February 11, 2008

February 11, 2008 | Commentary on Federal Budget

The Link between Economic Opportunity and Prosperity

What accounts for the economic success of some countries and the shortcomings of others? Why do some countries boast high per-capita income while in others many citizens go hungry? Do historical circumstances shackle the success of developing countries as some contend? Or do specific actions taken by governments hold the answer to this perennial riddle?

Now in our 14th year, The Heritage Foundation is proud to unveil the 2008 Index of Economic Freedom with our partner the Wall Street Journal, examining in great detail the precise link between economic opportunity and prosperity in more than 157 countries. The Index looks at a number of factors to measure the economic freedoms of a country, including: business freedom, trade freedom, fiscal freedom, government size, investment freedom, property rights and freedom from corruption, among other data. After weighing all of these factors in the individual countries, our editors and economists rank the countries from the freest to the least free.

The results are read by economists, scholars, academics, foreign officials, politicians and international investors with great interest. And often the results surprise our readers with countries few would expect taking top honors. This year, the top billings belong to Hong Kong, Singapore and Ireland.

Because of its commitment to lower taxes, less bureaucracy and friendly policies towards foreign investment, Hong Kong has the distinction of being the freest economy in the world based on the meticulous research of our analysts.

For our friends in Latin America, the results are ambivalent with some countries moving in the right direction, with others enacting little change to their economic policies, while yet others are making a dangerous turn towards a more onerous government.

Earning the top spot (after the United States and Canada) in the Americas region is Chile securing the number 8 spot overall on our list. Chile earns this distinction after scoring higher than average in all of our ten measurements of economic freedom. Additionally, foreign investment continues to propel Chile's strong growth, while the rule of law is remarkably transparent and impartial.

At the opposite end of the spectrum are Cuba, Venezuela and Bolivia, all moving away from free market principles toward protectionist policies. Specifically, Venezuela suffers from weak financial freedom and property rights compounded by burdensome regulation. Additionally, Venezuela's financial market has been particularly prone to political interference. Venezuela's economy was once about 60 percent free, according to our 1995 Index of Economic Freedom. Since then it's been adopting more repressive economic measures, dropping it to its current 45 percent free mark.

While it's easy to get lost in the numbers, the main premise of our Index of Economic Freedom is simple. Giving more freedom to consumers and businesses will help the economy grow.

Inviting foreign investment through lower foreign investment restrictions is sound policy. Lifting unnecessary red tape and regulation, while keeping taxes low, helps drive entrepreneurship and growth in business. Time and time again, our research shows that allowing the free-market to set prices, rather than the government, is a huge reason why some economies grow and others don't.

One of the best examples of a turn-around economy in the 2008 Index is a sub-Saharan country called Mauritius. By enacting effective tax reform and eradicating corruption, Mauritius continued on the path of reform in recent years and became the world's 18th freest economy in the 2008 Index. Persistent commitment to economic freedom is at the heart of the country's success.

In an increasingly global economy, it will be even more important that our friends in Latin American begin to draw from the success of Mauritius, and other countries, and take steps to free, and ultimately grow their economies.

Israel Ortega is a Senior Media Services Associate at the Heritage Foundation and has more than half a decade working in Congress and Washington, D.C.

About the Author

Israel Ortega Contributor, The Foundry
Accounting

First appeared in San Diego's La Prensa