Cato probably deserves some credit for publishing, rather than hiding, this chart showing there's no significant relationship between economic freedom -- as measured by Cato -- and growth. Leaving out the Zimbabwes of the world, economic freedom simply doesn't appear to be a prime determinant of economic performance. As Dani Rodrik writes, "The binding constraint often lies elsewhere, and may involve more government rather than less." Indeed, he counters the usual invocation of Chile's free market successes with El Salvadore's free market failures:
A good example is El Salvador, a country that is second only to Chile in Cato's rankings of economic freedom in Latin America. (Please don't get me started on Chile's industrial policies again...) The Salvadoran economy is totally privatized, has free trade and free finance, and is dollarized. Yet it has languished in low-growth hell, and would have been in even worse dire straits if it did not receive a huge amount of remittances from Salvadorans in the U.S.
El Salvador is a prime example of the "build-it-and-they-will-come" fallacy: all you need to do is to get the basics right, and then markets will do the rest. (The analogy is Larry Summers'.) All successful countries have instead required their governments to crowd in private economic activity through inducements of various kinds.
The Chile example neatly demonstrates why aggregate data is so useful. The success of a single country is rather multicausal, even as ideologues and interested parties will try to attribute it to their favored cause. Chile engaged in rather a lot of privatization, while China has operated from behind a heavily regulated economy. Yet Chile's model gets the press and China's success is chalked up to other factors.
