Unexpectedly Intriguing!
September 9, 2005

The Canadian-based Fraser Institute has released its Economic Freedom of the World 2005 Annual Report (available online as a 1.96MB PDF document). The report was primarily written by James Gwartney and Robert Lawson (of Division of Labour fame), but the most remarkable findings of the report were contributed by Columbia University political scientist Erik Gartzke, who found that economic freedom is an extremely important contributor to promoting peace between nations!

In his analysis, Gartzke compares the impact of both economic freedom and democracy in reducing the probability of violent conflict between nations. The following is an excerpt from the report's Executive Summary (extracted here as a 255KB PDF document) outlining Gartzke's key findings (emphasis mine):

Economic freedom creates a substantial peace dividend.

  • When measures of both economic freedom and democracy are included in a statistical study, economic freedom is about 50 times more effective than democracy in diminishing violent conflict.
  • The impact of economic freedom on whether states fight or have a military dispute is highly significant (at the 1% level) while democracy is not a statistically significant predictor of conflict.
  • Nations with a low score for economic freedom (below 2 out of 10) are 14 times more prone to conflict than states with a high score (over 8).
  • The overall pattern of results does not shift when additional variables, such as membership in the European Union, nuclear capability, and regional factors, are added.

Economic freedom and competitive markets promote peaceful co-existence by altering incentives.

  • Wealth and power are created by markets and the efficient production that arises from them, not by conquest of land or raw materials.
  • Changes in the nature of production in modern capitalist states make conquest unprofitable.
  • Wealth created by market economies through efficient production, unlike wealth derived from land or resources, is difficult for nations to "steal" by violent action since efficient production requires property rights and free decisions by market participants that are difficult or impossible to coordinate to the victor's advantage.
  • Markets provide political leaders with more accurate signals and make it more costly for them to use threats to mislead potential opponents. This improves the effectiveness of bargaining, expands the area of mutual gain, and thereby reduces the likelihood of military conflict.

Perhaps a good question to ask those who claim to be anti-war is whether they support the free-market capitalism that promotes the economic freedom of individuals as a means to achieve peace.

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