Economic Freedom Increases as Countries Lose Ground

Economic freedom is increasing throughout the globe even as many countries become less free. That’s the prognosis from the 23rd edition of the Index of Economic Freedom from the respected American think tank the Heritage Foundation.

The Index rankings are based on measures of the 12 Economic Freedoms. Those liberties are: Property Rights, Judicial Effectiveness, Government Integrity, Tax Burden, Government Spending, Fiscal Health, Business Freedom, Labor Freedom, Monetary Freedom, Trade Freedom, Investment Freedom and Financial Freedom. They are grouped into four broad areas, Rule of Law, Government Size, Regulatory Efficiency and Open Markets.

Heritage economists Terry Miller and Anthony B. Kim ranked 180 countries for their level of economic freedom, and the results were quite surprising. Some of the most intriguing information they uncovered included:

  • Despite its return to China, Hong Kong has the most economic freedom in the world. The former Crown Colony scored 89.8 on Heritage’s score. Surprisingly the People’s Republic of China; of which Hong Kong is theoretically a part, came in at 111 with a score of 57.4.

  • Not surprisingly the Communist holdout North Korea has the least economic freedom on Earth. It came at 180 and scored 4.9. The world’s other Communist state; Cuba came in at 178 and scored 33.9.

  • Brexit had no impact on the United Kingdom’s ranking. The UK’s score of 76.4 in 2016 was unchanged from 2015 and gave Britain a ranking of 12 which was better than the United States’ 17. The UK received high rankings for business, investment and monetary freedom. It also did well in such metrics as property rights, government integrity and judicial effectiveness.

  • The USA’s score of 75.1 was lower than that of many countries including the UK, the United Arab Emirates and even Chile. The United States’ score fell because of a high level public debt. That means the USA is no longer among the world’s 15 freest economies. Government spending now makes up 38.3% of the US economy and public debt is equivalent to 105.8% of the Gross Domestic Product. Other factors dragging down America’s score are declining business and labor freedom and decreasing regulatory efficiency. Growing skepticism of leadership is also reducing America’s score for government integrity.

  • Economic freedom has advanced in a majority of the world’s countries over the past year,” the Index’s Executive Highlights states. “Global average economic freedom increased by 0.2 point to a record level of 60.9 on the 0–100 scale used in the Index of Economic Freedom. Since the inception of the Index in 1995, average scores have increased by over 5 percent.”1

  • “In the 2017 Index, 103 countries, most of which are less developed or emerging economies, showed advances in economic freedom. Remarkably, 49 countries achieved their highest economic freedom scores ever. Two large economies (China and Russia) are included in this group.”2

  • “While two countries (Mauritius and the United Kingdom) recorded no change in score, 73 experienced declines in economic freedom. Sixteen of these 73 countries; including notably the Bahamas, Bahrain, El Salvador, Pakistan, Venezuela, and the United States, recorded their lowest economic freedom scores ever.3

  • Venezuela now has less economic freedom than Cuba. It received an overall score of 27 and ranked at 179. The South American nation received low rankings for business, labor, and monetary freedom, government integrity, judicial effectiveness and financial freedom. It even achieved the dubious honor of scoring 0 for investment freedom. Heritage’s analysts believe that food shortages and triple digit inflation create a substantial risk of civil unrest. A Caracas think tank now estimates the rate of inflation in Venezuela is 600%.”4

  • One Middle Eastern nation, the United Arab Emirates or UAE, is doing very well. The UAE came in at number eight with a score of 76.9 and placed better than many European nations.

  • Some countries that are thought of economic powerhouses did not do very well. Israel placed 36 with a score of 69.7 matching those of Colombia, Uruguay and Romania. Japan scored 69.6 and achieved number 40, while Germany came in at 74.3 and reached number 26. China ranked 111 with a score of 57.4. That indicates it is possible for nations to achieve a high-level of prosperity without a significant amount of economic freedom.

  • Interestingly enough some nations with such socialist features such as national health insurance systems; including New Zealand, Switzerland, the United Kingdom, Australia and Canada, scored better than more conservative nations such as the United States. One reason for this is that limiting private involvement in some sectors of the economy; might reduce the need for regulation and the potential rewards from corruption. That might increase scores for government integrity and regulatory efficiency. Another is that such services might increase confidence in government and support for public institutions. This means some on the right might need to rethink their opposition to some aspects of the welfare state.

Investors and business people should certainly take a look at the Index because it shows what nations are safest and easiest to do business in. Political leaders should definitely take a look at the Index because it shows how freedom can help them benefit their people.

The rest of us should look closely because the data there dispels economic and political orthodoxy found on both the right and the left. Hopefully it will convince some people to rethink their ideologies and adopt a more pragmatic approach.

1 http://thf_media.s3.amazonaws.com/2017/2017_IndexOfEconomicFreedom.pdf page 15

2 http://thf_media.s3.amazonaws.com/2017/2017_IndexOfEconomicFreedom.pdf page 15

3 http://thf_media.s3.amazonaws.com/2017/2017_IndexOfEconomicFreedom.pdf page 15

4 http://thf_media.s3.amazonaws.com/2017/2017_IndexOfEconomicFreedom.pdf page 15

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