Now in its 25th edition, the Index of Economic Freedom examines economic policy developments in 186 countries. Countries are graded and ranked on 12 measures of economic freedom that evaluate the rule of law, size of government, regulatory efficiency, and openness of markets.
As countries’ governments compete to improve their scores and move up in the rankings, the real winners are the people of the world. The link between economic freedom and development is clear and strong. Improvements in economic policy that enhance economic freedom have lifted hundreds of millions out of poverty and enabled countless others to enjoy levels of prosperity never before seen.
The Global Economy: Moderately Free
Global economic freedom has declined slightly over the past year. The inherent tension between the controlling tendencies of governments and the entrepreneurial freedom of an unfettered marketplace has heightened around the globe, evident most notably in increased protectionism and politically motivated government spending. The global average economic freedom score in the 2019 Index is 60.8, a 0.3 point setback from last year but still the third-highest level in the 25-year history of the Index.
The global distribution of economic freedom continues to be bell-shaped, with an almost equal number of countries above and below average in the rankings. Of the 180 economies ranked in the 2019 Index:
- Six (Hong Kong, Singapore, New Zealand, Switzerland, Australia, and Ireland) earned the designation of “free” with scores above 80.
- An additional 88 countries, with scores above 60 in the ratings, provide institutional environments in which individuals and private enterprises benefit from at least a moderate degree of economic freedom. Twenty-nine of these countries, with scores between 70 and 80, are considered “mostly free.” The remaining 59, with scores between 60 and 70, are judged only “moderately free.”
- At the other end of the spectrum, 86 economies have registered economic freedom scores below 60. Of those, 64 are considered “mostly unfree” (scores of 50–60). The remaining 22 have economies in which most aspects of economic freedom are “repressed” (below 50).
- Every region except sub-Saharan Africa has at least one representative among the top 20 freest economies. Eleven of these economies are in Europe, led by Switzerland, Ireland, and the United Kingdom. Five are in the Asia–Pacific region, with Taiwan joining the top 10 as the world’s 10th freest economy for the first time. Canada, the United States, and Chile represent the Americas and the United Arab Emirates represents the Middle East and North Africa region.
Advancing Economic Freedom: The surest Way to Prosperity and Progress
The rankings in the Index demonstrate that the best economic results are achieved through policy reforms that limit the size of government and create greater economic dynamism in the private sector. Policies that promote economic freedom, whether by improving the rule of law, by promoting efficiency, or simply by restraining the regulatory intrusiveness of government, provide the empowering environment for people-centered solutions to economic and social challenges.
- People in economies rated “free” or “mostly free” in the 2019 Index enjoy incomes that are more than twice the average levels in all other countries and more than six times higher than the incomes in “repressed” economies.
- There is a robust relationship between improvements in economic freedom and economic growth. Whether long-term (25 years) or short-term (five years), the relationship between gains in economic freedom and rates of economic growth is consistently positive. The economic growth rates of countries where economic freedom has expanded the most are at least 30 percent higher than those of countries where freedom has stagnated or slowed.
- The move toward greater economic freedom in recent decades has contributed to a doubling in the size of the world economy. This progress has lifted hundreds of millions of people out of poverty and cut the global poverty rate by two-thirds. Greater economic freedom has had a positive impact not just on the number of people in poverty, but also on the intensity of the poverty still experienced by some. For those who are still living in poverty, the level of deprivation at the individual level in education, health outcomes, and standards of living is much lower on average in countries with higher levels of economic freedom.
- Economic freedom is not just about financial success. The societal benefits of economic freedom extend far beyond higher incomes or reductions in poverty. People in economically free societies live longer, enjoy better health, and are able to be better stewards of the environment.
- Greater economic freedom also provides more fertile ground for effective democratic governance. By empowering people to exercise greater control of their daily lives, economic freedom ultimately nurtures political reform by making it possible for individuals to gain the economic resources they need to challenge entrenched interests and compete for political power. Pursuit of greater economic freedom is thus an important stepping-stone to democratic governance.