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U.S. is 3rd on World's "Economic Freedom" Index

by Jim Lobe Wednesday, Jul. 09, 2003 at 3:40 PM

Hong Kong, Singapore, and the United States rank first, second and third, respectively, in the latest edition of the 'Economic Freedom of the World' annual report by the Cato Institute and more than 50 other libertarian think tanks around the world.

Hong Kong, Singapore, U.S. Top "Economic Freedom" Index
Jim Lobe, Inter Press Service News Agency,

WASHINGTON, Jul 8 (IPS) - Hong Kong, Singapore, and the United States rank first, second and third, respectively, in the latest edition of the 'Economic Freedom of the World' annual report released here Tuesday by the Cato Institute and more than 50 other libertarian think tanks around the world.

The 160-page report, which ranks a total of 123 nations, concludes that citizens and businesses in Africa, Latin America and the former Soviet bloc states comprise among the least economically free countries in the world, with Burma, also known as Myanmar, claiming the cellar position.

The report, which was released on the same day as the United Nations' celebrated Human Development Index (HDI), is based on 38 variables in five major categories designed to measure economic freedom.

The five categories include the size of government, as determined in part by spending, taxes and state enterprises; the legal structure and security of property rights; access to sound money that is not weakened by high inflation rates; the freedom to exchange goods and services with foreigners unencumbered, for example, by tariffs or quotas or currency controls; and the degree to which business and credit and labour markets are regulated by the government.

The basic philosophy guiding the ratings is that of classical economic liberalism or, as the third U.S. President, Thomas Jefferson, famously put it: "That government is best which governs least", except, perhaps insofar as it actively protects private property rights.

"Freeing people economically unleashes individual drive and initiative and puts a nation on the road to economic growth," said Nobel Economics laureate Milton Friedman, whose basic economic ideas have acted as guideposts for the report and Cato and the other think tanks, including the Fraser Institute of Canada, the F. A. Hayek Foundation in the Slovak Republic, the Fundacion Libertad in Argentina, the Centre for Civil Society in India, and the Institute for Advanced Strategic and Political Studies in Israel. "In turn, economic prosperity and independence from government promote civil and political liberty."

At the same time, the study asserted that economic freedom is highly correlated with per-capita income, economic growth, and life expectancy and does not necessarily lead to greater income inequality.

Of course, not everyone agrees with this rosy assessment. For years, civil society organisations around the world have complained that unchecked globalisation and the "free trade" model being pushed by multinational corporations is driving a race to the bottom in environmental and labour standards. This conflict will doubtless come to the fore in September when the World Trade Organization meets in Cancún, Mexico, where WTO officials hope to advance a new round of "reforms" that will help corporations invest wherever they like while avoiding government regulations.

The just-released Cato report, the seventh in an annual series, should not be confused with the 'Index of Economic Freedom' published by the 'Wall Street Journal' and the right-wing Heritage Foundation here, although the results are fairly similar. Like the Cato report, the Index, the most recent version of which appeared last fall, rated Hong Kong and Singapore as the two countries -- out of a total of 156 -- with the greatest economic freedom.

According to the Cato report, which covers 2001, the year for which the most comprehensive data is available, economic freedom has gained ground around the world over the eight-year period since the first ratings were published for 1995. The average rating for 2001 stood at 6.35, only slightly higher than the previous year, but substantially more than the 5.96 eight years ago.

The report's authors, economists James Gwartney and Robert Lawson, said that the turning point over the past 30 years took place in 1980 -- coincidentally, perhaps the same year that the World Bank introduced structural adjustment programmes (SAPs), which were designed to reduce the impact of government on the economy -- when ratings averaged 5.36, according to their calculations. "It has been on the rise since then," the reporters said.

Out of a 10-point scale, Hong Kong gained the highest rating for economic freedom at 8.6, closely followed by Singapore at 8.5, the United States at 8..3, and New Zealand and Britain, both at 8.2. The five other nations in the top 10 were also heavily tilted toward Anglo influence. They included Canada, Switzerland, Ireland, Australia, and the Netherlands.

Although the rankings did not precisely follow those used in the Wall Street Journal's Index, seven out of the 10 top nations overlapped the two surveys. In the Journal's survey, Luxembourg, Denmark, and Estonia, also made into the top 10 at the expense of the Netherlands, Switzerland, and Canada.

The rankings of other large economies in the Cato survey included Germany, 20; Japan, 26; Italy, 35; France, 44; Mexico, 69, India, 73; Brazil, 82; China, 100; and Russia, 112. In the Journal poll, Germany ranked 19; Japan, 35; Italy, 29; France, 40; Mexico, 56; India, 119; Brazil, 72; China, 127; and Russia, 135.

The Journal poll's major categories included trade policies; the government's fiscal burden; its intervention in the economy; monetary policy; foreign investment policies; banking and finance policies; wage-to-price ratios; property rights; regulations; and the black market.

Among developing countries rated in the Cato poll, the United Arab Emirates and Oman rated the highest at 16 and 18, respectively, followed closely by Chile, the Latin American leader, at 20 where it was tied with Mauritius.

El Salvador and Panama tied for 23, while Bahrain and Botswana, the African leader, tied with Costa Rica, and six other countries, including South Korea and Trinidad and Tobago at 26.

Other major African countries included South Africa which tied with Zambia at 42; Uganda and Namibia at 44; Kenya at 51; and Nigeria, which tied with Benin, Cameroon, Chad, Madagascar, and Niger, at 91. Zimbabwe and the Democratic Republic of Congo (DRC) placed last among the Africans at 121 and 122, respectively.

Aside from Chile, El Salvador, and Panama, the highest-ranking Latin American countries included Costa Rica (26); Peru and Uruguay (44); the Dominican Republic (51); Argentina and Bolivia (56); and Nicaragua (60). Lowest ranking were Colombia (101), Venezuela (103), and Ecuador (112).

Aside from the emirates in the Gulf, highest-ranking Middle Eastern states included Jordan and Kuwait (39); Egypt and Israel (56); Tunisia (60); Morocco (82); and Iran (89). Lowest ranking included Syria (106) and Algeria (120).

Besides the overall two winners, Asian countries with high marks included Japan and South Korea, at 26; Thailand (44); the Philippines (51); Malaysia (60); and Sri Lanka (64). Aside from Burma, the lowest-ranking Asian countries included Indonesia (91), China (100), and Pakistan 101).

The results in the U.N.'s HDI, which measures social welfare, educational enrollment, maternal and infant health, and political freedoms, as well as per capita income, among many other criteria contrast fairly dramatically with the libertarian findings.

Northern European and other developed countries monopolise the top 25 rankings, while Hong Kong, Barbados, and Singapore rank 26, 27, and 28. The top Latin American countries include Argentina (34); Uruguay (40); Costa Rica (42); Chile (43); Cuba (50); and Mexico (55).

Aside from Cape Verde (103), South Africa tops the African list at 111; followed by oil-producing states Equatorial Guinea (116), Gabon (118), followed by Namibia (124) and Botswana (125).
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A Lesson From Hong Kong Herald-Tribune Wednesday, Jul. 09, 2003 at 3:46 PM
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