Social orders, and a weak form of the Hayek–Friedman Hypothesis

Abstract

This paper contributes to a theoretical underpinning of the economic freedom–political freedom relationship. We use the theory of social orders (North et al. in Violence and social orders: a conceptual framework for understanding recorded human history, Cambridge University Press, Cambridge, 2009) to look at the Hayek–Friedman Hypothesis (HFH), which leads us to propose a novel interpretation. The core insight of our weak interpretation of the hypothesis is that economic freedom is a necessary condition for maintaining political freedom in open access order countries (countries with high levels of both freedoms), i.e., once achieved, political freedom needs economic freedom to be stable; but the HFH is not relevant for limited access orders (rent-seeking-dominated orders). We find empirical support for the weak interpretation with canonical correlations and conditional logit regressions, using a panel database for 122 countries for the period 1980–2011.