The annual report of Economic Freedom of the World Index 2014 was launched today in Brussels by the Friedrich Naumann Foundation and the Fraser Institute. Since 1995, the report ranks countries as well as certain territories such as Hong Kong according to five major areas of economic freedom: size of government – expenditure, taxes and enterprises; legal structure and security of property rights; access to sound money; freedom to trade internationally and domestically; regulation of credit, labour and business. Hong Kong tops this year’s ranking, ahead of Singapore, New Zealand and Switzerland.
This year, the overall rating has decreased slightly, which confirms a trend of steady decrease, although small, since the year 2000, especially compared to the steady increase that characterized the decade of the 1990’ and the transition in the post-communist world. Globally, the average economic freedom score dropped to 6.84 from 6.87 last year. Once again, Venezuela has the lowest level of economic freedom worldwide, with the Republic of Congo, Zimbabwe, Argentina and Algeria rounding out the bottom five countries.
Finland, on rank 10, scores best within the EU, while Slovenia scores worst on position 105. Although most EU member states rank within the top 40 out of 151 countries, many countries still perform poorly on economic freedom in Europe. Scandinavian countries, although well-known for their large welfare states, are in the lead with regard to economic freedom, while most progress in economic freedom in the EU has been achieved in new member states. Olli Rehn, Vice-President of the European Parliament, insisted on the importance of keeping up the reform process in the EU and its member states in order to improve Europe’s competitiveness and ultimately its wealth. In his view, the biggest challenge for the EU will be to “reform its economic and social model without giving up the social market economy on which the EU is based”.
The data gathered by the authors of the report is available to everyone and is based on external and independent sources, such as the WTO, the IMF and the World Bank. Author Robert Lawson, Professor of Economics at the Cox School of Business, presented data underpinning the link between economic freedom and prosperity. Countries in the top quartile of economic freedom had an average per capita GDP of US$39,899 in 2012, compared to US$6,253 for bottom quartile nations. Moreover, the average income of the poorest 10% in the most economically free countries in 2012, US$11,610, was almost 10 times higher than the average income of the poorest 10% in the least free countries. And life expectancy is 79.9 years in the top quartile compared to 63.2 years in the bottom quartile.
The most economically free countries offer the highest quality of life and personal freedoms while the lowest-ranked countries are usually burdened by oppressive regimes that limit the freedom and opportunity of their citizens. However, as it was pointed out by Michael Walker, Founder of the Fraser Institute, the Economic Freedom Index is not a political liberty index, but rather “a compass for politicians on how to carry out reforms”.
For more information on the Economic Freedom Network, datasets, and previous Economic Freedom of the World reports, go to www.freetheworld.com.