Where Democracy and Free Markets Correlate

Two years ago, we said that democracy and a market need each other.

Now, comparing The Economist’s Democracy Index and the Index of Economic Freedom, again, we see pretty much of a correlation. Three of the top four free market economies are full democracies but not Singapore:

Democracy and Markets

Democracy Ranking

As in the past, The Economist’s EIU April 2026 “Democracy Index” for 2025 places nations–this year at 167– in four buckets. Below, the dark and medium blue indicate “full democracies” while the lighter blue identifies the “flawed democracies.” Then, moving to the left on the scale, the regimes are grouped as “hybrid” and “authoritarian”:

Up by .02 points, the index recorded one of the biggest increases since 2012. Reversing the slide, nearly 75% of the countries in the Index–especially in Latin America and the Caribbean–remained steady or elevated their score.  By contrast, propelled by DOGE and media constraints, the United States became even more of a flawed democracy. Meanwhile, The Economist suggests that turnout from people opposed to MAGA (and Donald Trump’s policies) in countries like Canada, Romania, and Denmark could have nudged them toward more democracy.

For the 16th year, Norway is #1. Please note that the 2026 Index is for 2025:

Market Economy Ranking

Because the connective tissue is complex, comparing top democracies and the most freely functioning economies could be misleading. However, with Singapore the anomaly, most correlate:

Our Bottom Line: The Concerns

As economists, we can always return to tradeoffs. In Equality and Efficiency The Big Tradeoff, economist Arthur Okun explained that we have a tension between democracy and the economy. While a democracy requires fairness and equal rights, the market’s competition tilts it toward inequality.

Though emphasized in V-Dem but not The Economist, in many of the more affluent countries, trust in government has declined because of economic inequality. However, adding to our idea mix, we can return to the timeless 2019 conclusions of four eminent economists that democracy does cause growth.

My sources and more:  This World Population website had The Economist 2026 ungated summary. Then, we correlated with the Index of Economic Freedom. Next,  I recommend reading what Pew told us, here and here. And also, as much as today’s post is a 2024 update, our research sprang from a new V-Dem democracy report and this 2019 paper, “Democracy Does Cause Growth.” And finally, we want to emphasize that the V-Dem democracy conclusions were much less rosy than what The Economist suggests. Please take a look at V-Dem.

Please note that several of today’s sentences were in a past econlife post.