|Hong Kong's skyline.|
The level of economic freedom found throughout the world remained essentially unchanged over the last year, with overall gains in only two of the five regions examined in the 14th 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 60.3 (on a scale in which 100 represents the ideal). Global economic freedom has improved 2.6 points since the first Index in 1995.
Still, progress is coming, though "more slowly than one might hope," write Index editors Kim Holmes, Edwin Feulner and Mary Anastasia O'Grady.
Hong Kong and Singapore finished 1st and 2nd in the rankings for the 14th straight year. With Australia in 4th place and New Zealand at number 6, the Asia-Pacific region boasts four economies in the top 10.
Europe placed three countries in the top 10: the United Kingdom, Ireland and Switzerland. The "Americas" region did likewise, with the United States finishing 5th and Canada (7th) and Chile (8th) rounding out the top 10.
Every region has at least one economy in the top 20, but fully half of the countries included on that list are European. One of the countries in sub-Saharan Africa, Mauritius, moved 14 places up the world rankings to secure a spot in the top 20, while Bahrain, representing the Middle East/Africa region, rose five spots to garner a place on the list.
Egypt takes the prize for most-improved economy. A 2007 score of 55.1 earned it a worldwide ranking of 106th place, but its score in the latest Index--59.2, an upgrade fueled in part by improving the business environment and implementing tax reforms -- helped it climb to the 85th slot. Guyana, meanwhile, posted the biggest drop. High government spending and widespread corruption, among other factors, knocked five points off last year's score and brought it from 118th worldwide in the 2007 Index to 136th this year.
The Index measures economic freedom within 10 specific categories: labor freedom, business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights and freedom from corruption. Scores in these categories are averaged to create an overall score.
This year's Index aims to be the most precise measure of economic freedom ever published. The editors fine-tuned a methodology first employed last year to grade each economy in the world. "The methodology has been vetted with an academic advisory board and should now even better reflect the details of each country's economic policies," they write.
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. Fifty-one of the countries surveyed are "moderately free" (with scores between 60 and 69.9) while 52 are "mostly unfree" (scores from 50 to 59.9). The remaining 24 countries -- up from 20 last year -- are economically "repressed" (scores below 50).
|The Most Free
||The Least Free|
Hong Kong (1st)
United States (5th)
New Zealand (6th)
United Kingdom (10th)
North Korea (157th)
"Improved scores in business freedom, fiscal freedom, government size and investment freedom were offset by worsened scores in monetary freedom, freedom from corruption and labor freedom," the editors write. "Notwithstanding the absence of dramatic improvement in global economic freedom this year, it is gratifying to note that the past two editions of the Index have recorded the two highest global scores ever achieved."
The 2008 Index, they note, again underscores the central message of past Indexes: Economic freedom is strongly related to good economic performance. "The world's freest economies have twice the average per capita income of the second quintile of countries and over five times the average income of the fifth quintile," they write. They also have lower rates of unemployment and lower inflation.
Across the five regions, Europe is the most free, with an average score of 66.8. The Americas follow at 61.6, with the remaining regions below the world average: Asia-Pacific (58.7 percent), Middle East/North Africa (58.7 percent) and sub-Saharan Africa (54.5 percent). "However, trends in freedom are mixed across regions," the editors point out.
Asia retains its reputation as the "Jekyll and Hyde" region, home to the freest and the most repressed economies. Hong Kong and Singapore continue to lead the world, along with Australia and New Zealand. Japan (17th) and Taiwan (25th) earned places in the world's top 30 as well.
Meanwhile, Turkmenistan, Vietnam, Laos, Bangladesh and Burma are all "repressed," and North Korea remains the world's least-free economy. In all, 18 countries in the region improved their Index scores from 2007, while 10 declined.
Most of the world's 20 freest countries are in Europe, where per capita income averages $20,282. Ireland is the highest-rated European country, ranked 3rd worldwide, followed by Switzerland at 9th and -- in a decline from last year's Index -- the United Kingdom at 10th. European countries hold the next six consecutive spots on the world rankings: Denmark, Estonia, The Netherlands, Iceland, Luxembourg and Finland.
Europe has continued to advance its economic freedom thanks to tax rate cuts and other business climate reforms as economies in the region compete with each other to attract more investment. Overall, 21 European economies gained ground in economic freedom but Europe, the editors caution, is saddled with burdensome labor regulations that are hindering job creation.
Chile (8th) improved enough over the last year to join the United States (5th) and Canada (7th) in the top 10 this year. Overall, the Americas is the second-highest region in terms of economic freedom.
But the editors also point to a reversal of free-market policies in some countries. Hugo Chavez's Venezuela (148th), along with Haiti and Guyana, logged notable declines. "Across the region," they write, "the reality is that economies are stagnating." Overall, 17 economies in this region saw their scores decline, while 12 improved.
North Africa and the Middle East
Most economies in this region are not free. Plagued by a 13.6 percent unemployment rate, the Middle East has a regional gross domestic product of only $7,508 per person.
Bahrain (19th), however, improved its Index score enough to vault five spots into the world's top 20. Kuwait (39th), Oman (42nd) and Israel (46th), also became freer. And Egypt (85th), as noted earlier, improved more than any other country. At the other end of the scale are Syria, Iran and Libya. Overall, eight countries in this region saw their scores rise, while nine lost ground.
The region--"well known as the world's poorest and most unstable," the editors write--has yet to boast a free economy and actually saw its overall level of economic freedom decline in the past year. Nine of the 24 countries worldwide rated in the Index as "repressed" can be found in sub-Saharan Africa.
One exception to the overall trend is Mauritius (18th), which continued on the path of reform noted in last year's Index and snagged a spot in the top 20. Botswana is next, followed by Uganda. Zimbabwe (155th), still last in the region, even managed to shave two more points off of its score. It faces myriad problems, including pandemic corruption and a 766 percent inflation rate (a three-year weighted average).
Overall, 25 sub-Saharan countries lost ground, while 15 gained some economic freedom.