January 12, 2011
WASHINGTON, JAN. 12, 2011 – European nations continue to enjoy a great degree of economic freedom, according to the 2011 Index of Economic Freedom, released today by The Heritage Foundation and The Wall Street Journal. However, the region is also home to four of the eight nations experiencing the greatest erosion in economic freedom last year.
While three of the 10 freest economies in the world are European, only one – Switzerland, at No.5 – is rated as truly “free.” The other top-10 finishers, Ireland and Denmark, are rated “mostly free.”
Overall, the news is positive. Europe boasts nine of the world’s 20 freest economies, and 16 of the top 30. The region continues to enjoy a higher standard of living than any other region. And 26 of the 43 economies in the European region ended 2010 freer than at the start of the year.
Yet some of the region’s recent “stars,” such as Ireland and Iceland, generated lower scores as they reduced economic freedom to deal with fiscal turmoil. Iceland fell 5.5 points – the most of any country in the world. Ireland, Italy, Greece and the United Kingdom all dropped by two points or more. The UK finished 16th in the world – its first-ever finish out of the top 15 – thanks to a government spending score of just 32.
“Taken as a whole, the region continues to enjoy economic prosperity and stability,” wrote the editors of the Index. “But its welfare states, where social programs consume a large percentage of GDP and labor regulations hinder productivity and job creation, continue to slow down the continent’s potential for progress.”
The Index, compiled as a joint project of The Heritage Foundation and The Wall Street Journal, ranks countries on a 1-100 scale in 10 categories that evaluate openness, the rule of law and competitiveness. The 10 scores are averaged to produce the overall score.
Countries that score well demonstrate a commitment to individual empowerment, non-discrimination and the promotion of competition. Their economies tend to perform better, and their populations tend to enjoy more prosperity, better health and more positive measures on a variety of quality-of-life indices.
Europe scored above the world average in seven of the 10 categories measured in the Index. It scored 5 points ahead in both property rights and freedom from corruption and more than 10 points ahead in business freedom and trade freedom.
Yet, the region’s welfare state proclivities cost it dearly in rankings on government spending. Only Turkey and Armenia registered scores of 70 or better in this critical measure. And only seven other countries – Switzerland, Russia, Albania, Georgia, Macedonia, the Slovak Republic and Albania – scored as much as 60 in that category. Fifteen nations scored below 30 on government spending, and another six scored in the 30s.
Meanwhile, former Soviet republics continued to press for shelf space in the world marketplace with reforms that made them some of the world’s most improved economies. Bulgaria, Moldova, Serbia, Lithuania and Poland all showed significant improvement, thanks to steps taken by their governments to reduce taxes and simplify regulations, and other structural reforms.
Only two nations in the region – Belarus and Ukraine – remained in the economically “repressed” category.
Europe’s consistent and enduring embrace of free-market economics has yielded the highest per capita GDP in the world. Average per capita GDP among its five most economically free nations stands at $47,570 – five times that of the five freest countries in sub-Saharan Africa (the least economically free region in the world) and four times that of the five least free European nations.
“Not only are higher levels of economic freedom associated with higher per capita incomes, but greater economic freedom also strongly correlates to overall well-being, which takes into account factors such as health, education, security and personal freedom,” the editors wrote.
The 2011 Index was edited by Ambassador Terry Miller, Director of Heritage’s Center for International Trade and Economics, and Dr. Kim Holmes, Heritage’s vice president for foreign affairs. A complete online version of the Index is available free at www.heritage.org/index. Hard-copy editions (474 pp., $24.95 each) can be ordered at the same Web address or by calling (800) 975-8625.
About The Heritage Foundation
The Heritage Foundation is the nation’s most broadly supported public policy research institute, with more than 700,000 individual, foundation and corporate donors. Founded in 1973, Heritage now has a staff of 254 and an expense budget of $83.5 million.