Economic Freedom and Democracy: Post-Cold War Tests

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Current theorizing about the connection between cross–national economic development, capitalist economic structure, and democracy has reached critical mass. Current empirical modeling of the effect of economic structure on democracy, however, has slowed down; the most recent study uses data from 1965. Freedom House has developed for 82 countries rankings on 'economic freedom' in 1995, a measure of capitalism based on the freedom to: own property, earn a living, operate a business, invest earnings, trade internationally, and participate in a market economy. This manuscript presents a political economy model of democracy, including the Freedom House measure as a control variable for capitalism, and comes to some conclusions on the relationship between economic development, economic structure, and democracy. The main finding is that unbridled capitalism is unnecessary for a democratic polity. The optimal democratic state has a balance between capitalism and governmental concern for social welfare, even during the post–Cold War period.