November 1, 2000

November 1, 2000 | News Releases on Foreign Aid and Development

Global Economic Freedom Continues to Gain, Survey Shows

WASHINGTON, NOV. 1, 2000-More countries expanded economic freedom during the past year than curtailed it, The Heritage Foundation and The Wall Street Journal report today in their annual "Index of Economic Freedom."

The survey showed 70 of the 155 countries rated granted their citizens more economic liberty, while 52 imposed new restrictions. There has been a net increase in economic freedom every year since the Index was first published in 1995.

Despite the gains, most of the world's economies remain relatively "unfree." Overall, 74 economies were rated as "free" or "mostly free," while 81 earned ratings of "mostly unfree" or "repressed." Most of the freest economies are concentrated in North America and Europe, while a majority of the world's most repressed economies are in Asia and Africa.

"The countries with the most economic freedom also have higher rates of economic growth and are more prosperous than are those with less economic freedom," write Index editors Gerald P. O'Driscoll Jr., director of Heritage's Center for International Trade and Economics, Kim R. Holmes, a Heritage vice president and director of the think tank's Davis International Studies Institute, and Melanie Kirkpatrick, assistant editorial page editor of The Wall Street Journal.

The 2001 Index, published by The Heritage Foundation and The Wall Street Journal editorial page, shows that scores for three regions-North America and Europe, Latin America and the Caribbean, and Sub-Saharan Africa-improved. Scores for the remaining two regions-Asia-Pacific and North Africa and the Middle East-declined.

The editors found a strong relationship between economic freedom and per capita income. World Bank data show that per capita income for "mostly unfree" or "repressed" economies averaged about $2,800 in 1998-a figure that quadruples to $11,054 for "mostly free" economies and doubles again to $21,206 for "free" economies.

Hong Kongretained its No. 1 ranking. Government spending rose in this "Special Administrative Region" of the People's Republic of China, but inflation declined, allowing its Index score to remain the same. Singapore held on to the No. 2 spot, but with the public sector of its economy increasing, its overall score declined.

Irelandcontinued to thrive, with tax cuts, an openness to foreign investment, and a competitive banking system helping it move from No. 7 in the 2000 Index to No. 3. The United States tied Luxembourg for fifth place on the 2001 report, behind New Zealand and ahead of the United Kingdom. For the first time, the Netherlands made the top 10, while Austria moved up to 14th place. Seven countries in the bottom 10 saw their scores decline; the rest stayed the same.

The 10 Most Free

Hong Kong (1st)
Singapore (2nd)
Ireland (3rd)
New Zealand (4th)
Luxembourg (5th)
United States(5th)
United Kingdom(7th)
Netherlands(8th)
Australia (9th)
Bahrain (9th)
Switzerland (9th)

The 10 Least Free

North Korea (155th)
Libya (153rd)
Iraq (153rd)
Cuba (152nd)
Iran (151st)
Laos (150th)
Uzbekistan (149th)
Turkmenistan (148th)
Zimbabwe (146th)
Belarus (146th)


Three factors played a large role in the gains and losses, the editors note. Many improvements can be traced to worldwide success at lowering inflation, from Mozambique (45 percent in 1997, 0.6 percent in 1999) to Bulgaria (1,082 percent in 1997, -5.5 percent in 1999). Another reason many scores rose: The fiscal burden of government, from taxation to government spending, has been lifted considerably in places such as Belize, where the top tax rate has been cut from 50 percent to 25 percent.

Many reversals, on the other hand, are due to the fact that property rights are under siege in many parts of the globe-such as Venezuela, where the judicial system is in disarray, and Zimbabwe, where large-scale property theft has been condoned by government officials.

The 2001 Index of Economic Freedom is the seventh edition of the popular guidebook. For the first time, the full text, as well as all charts and graphs, will be available via the Internet at index.heritage.org. A Spanish-language edition is being co-published with five independent Latin American foundations: Centro de Estudios en Educación y Economía (CEEE), based in Monterrey, Mexico; Centro de Investigación y Estudios Legales (CITEL), in Lima, Perú; Libertad y Desarrollo, in Santiago de Chile; Fundación Libertad, in Rosario Argentina, and Centro de Divulgación del Conocimiento Económico (CEDICE) in Caracas, Venezuela.

North America and Europe

North America and Europe posted the biggest regional gain, with 24 of 43 countries getting better scores and only seven posting declines. Free-market reforms propelled growth in several former communist countries. Lithuania jumped from 61st to 42nd place, largely by controlling inflation and government spending and by liberalizing wage and price controls. Since the Index ratings began, Lithuania has shown the largest overall improvement in economic freedom. But this region also saw one of the world's biggest declines in economic freedom: Moldova's ranking plunged from 90th to 120th place. Despite its touted free-market reforms, Russia is among the 10 countries whose scores have declined the most since 1995.

Asia and the Pacific

Asia and the Pacific was once again the most "schizophrenic" region, with four of the world's freest economies- Hong Kong, Singapore, New Zealand and Australia-and six of the most repressed- Vietnam, Burma, Turkmenistan, Uzbekistan, Laos and North Korea. Only 10 countries in the region became freer, while 17 became more repressed. Yet the single biggest improvement in economic freedom occurred in this region, as lower inflation, less government spending, reduced tariffs, less government intervention and liberalized wage and price controls brought Thailand up from 46th to 27th place.

Sub-Saharan Africa

Sub-Saharan Africa brought perhaps the biggest surprise in the 2001 Index, with 18 countries improving (due mostly to lower inflation) and 11 declining. But the region remains by far the least economically free: None of the 42 countries graded received a "free" rating, and only five- Benin, Mali, Namibia, Botswana and Mauritius-edged into the "mostly free" category.

The editors suspended grading for six African nations- Angola, Burundi, Congo, Sierra Leone, Somalia and Sudan-due to the unreliability of data caused by either their civil unrest or "prolonged state of anarchy." They will be included in future editions once "political stability returns."

North Africa and the Middle East

Economic freedom retreated somewhat in North Africa and the Middle East. Of the 18 countries graded, six improved, while seven became worse. Although Bahrain remains first in the region, higher tariffs and rising software piracy caused its 2001 score to decline. Lebanon and Tunisia improved enough to move from "mostly unfree" to "mostly free."

Latin America and the Caribbean

Latin America and the Caribbean became economically freer in 2000, though the region's recent gains appear to be slowing: 12 countries posted gains in this year's Index, while 10 retreated. El Salvador leads the region, improving enough to be labeled "free," with Chile right behind. A sharp decline in Paraguay caused it to fall into the "mostly unfree" category.

The five countries that saw the most improvement in 2000 were Thailand, the Ivory Coast, Mozambique, Bosnia and Cyprus. The five steepest declines in economic freedom were found in Moldova, Paraguay, Romania, Zimbabwe and Malaysia.

Ratings on the "Index of Economic Freedom" are based on an analysis of 50 different economic variables, grouped into 10 categories: banking and finance, capital flows and foreign investment, monetary policy, fiscal burden of government, trade policy, wages and prices, government intervention in the economy, property rights, regulation, and black-market activity. Countries are rated one to five in each category, one being the best, five the worst.

In an effort to promote open markets, the 2001 Index calls for a new "Free Trade Association" of countries "that share a commitment to free trade and free capital movement." Membership, which requires good scores in trade policy, property rights, regulation and foreign investment, is voluntary. Eleven countries already qualify, and 26 others are next in line.

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