rated “free” or “mostly free” in the 2025 Index enjoy incomes that are more than twice the average levels in all other countries and more than five times higher than the incomes of “repressed” economies.

By a great many measures, over the past decades, countries that have adopted some version of free-market capitalism with businesses supported by efficient regulations and open to the free flow of goods, services, and capital have broken the vicious cycle of poverty and dependence.

It can no longer be doubted that the free-market system, rooted in empowerment of the individual and open competition, has fueled unprecedented economic growth around the world. As Chart 2 illustrates, for more than two decades, the global economy has moved toward greater economic freedom, becoming “moderately free” overall, while achieving real GDP expansion of approximately 70 percent. The result of this progress has been to lift hundreds of millions of people out of poverty.

Meanwhile, the global poverty rate has declined by about two-thirds. Opening the gates of prosperity to ever more people around the world, economic freedom has made the world a profoundly better place: More people are living longer and more fulfilling lives than ever before.

Poverty intensity as measured by the United Nations Development Programme’s Multidimensional Poverty Index (MPI), which assesses the nature and intensity of deprivation at the individual level in education, health outcomes, and standard of living, is also much lower on average in countries with higher levels of economic freedom. As depicted in Chart 3, the level of poverty in countries with economies that are considered “mostly free” or “moderately free” is only about one-fourth the level in countries that are rated “less free.”

Economic Freedom: Driving Vibrant Growth

Economic freedom is closely related to the openness to entrepreneurial activity that allows individuals to innovate, respond to new opportunities in the marketplace, and enjoy success based on their own efforts. Chart 4 shows the close correlation between economic freedom and entrepreneurial opportunity.

Given this positive relationship, governments should be cautious in undertaking shortsighted stimulus programs that increase their own spending or add new layers of regulation, both of which reduce economic freedom. The best results are likely to be achieved instead through policy reforms that improve the incentives that drive entrepreneurial activity. These reforms include improvements in the efficiency of business and labor regulations, reductions in tariffs and other barriers to trade or investment, and financial reforms to increase competition, ensure stability, and improve and broaden access to credit.

As documented in this edition of the Index, as well as in previous editions and volumes of academic research, vibrant and lasting economic growth is most likely to occur when governments implement policies that enhance economic freedom and empower individuals with greater choice and more opportunities. Advancing economic freedom is the surest way to facilitate dynamic economic expansion and is therefore likely to be the surest path to true progress for the greatest number of people.

As Chart 4 demonstrates, there is a robust relationship between improved economic freedom and higher per capita economic growth. Whether long-term (30 years), medium-term (10 to 15 years), or short-term (five years), the relationship between changes in economic freedom and changes in economic growth is consistently positive. Improvements in economic freedom are vital if countries are to achieve the rates of economic expansion that the record shows will reduce poverty.

Undeniably, countries moving toward greater economic freedom tend to achieve higher growth rates of per capita GDP over time. Throughout all the time periods considered in successive editions of the Index, the average annual per capita economic growth rates of countries that have increased economic freedom the most are approximately 25 percent higher—at a minimum—than those of countries in which freedom has stagnated or declined.

Economic Freedom: Ensuring Greater Human Development and Political Freedom

Increasing economic freedom is unequivocally about achieving greater overall prosperity, but the benefits to society extend far beyond higher incomes or lower rates of poverty. Countries with higher levels of economic freedom enjoy higher levels of overall human development as measured by the United Nations Human Development Index (HDI), which measures life expectancy, literacy, education, and standards of living in countries worldwide.

As Chart 5 shows, governments that choose policies that increase economic freedom are placing their societies on the path to more educational opportunities, better health care, and higher standards of living for their citizens.

In recent years, environmentally related government policies and actions have been more intrusive and economically distortionary. Many of the world’s governments are promoting programs to tax carbon emissions, increase taxes on gasoline, and implement nontransparent and economically harmful exchanges and marketplaces for the buying and selling of carbon emissions and are using government revenue to subsidize various types of so-called clean energy. Such policies impose a huge cost on society and retard economic growth. Fortunately, the same free-market principles that have proven to be the key to economic success can also deliver environmental success.

In countries around the world, economic freedom has been shown to increase the capacity for environmentally friendly innovation. The positive link between economic freedom and higher levels of innovation ensures greater capacity to cope with environmental challenges. Moreover, the most remarkable improvements in clean energy use and energy efficiency over the past decades have occurred not as a result of government regulation, but because of advances in economic freedom and freer trade.

The regulatory power of the marketplace, which is generally ignored and certainly underappreciated by advocates of big government, pushes firms to identify increasingly efficient means of production and respond to consumer demands for environmental cleanliness and sustainability. The result is a virtuous cycle of investment, innovation (including greener technologies), and dynamic economic growth. (See Chart 6 and Chart 7.)

Greater economic freedom can also provide more fertile ground for effective and democratic governance. The achievement of political freedom through a well-functioning democratic system is admittedly a messy and often excruciating process, but the positive relationship between economic freedom and democratic governance is undeniable. (See Chart 8.)

By empowering people to exercise greater control of their daily lives, economic freedom ultimately nurtures political reform by making it possible for individuals to gain the economic resources they can use to challenge entrenched interests or compete for political power, thereby encouraging the creation of more pluralistic societies. Pursuit of greater economic freedom is thus an important stepping stone on the road to democracy: It empowers the poor and builds the middle class.

Economic Freedom: The Foundation of Upward Mobility

The massive improvements in global indicators of income and quality of life in recent decades reflect a paradigm shift in the debate about how societies should be structured economically to achieve the most desirable outcomes. This debate has largely been won by free-market capitalism. Criticisms persist, however, based primarily on the inequality of outcomes in a system that rewards individual effort and ability, which differ within any population, and where differences in individuals’ starting positions can sometimes have a profound effect on how far they advance.

Alternatives to free-market capitalism, such as socialism, have proven to be unequal to the task of eliminating inequality and, because they tend to slow economic growth and thus reduce the resources that society has available to reduce poverty or pollution, notably counterproductive. Most advanced societies have thus opted for some version of free-market capitalism with various types of government intervention to redistribute resources within society. It is our hope that the Index of Economic Freedom’s data on governments’ tax, spending, and regulatory activities can shed light on the relative impact of such interventions.

Ultimately, discussions of inequality are more about a society’s values than they are about its economic system. At the heart of ensuring upward economic mobility is the task of advancing economic freedom so that dynamic and inclusive growth can occur meaningfully for all members of society. The evidence is persuasive that societies based on economic freedom are the societies in which social progress is strongest. Advancing economic freedom is really about putting in place growth-inducing pro-market policies that benefit the greatest possible number of people rather than a select few.

A Time for Renewal, Not Retreat

The record is clear: Economically free and dynamic societies have demonstrated repeatedly that they are able to improve standards of living and respond effectively to any crises that may arise. This record includes countless individual stories of human progress and the achievements of countries and their citizens—billions of people whose lives have measurably improved and who continue to strive for greater freedom. The path by which the global economy can emerge stronger than it was before runs through the renewal of commitments to the proven ideas of the free-market system.

From the perspective of economic policy, the imperative now is for governments to avoid compounding their problems by implementing ill-advised policies that distort markets, destroy incentives to work and innovate, or otherwise diminish the prospects for rapid recovery and growth. In the long run, the proven way to revitalize the economic life of societies in the most broad-based, meaningful way is by restoring what we know has worked best: the economic freedom that has unambiguously made our societies strong, vibrant, and flourishing.