January 17, 2007
Heritage Foundation/Wall Street Journal Report shows former British colonies in Asia arethe world's freest; Europe remains home to the most economically free countries; Limited progress charted on all continents
WASHINGTON, JAN. 16, 2007-The move toward greater economic freedom worldwide stalled over the last year, according to the 13th annual Index of Economic Freedom, released today by The Heritage Foundation and The Wall Street Journal.
The 157 nations rated in the new Index received an average economic freedom score of 60.6 (on a scale in which 100 represents ideal economic freedom). That's down slightly (0.3 percentage point) from the previous year's average, but still rates as the second highest level of freedom in Index history.
Index editors Tim Kane, Kim Holmes and Mary Anastasia O'Grady express regret that "the march toward greater economic freedom halted, especially since 13 years of Index data strongly suggest that countries that increase their levels of economic freedom experience faster growth rates."
Hong Kong and Singapore, the economic jewels of Asia, finished 1st and 2nd in the rankings for the 13th straight year. Australia jumped from 9th to 3rd, giving Asia a sweep of the top three spots and, with New Zealand at number 5, four of the top 10.
Europe also placed four countries in the top 10: the United Kingdom, Ireland, Luxembourg and Switzerland. For the first time, "Americas" is listed as a separate region. The United States finished 4th worldwide, joining Canada (10th) as the sole representatives of this region in the top 10.
This year's Index, the editors point out, provides an even more precise snapshot of economic freedom than its predecessors. It uses a new methodology that draws upon the best and latest information, including World Bank data that only recently became publicly available. The editors also assembled an academic advisory board which reviewed the methodology to ensure it reflects the details of each country's policies.
Two of those experts, Xavier Sala-i-Martin (a professor at Columbia University) and Johnny Munkhammer (an economist with the Swedish think tank Timbro) contributed chapters to this year's Index. Sala-i-Martin's explains the importance of globalization. He found that poverty is retreating as a result of international economic growth. Munkhammer, meanwhile, focuses on the dangers of an over-regulated labor market. "The free market is a superior institution for labor, yielding the best results for society and workers," he found.
The 2007 Index also uses a new rating system. Countries are ranked on a 0-to-100 scale, with a higher score representing greater freedom-a switch from the 5-1 ranking of previous Indexes (in which lower numbers denoted greater freedom). Scores and rankings for all previous years have been updated to reflect the new approach.
This year's edition measures economic freedom within 10 specific categories (as previous Indexes did), but the editors made important changes here as well. The new Index measures "labor freedom" for the first time and emphasizes entrepreneurship as a segment of the "business freedom" factor. The other categories are: trade freedom, fiscal freedom, freedom from government, monetary freedom, investment freedom, financial freedom, property rights and freedom from corruption. Scores in these categories are averaged to create an overall score.
The Most Free
The Least Free
The Index finds that only seven of the 157 countries graded scored 80 or higher, making them "free" economies. Another 23 countries earned 70-79.9 points and are characterized as "mostly free" economies. Forty-eight of the countries surveyed are "moderately free" (with scores between 60 and 69.9) while 59 are "mostly unfree" (scores from 50 to 59.9). The remaining 20 countries are economically "repressed" (with scores lower than 50).
"Among specific economies during the past year, the scores of 65 countries are now higher and the scores of 92 are now lower," the editors write, noting that losers outnumbered gainers 3 to 2. But they express optimism about the future spread of economic freedom: Since China and India are both in the "mostly unfree" category, "when they further open their economies to globalization, the rise in global prosperity is poised for very large increases," they write.
Across the five regions, Europe is the most free, with an average score of 67.5. The Americas follow at 62.3, with the remaining regions below the world average. Yet, "trends in freedom are mirrored closely across all regions, and in each region, the richest countries tend to be those with the strongest economic freedoms," the editors note.
What makes Asia unique is the variance in the region. Hong Kong and Singapore continue to lead the world in economic freedom, along with other former British colonies Australiaand New Zealand.
Meanwhile, Turkmenistan, Vietnam, Laos, Bangladesh and Burma are all "repressed," and North Korea remains the world's least-free economy. In all, 13 countries in the region improved their Index scores from 2006, while 16 declined. Vietnamremained unchanged.
This year's Index separates Europe from North America.
A majority of the world's 20 freest countries are in Europe, and it produces one quarter of the world's economic output. The United Kingdomis the highest-rated European country, ranked 6th worldwide, followed immediately by Ireland at 7th, Luxembourg at 8th and Switzerland at 9th.
However, Europe suffers from the second-worst regional score in labor freedom and is last in fiscal freedom and freedom from government. Overall, 26 economies lost ground in economic freedom and 15 did better.
This year, Latin America and the Caribbean are categorized along with North American economies in a single region.
The United States (4th) Canada (10th) and Chile (11th) all made the top 20 this year, and the Americas has been the second-highest region in terms of freedom since 1999, when it was the world leader.
However, the rise of socialists including Evo Morales (Bolivia) and Hugo Chavez (Venezuela) is dragging the region down. Overall, 18 countries saw their scores decline, while 11 improved. Canada remained the same.
North Africa and the Middle East
This is the only region to increase its average economic freedom score over the last year, but it still lags the rest of the world. Most of its economies are not free.
Israel is ranked only 37th in the world, but leads this region. Bahrain is a close second at 39th. At the other end of the scale are Syria, Iran and Libya. Overall 12 countries improved their scores, while only five lost ground.
The region is still without a free economy, and is well-known as the poorest and most violent region in the world. Africa's overall level of economic freedom is weaker than any other region's and declined in the past year.
Mauritius marks a bright spot of sorts, leading the region and finishing with a score of 69-almost reaching "mostly free" status. Botswana is next, followed by South Africa. On the other hand, Zimbabwe is last in the region. It faces myriad problems, including 80 percent unemployment and a 350 percent inflation rate.
Overall, 24 sub-Saharan countries lost ground, while 15 gained some economic freedom. Niger held steady.
The Index was edited by Tim Kane, director of the Center for International Trade and Economics at The Heritage Foundation, Kim Holmes, Heritage's vice president for foreign affairs, and Mary Anastasia O'Grady, who is a member of the Journal's editorial board and edits the "Americas" column. Copies of the 2007 Index (408 pp., $24.95) can be ordered at heritage.org/index or by calling 1-800-975-8625.
About The Wall Street Journal
The Wall Street Journal, the flagship publication of Dow Jones & Company (NYSE: DJ; www.dowjones.com), is the world's leading business publication. Founded in 1889, The Wall Street Journal has a print and online circulation of nearly 2.1 million, reaching the nation's top business and political leaders, as well as investors across the country. Holding 31 Pulitzer Prizes for outstanding journalism, The Wall Street Journal provides readers with trusted information and knowledge to make better decisions. The Wall Street Journal print franchise has more than 600 journalists world-wide, part of the Dow Jones network of nearly 1,800 business and financial news staff. Other publications that are part of The Wall Street Journal franchise, with total circulation of 2.7 million, include The Wall Street Journal Asia, The Wall Street Journal Europe and The Wall Street Journal Online at WSJ.com, the largest paid subscription news site on the Web. In 2006, the Journal was ranked No. 1 in BtoB's Media Power 50 for the seventh consecutive year.