The 2014 Index of Economic Freedom is the 20th anniversary edition. For two decades, the Index, a joint publication of The Heritage Foundation and The Wall Street Journal, has tracked the progress of economic freedom around the globe, evolving into a data-driven practical policy guidebook that covers 186 countries encompassing 99 percent of the world’s population.
- The 20th edition of the Index shows economic freedom once again on the rise. Much of the momentum lost during the past five years has been regained. The global average economic freedom score in the 2014 Index is 60.3, the highest average in the 20-year history of the Index. The average is 0.7 point higher than last year and a 2.7 point improvement from 1995.
- In measuring economic freedom, the Index analyzes countries’ commitment to the rule of law, principles of limited government, regulatory efficiency, and open markets. Judged by these standards, the global economy as a whole has become “moderately free.” Scores improved in eight of the 10 economic freedoms, with investment freedom gaining an impressive 3.3 points on average. Labor freedom and government spending scores were higher by an average of about 1 point or more. Average scores declined only in the area of rule of law, with property rights and freedom from corruption losing 0.3 point each.
- 114 countries, the majority of which are less developed, contributed to the growth in economic freedom over the past year; 43 countries, including Singapore, Sweden, Colombia, Poland, Cape Verde, and Turkey, achieved their highest economic freedom scores ever in the 2014 Index.
- While four countries recorded no score change, declines in economic freedom were registered in 59 countries, including nine advanced economies.
- The United States continues to lose ground to its competitors in the global race to advance economic freedom and prosperity. Registering a decline in economic freedom for the seventh year in a row, the U.S. tumbled from the ranks of the top 10 freest economies, falling two spots in the rankings to 12th place. The U.S. score has declined almost 6 points since 2007, placing the U.S. among those countries considered to be only “mostly free.” In the 2014 Index, the U.S. recorded notable declines in fiscal freedom, business freedom, and property rights.
- Average levels of economic freedom improved in all regions of the world except North America and the Middle East/North Africa. The Asia–Pacific region, led by Burma, Malaysia, and Samoa, showed the greatest gains, with an average increase exceeding 1 point. Sub-Saharan Africa did almost as well, with countries gaining 0.9 point on average. Europe and the South and Central America/Caribbean region recorded average score improvements of 0.5 point and 0.3 point, respectively.
- Despite the global progress over the past two decades, the number of people living in economically “unfree” countries remains very high: 4.5 billion, or about 65 percent of the world’s population. More than half of these people live in just two countries, China and India, where advancement toward greater economic freedom has been patchy at best.
- The 20 years of Index data attest unequivocally that economies achieving or sustaining higher levels of economic freedom measurably outperform others in achieving dynamic economic growth, long-term prosperity, and greater progress in many dimensions of social and human development.
Commemorating the 20 years of the Index, the 2014 edition features four notable chapters that show why, now more than ever, it is imperative that economic freedom be defended and advanced.
- Dr. Kim R. Holmes, a founding editor of the Index, looks back over its 20-year history and highlights key milestones of the Index in the context of its development, its impact, and the overall policy lessons that have been learned. His key finding: More than any other political or policy approach, economic freedom generates more opportunities and greater well-being for more people. The Index has clearly demonstrated the power of free-market, limited-government, rules-based capitalism to help people prosper.
- Anthony B. Kim analyzes long-term trends in the 20-year Index database and documents the measurable benefits of policies that improve economic freedom. For the past two decades, countries that have accepted the challenge of enhancing economic freedom have reaped great rewards and have set a powerful example for others to follow. Advancing economic freedom is the proven path to greater prosperity and progress.
- Dr. John Tomasi of Brown University develops a strong moral case for economic freedom, laying out both the institutional and the individual cases for economic freedom. Economic liberty must be defended not only because it has a proven record of securing political and material benefits, but also because it ensures that ordinary people can make their own choices and actions in pursuit of their dreams.
- Sergio Daga, Research Director of Populi, a Bolivian think tank, examines the effectiveness of government conditional cash transfer programs that have become the most common social assistance intervention by governments in many less developed economies. As Daga concludes, countries that embrace government-led money transfer programs would achieve better results in poverty reduction by removing barriers to economic freedom and reducing dependence on the state.
The Global Economic Freedom Rankings
- Competition for the top spot in the Index rankings has intensified. Hong Kong maintained its status as the world’s freest economy, a remarkable distinction that it has achieved for 20 consecutive years. Singapore, the second-freest economy, has closed the gap between itself and Hong Kong to only 0.7 point, the second narrowest difference in Index history.
- Along with Hong Kong, Singapore, Australia, Switzerland, New Zealand, and Canada are the only economies considered “free” with economic freedom scores above 80 on the 0-to-100 Index grading scale. Australia continues in third place, a position it has held since 2009, while Switzerland has overtaken New Zealand and is now in fourth place, its highest ranking ever. Canada remains the world’s sixth-freest economy for the fourth year in a row.
- Chile (seventh) and Mauritius (eighth), two small but reform-minded economies, are the highest-ranking developing countries in the Index. Their relative economic strength is no fluke. Both have demonstrated persistent commitment to the rule of law, limited government, regulatory efficiency, and open markets through good times and bad.
- Ireland (ninth) has moved up by two slots, overtaking the U.S., and Denmark, which moves down to 10th place.
- A notable realignment of European countries continues to be underway in terms of advancing economic freedom. Eighteen, including Germany, Sweden, Lithuania, Georgia, Austria, the Czech Republic, Norway, Macedonia, Latvia, Poland, Bulgaria, and Romania, recorded their highest economic freedom scores ever in the 2014 Index. By contrast, five others (Greece, Italy, France, Cyprus, and the United Kingdom) registered scores lower than those they first received nearly two decades ago when the Index began recording economic freedom.
- Progress among the so-called BRIC nations has stalled. Brazil plunged 14 places in the rankings to 114th and is now judged “mostly unfree” in the Index. The rankings of the other BRIC countries—Russia, India, and China—declined slightly to 140th, 120th, and 137th, respectively.
- Liberia and Sierra Leone, two post-conflict countries, have moved up and are no longer considered “repressed” economies. Notably, six of the 11 countries that recorded ranking improvements of 10 places or more are from the Sub-Saharan Africa region.