January 16, 2007
WASHINGTON, JAN. 16, 2007-Generally speaking, Europeans enjoy a higher-than-average level of economic freedom. However, restrictive labor policies are slowing the region's growth, according to the 2007 "Index of Economic Freedom" published annually by The Wall Street Journal and The Heritage Foundation.
This year's index provides an even more precise snapshot of economic freedom than its predecessors. Its revised methodology draws upon the best and latest information, including World Bank Data previously unavailable to outside researchers. It also uses a new rating system in which economies are ranked on a 100-point scale, with a higher score representing greater freedom.
The new Index pegs Europe's overall level of economic freedom at 67.5 (on a 100-point scale in which a higher score represents greater freedom). That's solidly ahead of the global average (60.6) and makes Europe the economically freest region in the world.
The United Kingdom rates as the region's freest economy-and the 6th freest worldwide. It enjoys especially high levels of freedom in terms of the ease of starting and closing businesses, access to foreign capital and the openness of its banking and financial system. Joining the U.K. among the world's top 10 are Ireland (7th), Luxembourg (8th) and Switzerland (9th).
But the European economic picture isn't completely bright. "While the region is the birthplace of the modern industrial economy," the Index editors note, "its economic model is failing to generate jobs year after year for almost one-tenth of willing workers."
Across the region, "restrictions on labor, the lack of fiscal and governmental freedom and distortionary subsidies hinder Europe's growth," warn Index authors Tim Kane, Kim Holmes and Mary Anastasia O'Grady.
In fact, many nations in the region look like relics when compared to fast-growing economies including Ireland and Estonia (5th in the region and 12th in the world). Still, the only economy rated "repressed" was Belarus.
Now in its 13th year, the Index refined its methodology and drew from some more up-to-date databases to calculate scores in this edition. Partially as a result of these improvements, 26 countries in the region saw their ratings decline, while 15 climbed. Five countries dropped a category. Luxembourg and Switzerland moved from "free" to "mostly free" economies. The Czech Republic and Armenia fell from "mostly free" to "moderately free." And Poland slid from "moderately free" to "mostly unfree." Only one economy advanced to a higher category: Romania rose from "mostly unfree" to "moderately free."
As in previous years, the Index ratings reflect an analysis of dozens of economic variables, grouped into 10 categories, although this year those categories have been revised. The 10 freedoms measured are: business freedom, trade freedom, fiscal freedom, freedom from government, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labor freedom. Ratings in each category are averaged to produce the overall Index score.
Worldwide, the average rating for economic freedom held essentially steady, "but there is much room for improvement" the Index editors write. Of the 157 countries ranked, only seven are classified as "free" (a score of 80 or higher). Another 23 are "mostly free" (70-79.9). The bulk of countries-107 economies-are either "moderately free" (60-69.9) or "mostly unfree" (50-59.9). Some 20 countries have "repressed" economies, with total freedom scores below 50 percent.
The Heritage Foundation and The Wall Street Journal have published the Index for 13 consecutive years. It's edited by Tim Kane, director of Heritage's Center for International Trade and Economics, Kim Holmes, Heritage's vice president for foreign affairs, and Mary Anastasia O'Grady, a member of the Journal's editorial board and editor of the "Americas" column.
Print versions of the 2007 Index of Economic Freedom (408 pp., US$24.95) can be ordered by calling 1-800-975-8625. Additionally the full text, along with all charts and graphs, is available via the Internet at www.heritage.org/index. A Spanish language version will be available online in March.
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