Why are some countries mired in poverty while others enjoy higher standards of living? Is it simply that developing countries are hindered by historical circumstances and scarce natural resources? Or could the success of a country depend on the specific policy decisions its government takes? Could the key to unlocking the full potential of an economy lie in the abstract, but powerful, concept of freedom?
For the past 16 years, Heritage Foundation scholars and economists have studied the relationship between economic freedom and prosperity. They’ve catalogued their findings in an annual “Index of Economic Freedom.” The Index takes a variety of factors into account, including tax rates, the ease of opening a business, intellectual property rights, transparency/efficiency of the judicial system and level of corruption, to name just a few.
The authors find that, in an economically free society, individuals are free to work, produce, consume and invest in any way they please. In fact, that freedom is both protected by the state and unconstrained by the state. And, importantly, people are also free to keep the bulk of the property they earn -- the fruits of their labor.
On Jan. 20, the authors released their most recent findings. The 2010 Index reveals changes in the economic freedom of more than 180 countries. Of interest, the authors analyzed the economies of Mexico, Central and South America. The results for Latin America are a mixed bag: some countries fared well, while others continue to suffer and lag behind the rest of the developing world.
Topping the list this year include the Asian economies of: Hong Kong, Singapore, Australia and New Zealand. Thanks to sound economic policies, entrepreneurship has flourished here -- opening the door to a better quality of life for their citizens.
Those on the opposite end of the spectrum include Burma, Eritrea, Cuba, Zimbabwe and North Korea. Economic freedom in these countries is largely absent, effectively closing the door to foreign investment and squashing any opportunities for economic growth.
The difference in quality of life between free and repressed economies is evident. As the authors conclude, economies rated “free” or “mostly free” in the 2010 Index enjoy incomes that are more than three times the average levels in all other countries and more than 10 times higher than the incomes of “repressed” economies.” Prosperity, the authors note, leads to higher literacy rates, access to education and longer life-expectancy.
In short, specific policy decisions positively or adversely affect an economy and the quality of life of its citizens.
Of course, a government can also adopt free-market policies to create an environment that fosters economic growth and increases opportunities for all. Specifically, a country can choose to reduce the bureaucratic red tape and thus facilitate the ability of an entrepreneur to start a business.
Further, the state can reduce the tax burden, thus allowing citizens to keep more of their hard-earned money and permit them to choose for themselves how and where to spend it. Lastly, a country can choose to strengthen its judicial system and crack down on corruption to attract foreign investment.
These specific policy recommendations challenge the axiom of statists and populists on the left, who insist that certain countries are simply destined to be mired in poverty because of the legacies of colonialism or some other excuse. If that were true, Hong Kong and Singapore likely would not fare well at all, as both were once colonies in the British Empire. The Index tells a different story.
This battle cry from the left has been particularly effective recently in corralling support in Latin America, where a new breed of caudillos (strongmen) attacks democracy and capitalism in front of adoring crowds. Unfortunately, many Latin Americans seem perfectly willing to trade their freedoms for false promises that their lives will improve. The people continue to wait in hope while an elite few in charge of the leftist regimes enjoy freedom and prosperity.
Freedom is a wonderful thing. And as the authors of the Index of Economic Freedom demonstrate, freedom also can change a country for the better.
Israel Ortega is a Senior Media Services Associate at The Heritage Foundation in Washington, D.C. The complete findings of the 2010 Index of Economic Freedom can be found here:http://www.heritage.org/
First Appeared in The Americano